May 23, 2015
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Recent Indiana Case Addresses No-Lien Contract, Residential Mechanic’s Lien, and Personal Liability Notice Statute Issues
Feitler v. Springfield Enterprises, Inc., 978 N.E.2d 1160 (Ind. Ct. App. 2012) addressed multiple lien-related issues arising from a residential construction project. To summarize the facts, in November 2007 Mary Anna and Fred Feitler created a Family Trust of which they were the sole beneficiaries. Real estate that Mary Anna owned was transferred to the Trust. In July 2009, the Feitlers hired a general contractor to build a home on the property, under a no-lien contract identifying the Feitlers as the owners. Notice of the no-lien contract was recorded. Three weeks after the contract was signed, the Trust deeded the property to the Feitlers, who the same day obtained a mortgage loan. The Feitlers later transferred the property back to the Trust.
In early February 2010, the general contractor went out of business. J. Laurie, a flooring subcontractor, recorded a required pre-lien notice to preserve lien rights against residential property, and sent a notice of personal liability to the Feitlers and the Trust. Springfield, a siding subcontractor, recorded a mechanic’s lien. JM Woodworking, a cabinet installer, completed work based on assurances of payment from the Feitlers. After it was not paid, JM sent a personal liability notice to the Feitlers and recorded a mechanic’s lien, without filing a pre-lien notice.
The personal liability notices were given under Indiana Code Section 32-28-3-9, often referred to as the Personal Liability Notice (PLN) Statute, which provides a means for subcontractors and others to assert a claim against a project owner for amounts owed to the general contractor. Essentially, the PLN Statute provides a means to assert a lien against funds the owner would otherwise pay to a general contractor. This is an additional or alternative remedy to the mechanic’s lien rights available under Indiana law.
Predictably, litigation ensued. The trial court entered summary judgment, ruling that the two mechanic’s liens were valid and that the Feitlers were personally liable to all three subcontractors. The Court of Appeals reversed. First, the Court held that JM’s failure to provide a pre-lien notice to the Trust – the owner of the property – invalidated JM’s mechanic’s lien. Second, the no-lien contract rendered J. Laurie’s mechanic’s lien invalid. The Feitlers, as beneficiary of the Trust, qualified as “owners” under the no-lien provisions of the mechanic’s lien statute, in part because they were going to live in the house. Finally, summary judgment on the personal liability claims was improper because there were factual disputes about whether the general contractor was paid in full. If no amounts were due when personal liability notices were issued, the Feitlers could not be liable under the PLN statute.
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