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Analysis of Missouri Mechanics Lien Law

ANALYSIS OF MISSOURI RESIDENTIAL MECHANIC’S LIENS

Missouri’s newly enacted law, section 429.016, RSMo, regarding mechanic’s lien for residential real estate is flawed. The statute reflects only a concern with protecting real estate developers (and parties who may subsequently invest in that real estate) while giving virtually no thought to its effect on contractors whose labor and materials increase the value of the land sold. This analysis discusses only the most glaring problems that should be addressed by the Missouri legislature (or must be addressed later by the courts).

1. Timing.

Section 429.016, RSMo (referred to herein as “the statute” or “the section”) is designed to provide a process by which developers of residential real estate (referred to herein as “the developer” or “the owner”) can file a Notice of Intended Sale at least 45 days before the sale date and then materialmen or builders (referred to herein as “the claimants” or “contractors”) must file a Notice of Rights prior to the closing in order to preserve their right to a mechanic’s lien. The first problem with the statute is that it provides that the mechanic’s lien rights are eliminated (if the claimants’ Notice of Rights is not already filed) 5 days before the “intended” closing date, even if the property is not, in fact, sold until months or years later.

The statute does not require that the developer have the sale actually scheduled when the Notice of Intended Sale is filed, or that the intended closing date be realistic, or even that the work on the property has been started when the Notice is filed. The developer can file the Notice of Intended Sale at any time, and then postpone the closing (or even the work on the property) indefinitely. This means, of course, that a claimant may not even be hired to work until after the date to preserve mechanic’s liens rights has passed. Amazingly, the statute does not postpone the cut-off date for filing the Notice of Rights until 5 days before the actual closing, and it does not even include a provision by which the developer and the claimant could agree to extend the cut-off date when work has yet to commence.

The result is that the statute allows a developer to file a Notice of Intended Sale well before the work on the property is completed (or even started) and eliminate any mechanic’s lien rights before the claimants have even a chance to preserve them. If the goal of the statute is to increase certainty at closing as to what liens do (or may) exist, such an obvious loophole is unnecessary and unwise. At a minimum, the statute should be amended so that the deadline for filing a Notice of Rights is 5 days before the date of intended closing or 5 days before the actual closing, whichever is later.

2. Content of Notice of Intended Sale

As discussed above, the intended process to reduce uncertainty as to what mechanic’s liens may exist at or after closing is started by the developer recording a Notice of Intended Sale. Yet, the statute says virtually nothing about what the Notice of Intended Sale must contain. Subsection 11, which defines the Notice of Intended Sale, contains absolutely no specific elements for the Notice of Intended Sale except the date of the intended sale. This subsection contains no requirement that Notice properly identify the owner of the property, that the Notice contain the legal description of the property, or even that the Notice comply with the general recording statute.

These omissions must be contrasted with the requirements imposed by the statute on contractors who must subsequently file a Notice of Rights. Subsection 8 specifically requires that the contractor’s Notice of Rights comply with the general recording statute and correctly identify the owner and include the legal description of the property.

The statute’s extensive requirements for the contractor’s notice and absence of any requirements for the developer’s notice are indefensible. The developer is the party who records a document that imposes burdens on materialmen and builders to preserve their rights to a mechanic’s lien. The developer’s notice is the one that must be found by these contractors before they even know they must record something. The developer is the party who knows who owns the property, what the legal description of the property is, and the other information necessary for the Notice of Intended Sale to be properly indexed by the recorder so others can find it. Yet, the statute requires nothing of the developer’s notice while extensive details (often known only to the developer) are required by the contractor.

This deficiency in the statute may make it nearly impossible for contractors to exercise their rights under the statute and will certainly lead to extensive litigation for the courts to specify what the initial Notice of Intended Sale must include. Consequently, the statute should be revised to mandate that the Notice of Intended Sale, at a minimum, correctly identify the owner and include the legal description of the property intended to be sold.

3. Providing Notice.

Since the statute allows a developer to cut off the rights of unpaid materialmen and builders to recover on a mechanics lien, one would assume that the developer would have to notify the contractors of this fact. Such a requirement is indisputably sensible because not only should parties to a contract be informed that another party has taken steps to eliminate their rights, but also because contractors are not going to know what developers are following this statute, for what properties, or when. The developer, on the other hand, knows that it is recording the Notice of Intended Sale, knows when it is being recorded, knows the property affected, and knows the parties with whom it has contracted for work.

Rather than putting any requirement on the developer to notify the contractors whose rights they are affecting, however, this statute actually reverses such an obligation and requires the contractors to ask the owner if a Notice of Intended Sale was signed. Any doubt as to whether this is simply an ill-considered allocation of responsibility to the parties least able to bear it (rather than a boon to developers) is resolved by noting that not only does the statute require contractors to request this information, but it then goes on to provide that developers do not even have to respond to it.

If the developer records a Notice of Intended Sale, does not provide a copy to its contractor, receives a written request asking if a Notice of Intended Sale was recorded and asking for a copy of it, and then refuses even to answer the request, the statute expressly states that the developer’s actions do not relieve the contractor of the obligation to record its notice of rights. In fact, the statute goes on to state that, in such a case, the contractor’s “sole and exclusive remedy” is for its “actual and reasonable costs, excluding attorneys fees, to obtain a legal description.”

Thus, even the “obligations” placed on developers within this statute are obligations only in name. To review just one other example, the statute purports to require the developer to post its Notice of Intended Sale to inform claimants of their obligations under the statute. Yet, the statute does not require that the notice be posted on the property to be sold, but says it can actually be posted on any “jobsite office at or near the property.” More remarkably, the statute requires that the notice be posted, but specifies no minimum time for its posting. So, a developer could put up the notice on the wall of its office near the jobsite for 30 minutes and comply with the statute. Again, any doubt that this purported posting requirement is a farce is resolved when one realizes that the statute explicitly says that the developer’s failure to post the notice does not relieve the claimant of any of its obligations to record its Notice of Sale (but, again, it does allow the contractor to obtain its costs of getting a legal description of the property).

