Editor’s note: This is the second part of a two-part series. The first part appeared in the Aug. 21 edition of the Daily Journal of Commerce.

One of the impacts of this recession on the design and construction industry is that payment issues are arising on development projects of all types and sizes. As a result, knowledge of construction lien law is more important than ever for claimants and those defending against claims. The second part of this column will address the basics of Oregon construction lien law involved in filing a claim of lien and foreclosure of a lien.

Part II: Filing and foreclosing a lien
Lien filing deadline. A claim of lien generally must be filed within 75 days after the cessation of the claimant’s performance or within 75 days after substantial completion of the project, whichever occurs first.

Although filing a notice of completion is one way of establishing the date of substantial completion, it is only evidence of completion and thus is not commonly used. The 75-day filing deadline cannot be extended by agreement of the parties. A claim of lien filed prior to the commencement of the 75-day period likely is premature and invalid.

“Abandonment” to establish lien filing deadline. The 75-day deadline for filing a claim of lien also can be established by abandonment.  It occurs 75 days after cessation of construction or when the owner or a mortgagee posts and files a notice of abandonment. An incomplete project can also be deemed not abandoned, when the owner or a mortgagee posts and files a notice of nonabandonment within 74 days after the cessation of construction. Such notices can be renewed every 150 days, indefinitely.

Lien foreclosure deadline. A lien foreclosure suit must be filed within 120 days after the filing of the claim of lien. This deadline can be extended by agreement for up to two years after the claim of lien was recorded, but only if the parties had a pre-lien agreement providing for extended payment and the agreement is referenced in the claim of lien.

Forums for lien filing and foreclosure. A claim of lien must be filed with the county recorder of the county in which the project is located. A lien foreclosure suit must be filed with the circuit court of the county in which the claim of lien was recorded.

Lien release bonds and deposits. Any interested person may at any time remove a lien from the property through a lien release bond or deposit of 150 percent of the lien amount. A notice of the bond or deposit must be given to the lien claimant, and an affidavit must be recorded to complete this process. Once a lien is removed, the lien foreclosure occurs in the normal course except that the lien attaches to the bond instead of the property.

Demand for release of lien. Any interested person may at any time demand that a lien be released. If the lien claimant fails to release and foreclose the lien, the party making the demand can recover the greater of $500 or the amount incurred in providing a lien release bond and in making the demand plus attorneys’ fees.

If the lien claimant forecloses its lien, then the prevailing party in the suit can recover (in addition to other amounts) the greater of $500 or the amount incurred in providing the lien release bond and in making or responding to the demand plus attorneys’ fees.

Two notices following filing of claim of lien. A lien claimant must give two notices to the owner and mortgagees. First, a notice of filing of claim of lien must be given, along with a copy of the claim of lien, within 20 days after the filing of the claim of lien. Second, a notice of intent to foreclose lien must be given, such that the notice is received 10 days or more prior to the filing of the foreclosure suit.

Claimant required to provide information upon owner’s demand. Within five days after receiving a demand from the owner that received a notice of intent to foreclose lien, the claimant must provide a list of the materials provided to the project and the claim therefore or a statement of the contractual basis for the owner’s obligation to pay.

Recovery of attorneys’ fees and costs. Once a lien foreclosure suit is filed, the prevailing party in the suit can recover its attorneys’ fees, title report costs, recording fees and other costs and disbursements incurred in asserting the lien or defending against it. However, the lien claimant cannot recover such fees, costs or disbursements, even if it prevails at trial, unless it has timely complied with four statutory obligations: providing information upon demand of a mortgagee that received a notice of right to a lien, sending a notice of filing of claim of lien, sending a notice of intent to foreclose lien, and providing information upon demand of the owner. Nor can either the claimant or a party defending against a lien recover attorneys’ fees, costs and disbursements upon prevailing on lien priority issues only; to obtain such a recovery, a party must prevail on issues related to the validity and foreclosure of the lien.

Recovery of interest. A lien can include interest on the amount owed if interest is owed under the governing contract or applicable law and if a claim for interest is stated on the claim of lien.

Priority of Oregon construction liens
The most unusual feature of Oregon’s construction lien law is that, in certain circumstances, a lien can have priority over a mortgage or trust deed recorded prior to commencement of construction of the project. This involves several factors.

This outcome does not occur if the work of the claimant is an alternation or repair, and the pre-recorded mortgage was not to finance that work.

This outcome applies only as to the improvement and not the land. As such, a lien can have priority over a pre-recorded mortgage in the improvement but not have priority over the same pre-recorded mortgage in the land. Whether practical or not, Oregon’s lien statutes provide for the improvement to be sold separately from the land at the foreclosure and for the purchaser to “remove the improvement” from the land.

No lien claimant providing materials (whether a material supplier or a subcontractor or prime contractor providing materials itself or through a lower-tier party) can have priority over a pre-recorded mortgage as to the amount claimed for materials unless the claimant gave a notice of right to a lien to the mortgagee.

If a subcontractor or prime contractor providing materials fails to give a notice of right to a lien, it nonetheless can obtain priority over a pre-recorded mortgage as to the non-materials portion of its lien if the claim of lien segregates the amount claimed for materials.

By maintaining a basic knowledge of Oregon construction lien law, and by timely consulting with competent legal counsel when payment issues arise, those asserting lien claims and those defending against them can better protect their interests in this difficult economy.

