The five key things to be aware of if an opposing party is seeking to establish a mechanic’s lien on a piece of property you have an interest in.
To encourage construction in the state, Maryland has enacted a statute to assure payment to laborers, contractors, suppliers of materials, and others who have conferred a benefit to a property owner. Maryland’s mechanic’s lien statute, which is found at Section 9 of the Real Property Article of the Maryland Annotated Code, allows those who have provided labor or materials on a construction project to place a lien on the underlying improvements to the real property for the value of any unpaid labor or materials. Because mechanic’s liens are creatures of statute, strict compliance with the procedural requirements of the statute is required. This post reviews several key factors that both parties to a mechanic’s lien proceeding should bear in mind.
1. Is There An Arbitration Clause?
At the outset, it’s important to determine whether there’s a contract at issue that contains an arbitration clause. Maryland courts will stay the mechanic’s lien proceedings if an arbitration clause exists and one of the parties seeks to compel the matter to arbitration.[i] Arbitration clauses can therefore disrupt the efforts of the moving party to establish a lien by, among others: (1) thwarting the ability of the moving party to have the court hold a prompt hearing to establish the lien; and (2) disrupting the statutory deadline for seeking to establish the lien. While arbitration clauses are not in every contract, it’s imperative to quickly determine whether there’s an arbitration clause that might be triggered to impact the mechanic’s lien case.
2. Timing Is Everything
When seeking to establish a mechanic’s lien, time is of the essence. Maryland’s mechanic’s lien statute imposes two key deadlines for those seeking to establish a lien: (1) a 120-day deadline for filing a “Notice of Intention to Claim Lien”;[ii] and (2) a 180-day deadline to file a petition to establish the mechanic’s lien[iii] (the “Petition to Establish the Lien.”) These deadlines begin from the “day that work is finished or materials furnished,” and are strictly construed, so if the party seeking to establish the lien has missed either of them, a motion to dismiss or other appropriate response can be filed.
3. Has Sufficient Information Been Provided?
Maryland courts have consistently found that a mechanic’s lien is not created until it is established by a court, and it may not be established, even on an interlocutory basis, absent a finding of probable cause made after the owner has an opportunity to object.[iv] In order to establish the lien, the moving party has to make a number of submissions to the court which must contain certain specific information.
The Notice Of Intention To Claim Lien
To begin the process of establishing a lien, the moving party must file its Notice of Intention to Claim Lien under Section 9-104 of the Real Property Article, which must contain specific information concerning the amount and kind of labor and materials furnished.[v]
The Petition To Establish The Lien
Once the Notice of Intention to Claim Lien has been filed, the moving party must then serve on the property owner a Petition to Establish the Lien which also must contain specific information under Section 9-105 of the Real Property Article, including the following items:
- Name and address of petitioner;
- Name and address of owner;
- The nature or kind of work done or the kind and amounts of materials furnished, the time when the work was done or the materials furnished, the name of the person for whom the work was done or to whom the materials were furnished, and the amount or sum claimed to be due, less any credit recognized by the petitioner;
- A description of the land, including a statement whether part of the land is located in another county, and a description adequate to identify the building;
- An affidavit setting forth sufficient facts to establish a lien; and
- Originals or copies of all documents which establish a lien.
It is imperative to correctly include and specify all of the information listed above at the outset, as only certain parts of the Petition can be amended or changed later.[vi] If the requisite specificity is lacking in the Petition, the non-moving party can seek to have the Petition declared invalid and dismissed.[vii]
The Procedure After The Petition Is Filed
After the Petition to Establish the Lien is filed, the court will review the Petition and all attached materials, including any response to the Petition from the non-moving party. If the Petition is defective or missing key information, the court can (1) deny the Petition outright or (2) require the claimant to supplement and explain any part of the Petition. If the Petition appears to contain all of the required information, the court will enter a show cause order and schedule a hearing.
4. Is There Sufficient Evidence To Produce At The Show Cause Hearing?
During the show cause hearing, which is sometimes referred to as a “probable cause” hearing, the court hears the case on a summary basis, meaning it does not hear the entire case. What this means is that the claimant and the property owner are not able to set forth all evidence, including materials gathered during traditional discovery. Rather, the claimant has an opportunity to put forth key portions of his or her case with limited opposition from the owner. For the matter to proceed, the court will have to ascertain that the claimant is “more or less likely” to prevail at the final trial.[viii] Because the claimant may be limited at the show cause hearing to the evidence set forth in the Petition, all materials necessary to establish the lien must be included with the Petition.
5. Three Possible Outcomes After The Show Cause Hearing
The court has three potential options after the show cause hearing has been concluded. The court (1) could deny the lien entirely; (2) enter a final order establishing the lien (often unlikely unless the owner does not defend at all); or (3) enter an interlocutory order establishing a temporary lien and assigning a trial date for final resolution (which is the most likely outcome of the show cause hearing).
The Interlocutory Order
The interlocutory order establishes a temporary lien until a court can hold a complete and final trial. To enter the interlocutory order, the court must determine that a probable cause for the mechanic’s lien exists. Once entered, the interlocutory order will: (1) establish the lien; (2) describe the boundaries of the land and the buildings covered by the lien; (3) state the amount of the probable claim; (4) specify the amount of any bond that the owner can file to release the lien; (5) perhaps require the claimant to file a bond to cover any possible damages as a result of the interlocutory lien; and (6) assign a trial date for the final hearing, which must be within six months.[ix]
The final hearing must be held within six months of the interlocutory order. The lien rights will also expire unless the lien is established by final order within one year of the filing of the Petition.[x] Importantly, the final hearing is a complete trial and the property owner and claimant will be able to engage in full discovery. The burden of establishing the lien is on the claimant. No final order establishing the lien will be entered unless the petitioner prevails. No lien exists until the final order is entered.
[i] McCormick Constr. Co. v. 9690 Deerco Rd. Ltd. Partnership, 79 Md. App. 177, 556 A.2d 292 (1989).
[ii] See Md. Code Ann. Real Prop. §9-104(a)(1).
[iii] See id. §9-105.
[iv] Winkler Const. Co., Inc. v. Jerome, 355 Md. 231, 734 A.2d 212 (1999).
[v] Section 9-104 contains a form “Notice” that can be followed.
[vi] Scott & Wimbrow, Inc. v. Wisterco Investments, Inc., 36 Md. App. 274, 373 A.2d 965 (1977).
[vii] Mervin L. Blades & Son, Inc. v. Lighthouse Sound Marina and Country Club, 37 Md. App. 265, 377 A.2d 523 (1977); Continental Steel Corp. v. Sugarman, 266 Md. 541, 295 A.2d 493 (1972).
[viii] See Reistertown Lumber Co. v. Royer, 91 Md. App. 746, 605 A.2d 980 (1992).
[ix] See Md. Code Ann. Real Prop. §9-106(b)(3).
[x] See id. §9-109.