One of the most basic features of a mechanics lien is that it enables unpaid contractors and subcontractors to get the money they are owed for furnishing labor and/or materials to a construction project. But what happens if the property owner for whom the subcontractor furnished labor or materials sells that property to a different party? Who must be named in a lawsuit to foreclose on a mechanics lien? The first property owner? The second owner? Both owners? In Idaho at least, a recent case addressed this question.
Idaho Mechanics Lien Law
The rules that all parties must obey in civil lawsuits is called the law of civil procedure. The federal government and all states have rules of civil procedure that parties must follow.
One of the first things students of civil procedure learn is the difference between a necessary and unnecessary party to a lawsuit. When plaintiffs file lawsuits, they must ensure that they name all the necessary parties as defendants. If those necessary parties are not named within the time the law gives plaintiffs to name its defendants, there can be strict consequences.
Idaho mechanics lien lawsuits are bound by the same requirements, all “proper parties” must be named in the foreclosure lawsuit within a certain amount of time, or suffer the consequences. Under Idaho mechanics lien law, lien claimants have six months to name all the proper defendants and file suit to foreclose on a lien. If the lien claimant fails to name a proper party within those six months, then that unnamed proper party has no responsibility to pay the mechanics lien.
Finally, under Idaho mechanics lien law, when a lien claimant sues to foreclose on a mechanics lien, the claimant must name the current property owner at the time the lawsuit is filed.[quote style=”boxed”]all that matters in a suit to foreclose on a mechanics lien is who owns the property at the time the lawsuit is filed[/quote]
This interpretation of the law means that it really doesn’t matter who owned the property when an unpaid subcontractor did work if that subcontractor sues to foreclose on a mechanics lien; instead, all that matters is who owns the property at the time the lawsuit is filed.
The Recent Case Applying Idaho Mechanics Lien Law
In a recent case, Parkwest Homes L.L.C. v. Barnson, the Supreme Court of Idaho clarified who are the proper parties that must be named in a lawsuit to foreclose on a mechanics lien.
In that case, Parkwest contracted with Julie Barnson to build a home for Ms. Barnson. Parkwest alleges that it substantially completed work on the house in November of 2006. After the two parties disputed whether Parkwest’s invoices had been paid, Parkwest filed a mechanics lien against Barnson’s property for nearly $200,000 in that same month.
Two weeks before Parkwest filed its lien, however, Barnson’s property became subject to a deed of trust in which Mortgage Electronic Services (MERS) became the beneficiary of that trust. Transnation was named the trustee of the deed of trust, and in June of 2007, First American was appointed the successor trustee. Eventually, a company called Residential Funding Real Estate Holdings (Residential) took title to the property.
In August of 2007, Parkwest sued to foreclose on its mechanics lien. Although Parkwest named Barnson and MERS in its lawsuit, it did not name Transnation, First America, or Residential as defendants. The one important thing to remember throughout this complicated history is at the time of Parkwest’s lawsuit, First America and not any other party had title to the property but that First America was not named in Parkwest’s lawsuit.
In that lawsuit, Residential later intervened to have the mechanics lien declared void because the suit to foreclose on that lien did not name the proper defendant, First America (the party that had title to the property at the time the lawsuit was filed). [quote style=”boxed” float=”right”]Since the plaintiff did not name the current property owner when it filed its complaint, its mechanics lien was invalid[/quote] After reversing the district court’s dismissal of the lawsuit, the Supreme Court of Idaho, on rehearing, eventually agreed with the lower court: Since Parkwest did not name the proper property owner when it filed its complaint, its mechanics lien was invalid and the current property owner, Residential, was free and clear of any liens filed by Parkwest against the property.
Take-Aways from Barnson
There are a few extremely important take-aways from Barnson that all parties should know about Idaho mechanics lien law:
- First, subcontractors and contractors must fully understand that property law is complex and that property transfers occur all the time. Besides understanding the law, subs and contractors keep up-to-date on who actually has title to the property for which labor or materials were furnished, because title is transferred all the time. Property transfers in Idaho must be publicly filed in the county where the property sits, so although keeping up-to-date may be cumbersome, it is possible.
- Second, these subcontractors and contractors should leave ample time when they sue to foreclose on a mechanics lien to complete a thorough title search. If the deadline to file a foreclosure suit is six months from the day that the mechanics lien was filed, parties should avoid filing their lawsuit just as the deadline is expiring. The reason why is that if the party filing suit discovers that the defendants it named don’t actually own the property anymore, it may be too late to add the actual title holders to the lawsuit by the time that information is discovered
- Finally, Idaho contractors and subcontractors should understand that when a property changes hands, any liens on that property come along with the sale. Therefore, in the context of lien foreclosure lawsuits, who owned the property when the subcontractor or contractor performed its work or even who owned the property when the mechanics lien was filed is irrelevant. All that matters is who owns the property at the time the lawsuit is filed.