Idaho Land Law

A Blog Discussing Current Issues of Land Use, Real Estate, and Construction Law in the State of Idaho.

Filtering by Category: Mechanic's Liens

New Mechanic's Lien Decision from the Idaho Supreme Court

The Idaho Supreme Court recently issued another mechanic's lien decision in  a case styled ACI Northwest Inc. v. Monument Heights, LLC – Docket No. 41269 [January 21, 2015].  A link to the full decision is here:  http://www.isc.idaho.gov/opinions/41269.pdf

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In a case arising out of Kootenai County, where ACI Northwest Inc. (ACI) sought judicial foreclosure of its two mechanic’s liens on property encumbered by two deeds of trust. The district court determined that ACI’s liens were lost and unenforceable against the property because ACI failed to name or join the trustees in its action within the six-month statute of limitations in Idaho Code section 45-510. Thus, the district court granted summary judgment to Monument Heights LLC, Dan Jacobson, Sage Holdings LLC, Steven Lazar, the Mitchell A. Martin and Karen C. Martin Family Trust dated August 9, 2005, Devon Chapman, HLT Real Estate LLC, Anthony St. Louis, Andrea Stevens, and Lilly Properties Inc. ACI appealed to the Idaho Supreme Court. 

The Idaho Supreme Court reaffirmed its holding in ParkWest Homes, LLC v. Barnson (ParkWest II), 154 Idaho 678, 302 P.3d 18 (2013), that an action to enforce a mechanic’s lien on property encumbered by a deed of trust must name the trustee, who hold legal title to the property, within the statutory time limitation in Idaho Code section 45-510. Failure to name the trustee within the prescribed time limitation results in the mechanic’s lien being lost against legal title, the trustee’s interest in the property. This Court determined that the district court properly applied ParkWest II and therefore affirmed the district court’s decision.

The lesson for those with potential mechanic's lien claims is to make sure you name or join the trustee to your cause of action within the six-month deadline.  Failure to do so will result in a loss of mechanic's lien rights.


Mechanic’s Liens, Contract Claims, and Attorney’s Fees for the Defense?

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The Idaho Supreme Court recently provided some additional guidance on the recovery of attorney’s fees for the defense of contract claims.

In Intermountain Real Properties, LLC v. Draw, LLC, the Supreme Court examined a subject near to the hearts of Idaho Land Law blog readers… the validity of an Idaho mechanic’s lien.  Look for a future post on the mechanic’s lien portion of this case but for today I want to discuss the Supreme Court’s view of recovering attorney’s fees under I.C. § 12-120(3) for the successful defense of a contract or an open account claim.

By way of background, Idaho Code section 12-120(3) states:

In any civil action to recover on an open account, account stated, note, bill, negotiable instrument, guaranty, or contract relating to the purchase or sale of goods, wares, merchandise, or services and in any commercial transaction unless otherwise provided by law, the prevailing party shall be allowed a reasonable attorney’s fee to be set by the court, to be taxed and collected as costs.

In this case, TMC Contractors, Inc. (“TMC”) filed a Complaint for Collection and Petition to Foreclose Materialman’s Lien against Draw and various other defendants.  After filing its Petition, TMC assigned its lien to Intermountain Real Properties, LLC (“Intermountain”) and Intermountain proceeded with claims for breach of contract, open account, unjust enrichment, and lien foreclosure.  The district court ruled against Intermountain on all counts and awarded attorney’s fees to Draw under I.C. § 12-120(3).  Intermountain appealed.   

The Supreme Court upheld the district court on all counts and stated that I.C. § 12–120(3) will apply when a party alleges the existence of a contractual relationship or open account.  In other words, when a plaintiff alleges a commercial contract exists and the defendant successfully defends by showing that the commercial contract never existed, the court awards the defendant attorney fees.  That is pretty strong medicine for any plaintiff and the potential risk associated with making a breach of contract or open account claim should be considered before filing any petition on those counts in Idaho.

 

No Contractor Registration = No Payment for Idaho Contractors

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Like many states, contracting in Idaho is regulated activity.  Without the proper registration, contractors are subject to monetary penalties and loss of legal rights for work they may have performed. Under Idaho’s Contractor’s Registration Act (“Act”), any person acting as a contractor without a current registration is guilty of a misdemeanor and may be punished by a fine up to $1,000 or by imprisonment in the county jail up to six months, or both.