The notice requirements in this statute are worse than non-existent; they are illusory. They give the initial impression that the developer must take some steps before it cuts off what is often a contractor’s best assurance that it will get paid, but this is in fact not the case. The statute should be amended to require that the developer mail the Notice of Intended Sale to any claimants in order to trigger the claimant’s obligation to file a Notice of Rights. The certified mail receipts of such notice would be recorded with the Notice of Intended Sale, thereby providing certainty as to whose rights are affected and whose liens are extinguished.

4. The Internal Conflict in the Statute.

While the statute appears to be premised on the developer, at the bare minimum, filing an accurate Notice of Intended Sale, subsection 7 provides:

Notwithstanding any other provision of this section, a notice of rights recorded after the owner’s conveyance of the property to a bona fide purchaser for value shall not be effective to preserve the claimant’s mechanic lien rights to the property.

It is difficult to overstate the problems with this subsection. On its face, it appears to state that, regardless of anything else in the statute, a contractor’s mechanic’s lien rights are extinguished for residential real property if a Notice of Rights is not recorded prior to closing (even if no Notice of Intended Sale was ever recorded). Such a construction would be inconsistent with the language in subsection 11(1) that states that the developer’s recordation of a Notice of Intended Sale is a condition precedent to the obligation to record the Notice of Rights, but, of course, subsection 7 states it applies “notwithstanding any other provision of this section.”

Even if courts (in the litigation that is certain to arise due to subsection 7) reject a construction that would require a contractor to record a Notice of Rights in the absence of a Notice of Intended Sale, this statutory subsection would certainly mean that a developer can file a Notice of Intended Sale with a sale date 45 days out, but then proceed to close the sale, say, 10 days later and the contractor would have its lien extinguished.

Subsection 7 simply must be repealed. It does not withstand even the most cursory inquiry as to substantive fairness, consistency with the remainder of the statute, or even clarity.

5. Miscellaneous

While the above points constitute the most problematic sections of the statute and space does not permit a comprehensive list of all the deficiencies in section 429.016, there are several other specifics that simply illustrate how pervasive the problems are with this law and suggest that repeal and replacement is called for.

  • A. The definition of the property to which it applies.

    The statute, at its most fundamental level, applies to only “residential” property. Unfortunately, it goes on to define residential property as property that is “intended to be used . . . for the construction of residential structures.”

    If one’s goal is to introduce clarity and transparency into the mechanic’s lien law, having the application of the entire statute turn on one’s “intent” is ill-advised. The property is intended, by whom, to be used for the construction of residential property? When is it intended to have residential structures constructed?

    This is just one of the problems with what should be the clearest portion of the statute: describing where it applies. The first statutory subsections not only define the scope of the statute by relying on some unidentified party’s intent, they also defines the term “residential real property” by using the term “residential” and then include conflicting provisions about owner-occupied residential property and incomprehensible language about mixed or planned use properties. The scope of the statute must be entirely re-written.

  • B. The Just and True Account.

    Under existing law, a mechanic’s lien is created by the materialman or builder filing a just and true account with the circuit clerk. This statute revises the requirements of filing such an account by saying it must be filed with a “photocopy of the file-stamped notice of rights.” In fact, it requires the notice of rights to be filed twice—once in subsection 15(1) and once in subsection 15(8). The subsection fails to explain why the mechanic’s lien must include the Notice of Rights even in cases where no Notice of Intended Sale was ever filed.

    Subsection 15 also requires that the just and true account include not only the “notice of rights” but also “any renewals of notice of rights.” It should be pointed out that nowhere in section 429.016 does the law require, or even permit, any “renewals of notice of rights.”

  • C. Penalties.

    In addition to the basic obligation placed on all materialmen and builders to search the public records in an attempt to find a Notice of Intended Sale filed by a developer (without a legal description or any other required elements) and then to file a Notice of Rights prior to a date that may have passed prior to them being hired, the statute includes numerous obligations and penalties for contractors. If any subcontractor asks a claimant for the Notice of Intended Sale, the claimant must provide it within ten calendar days after the request (even though the developer had no obligation to provide that data to the contractor).

    While the developer’s Notice of Intended Sale has no specific requirements at all, the contractors Notice of Rights has more than a dozen requirements and the statute says to the extent there is any error contained in the Notice, the claimant’s rights to a mechanic’s lien are extinguished to the extent of any error.

    The statute also requires any claimant who has recorded a Notice of Rights who has been paid in full with five calendar days to record an unconditional, final mechanic’s lien waiver after a written request to do so “by any person or entity.” The contractor is not only apparently obligated with drafting that release in accordance with the statute, but if it is not so drafted and executed, then the contractor is presumed liable for slander of title, for any damages sustained as a result, and a penalty of five hundred dollars.

    These provisions should be contrasted with the developer’s liability for an incorrect Notice of Intended Sale, for the developer’s liability for the failure to post the Notice of Intended Sale, for the developer’s liability for failure to provide the Notice of Intended Sale to a claimant who requests it, or for the developer’s liability to file a misleading Notice of Intended Sale when the sale, in fact, occurs prior to the date set forth in the notice or years later. The statute imposes no liability for any of these actions on behalf of the developer except liability for the contractor’s actual costs (excluding attorney fees) for coming up with a legal description.

    This statute is neither sensible nor fair. It requires repeal.