Jim Zehren is a partner in the construction and design section of the development law group of the Portland office of Stoel Rives LLP. Contact him at 503-294-9616 or jazehren@stoel.com.

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Editor’s note: This is the first part of a two-part series. The second part will appear in the Sept. 18 edition of the Daily Journal of Commerce.

One of the impacts of this recession on the design and construction industry is that payment issues are arising on development projects of all types and sizes. As a result, knowledge of construction lien law is more important than ever for claimants and those defending against claims. This two-part column will address the basics of Oregon construction lien law as well as “traps for the unwary” related to lien claims.

Part I: Lien law basics – Before filing a claim of lien
Oregon Revised Statutes section 87.001, et seq. provides for the “construction lien” to secure payment to those providing labor, design professional services, materials and rental equipment on construction projects. Although Oregon’s statutes codified lien legislation, a working understanding also requires knowledge of Oregon’s lien case law.

Private projects only. Construction liens secure payment only on privately owned projects. For projects that are partly public and partly private, lien rights apply to the privately owned portion.

Lower-tier claimants have lien rights even if the owner has paid. Oregon is a “direct lien” state, meaning that a subconsultant, subcontractor or supplier having no contract with the owner can assert a lien even if the prime designer or prime contractor for which the claimant worked has been paid.

Connection of lien claimant to owner. Lien claimants are limited to those who have a contractual or other principal-agency connection to the property owner.

Tenant improvement and similar work. A lien of a claimant performing for a tenant or contract-for-deed purchaser generally attaches to the interests of the landlord or contract-for-deed seller unless the latter, within three days after learning of the construction, posts on the property a Notice of Nonresponsibility.

However, under certain circumstances when the tenant improvements will benefit the landlord at the end of the lease term, a Notice of Nonresponsibility will not shield the landlord from the lien.

Work on condominium property. Oregon statutes include special language for lien claims on condominium property.  Before a condominium declaration is recorded, lien rights on a condominium project are as on any other residential or commercial project.  After the condominium declaration is recorded, a claimant working on specific condominium units has separate liens on those units and on the parts of common elements appertaining to those units.  A claimant working on common elements has separate liens on all units owning the common elements and on the common elements themselves.

Attachment of lien to improvement versus land. A lien for services or work on an improvement generally attaches to the improvement together with such land as the court determines is required for the use and occupancy of the improvement. A lien for services or work on the site, such as surveying, clearing or demolition, generally attaches only to the land. This distinction can be critical in determining the value and priority of a lien compared to mortgage or trust deed interests.

Date of attachment of lien; effect of transfer of title. The date a construction lien attaches to the improvement or land generally is the date the overall construction on the project commenced. As such, any person obtaining an interest in property following the commencement of construction generally takes that interest subject to any liens related to the construction. The date the lien attaches can determine the priority of a lien compared to mortgage or trust deed interests.

Claimant licensing. Contractors and subcontractors must be licensed (and endorsed for the type of construction involved) by the Construction Contractors Board at the time of bidding, offering to perform and performing their work to have lien rights. Architects and engineers must be registered and otherwise authorized to perform their services by their respective state boards of examiners to have lien rights.

Pre-lien notices: residential projects. Certain pre-lien notices generally must be given on residential projects (buildings occupied by the owner comprising four or fewer residential units) for a claimant to have lien rights. An Information Notice to Owner usually must be given by a lien claimant under contract with the residential owner when the contract is signed. Other claimants must give a Notice of Right to a Lien to the residential owner and, to fully protect their rights, must do so within eight business days after commencing performance.

Pre-lien notices: commercial projects. On commercial (nonresidential) projects, only material suppliers, and perhaps design professionals, must give the Notice of Right to a Lien to the owner. To fully protect their lien rights, suppliers must give the notice within eight business days after commencing performance.

Pre-lien notices: condominium projects. If the claimant’s performance is on one or more condominium units, the pre-lien notice requirements are the same as on residential or commercial projects. If the claimant’s performance is on the common elements, the pre-lien notice requirements are uncertain. One approach is to send a Notice of Right to a Lien to each unit owner. A second approach is to give an Information Notice to Owner to each unit owner. A third approach is to give an Information Notice to Owner to the condominium association.  Consultation with legal counsel is recommended.

Pre-lien notices: enhancing priority of lien. Even if a claimant doesn’t need to give a pre-lien notice in order to file a valid lien, most lien claimants – whether performing on a residential, commercial or condominium project – should give a pre-lien notice to lenders with interests in the property in order to protect the priority of the lien versus the lenders’ mortgage or trust deed interests.

Owner required to send pre-lien notices to prime contractor. Within 10 days after receipt of a Notice of Right to a Lien, an owner of a commercial project must send to its prime contractor a copy of the notice. Failure of the owner to do so results in the prime contractor being released from indemnifying the owner from liens of claimants performing the prime contractor’s work. This owner obligation can be waived by agreement.

Claimant required to provide information upon mortgagee’s demand. Within 15 business days after receiving a demand from a mortgagee that received a Notice of Right to a Lien, the claimant must provide a list of the materials to be delivered to the site and the value thereof. Failure to do so results in the claimant losing the right to recover attorneys’ fees and related costs in a subsequent lien foreclosure action.

Part two of lien law basics will look at filing and foreclosing a lien.

Jim Zehren is a partner in the construction and design section of the development law group of the Portland office of Stoel Rives LLP.  Contact him at 503-294-9616 or jazehren@stoel.com.

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