For me, the $1,000 fine or six months in jail is plenty of incentive to properly register in the state before conducting work on a project. Yet, there are other penalties under the Act that should get the attention of any contractor contemplating working in Idaho. Chiefly, that a contractor cannot sue for payment or enforce a mechanic’s lien if they are not properly registered with the state. The loss of these two rights could mean that you will not be paid for your work on the project. 

Business Tip: Make sure the correct name of the company performing the work is registered.

As a contractor you will want to make sure the correct name of the company is registered with the Idaho Contractors Board.  Double check the following:

  • Does the registered name have the correct corporate entity designation such as Inc. or LLC?
  • Is the name spelled correctly and does it match the company name on your standard contract?

These seem like simple issues but the Idaho Supreme Court in Stonebrook Construction LLC v. Chase Home Finance, LLC, 152 Idaho 927 (Idaho 2012), has provided some guidance on how strictly courts will interpret the Idaho’s contractor registration requirement.  The takeaway from Stonebrook is that something as simple as failing to have the correct corporate designation may be fatal to your mechanic’s lien claim and your ability to pursue a collection action in Idaho.

  

Idaho Supreme Court Provides Guidance on Mechanic’s Lien Release Bonds

Okay, I said it… we here at that Idaho Land Law blog love mechanic’s liens. Properly perfected, they are great tools to insure payment to contractors, subcontractors, and material suppliers. The Idaho Supreme Court  recently provided us guidance on Idaho’s mechanic’s lien release bond statute and how the priority of a mechanic’s lien may impact your right to recover against a lien release bond. (American Bank v. Wadsworth)

The story line of the case is typical of developments that were occurring prior to the great downturn of 2008. BNR Development, Inc. planned to develop a high-end residential golf course community and secured funding of $15M from American Bank.  BNR hired Wadsworth Golf Construction Company to construct the golf course and everyone was happy.  Sound familiar?

During the course of the project, Wadsworth received monthly progress payments from BNR and provided conditional lien releases in exchange for payment.  At some point during the project, BRN defaulted on its loan from American Bank and failed to pay Wadsworth for a portion of the work. Wadsworth recorded a mechanic’s lien of $2.3M on the property, which included retainage not included in previous progress payments.  American Bank then initiated a foreclosure action naming Wadsworth as a defendant in order to establish the priority of its mortgage.  Wadsworth counterclaimed stating its mechanic’s lien had priority over American Bank’s mortgage.

In order to proceed with the foreclosure sale, American Bank purchased a release of lien bond and, upon its motion, the District Court released Wadsworth’s mechanic’s lien.   

Both parties then moved for partial summary judgment with American Bank arguing its priority prevented Wadsworth from recovering against the mechanic’s lien release bond. The District Court denied American Bank’s motion and held that the issue of priority was irrelevant concerning Wadsworth’s right to proceed against the mechanic’s lien release bond.  

The District Court directed the property be sold at a foreclosure sale. American Bank was the highest bidder (by credit bid), and the sale left no surplus proceeds. Thereafter, the District Court conducted a two-day trial and found that Wadsworth’s lien was valid and awarded principal, interest, costs and fees to Wadsworth in the amount of $2.4M. It also held that in executing the conditional lien releases Wadsworth agreed to subordinate its lien priority date to other third party liens for the express benefit of other lienholders, including the Bank. 

American Bank appealed, and the Idaho Supreme Court reversed – holding:

·         The District Court erred in finding that the priority of the parties’ interests became irrelevant upon the posting of the lien release bond.  It held that “the lien release bond is merely meant to act as substitute security and does not otherwise affect the rights of interested parties.”  Because Wadsworth did not challenge the District Court’s determination that it expressly subordinated its lien to that of American Bank, there can be no recovery by Wadsworth against the bond.

What does this mean for mechanic’s lien claimants pursuing recovery against a mechanic’s lien release bond? In short, priority matters!  Contactors, subcontractors, and material suppliers should carefully review any lien releases they execute and make sure that such do not waive lien rights related to retainage or priority.  Arguably, in this case if Wadsworth had not waived its right to retainage on previous progress payments, then its lien rights may have extended to the first day it provided work on the project.  This may have been sufficient for it to establish priority over American Bank’s mortgage and allowed it to recover against the lien release bond.


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