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Minnesota Court of Appeals and the Importance of Mechanics’ Lien Notice

On Behalf of | Jan 31, 2022 | Firm News

Mechanics Liens are an essential way for laborers and suppliers to guarantee payment for their services; it works by placing a “lien” on the property that can be collected upon by forcing sale of the property, if necessary. Failure to follow the strict letter of the law can result in waiving their lien and potentially losing tens of thousands of dollars. This may be the result with two contractors in the recent Minnesota Court of Appeals case Lighthouse Management Inc. v. Oberg Family Farms, et al.

In May 2018 a family in Moorehead, Minnesota purchased a grain bin from an Iowa owner to move to their farming property. The Moorehead family hired two contractors to assist with the grain bin: one to dismantle and then reassemble the grain bin (“Reassembly Contractor”) and one to perform the electrical work (“Electrical Contractor”).  The two contractors performed their work through December of 2018.

In early 2019 the Moorehead family wasn’t able to pay the contractors for the work performed. They owed the Reassembly Contractor $600,000 and the Electrical Contractor $47,575 for work completed through December 2018. By April of 2019, both Contractors had filed Mechanics’ Liens with the county recorder’s office.  The Electrical Contractor then mailed notice of their lien to the Moorehead family via U.S. Mail.  The Reassembly Contractor did not provide notice of their lien.

Minnesota law requires a lien claimant to precisely follow the statutory procedures to “perfect” (or secure) a mechanic’s lien. Failure to follow these stringent rules has placed the contractors’ payday in jeopardy.  A mechanic’s lien claimant must file and serve a statement of the claim within 120 days of completing work on the property and they must provide notice by serving a copy of the lien statement; service can be done personally or by certified mail on the owner or the owner’s authorized agent or the person who entered into the contract with the contractor.

There is a narrowly tailored exception to the rule above.  When the contractor is managed or controlled by substantially the same persons who manage or control the owner of the improved property.  (“Same Ownership Exception”).  The purpose of the notice requirement is to protect unwitting owners and alert them to the risk of double liability if a contractor fails to pay its subcontractors.  However, if the owner is acting as his own contractor, Minnesota law holds the risk of surprise double liability to be extinguished and notice not required. In reviewing the mechanics’ liens, the Minnesota Court of Appeals held that neither contractor gave proper notice to the farming family as required by the statute.  The Reassembly Contractor did not provide any notice and the Electrical Contractor failed to use certified mail, as required by statute.  Both Contractors now find themselves attempting to argue that notice was not required under the Same Ownership Exception.  And while the matter has been sent back to the lower court for consideration of the facts, the matter serves as an example of the importance of strict adherence to the mechanics’ lien statutory language.  Had both contractors complied with the law as it concerns notice, their liens would be perfected and beyond the scope of judicial review.

Contact Messick Law PLLC today to discuss how we can help you.