Tuesday, April 8, 2014

New Mississippi Lien Law To Protect Subcontractors, Suppliers and Materialmen

During the 2014 legislative session, the Mississippi Legislature passed a construction lien law in response to a 2013 judicial determination that Mississippi's "Stop Notice" statute was unconstitutional. The bill has passed out of conference but it must be enrolled and signed by the governor. The new law is applicable to residential and commercial construction projects and allows unpaid subcontractors, sub-subcontractors, suppliers and materialmen ("Claimants") to place a lien against real property. Lumber suppliers, electric suppliers, equipment providers, plumbing, and roofing companies supported the construction lien bill, Senate Bill 2622, which will be codified as Section 85-7-401, et seq. of the Mississippi Code of 1972.

Under the new law, all Claimants furnishing services, labor and/or materials for the improvement of real estate shall have the right to file a lien on the real estate under certain enumerated circumstances. The lien claim also includes interest and the Claimant has the right, in unusual circumstances, to petition the court for an award of attorneys' fees.

The lien may be only filed by licensed Claimants. Further, with a nod to equity and perhaps the "clean hands" doctrine, only Claimants who have substantially complied with or completed their contractual obligations may file a lien.

First, as is typical with most lien statutes across the United States, a pre-lien notice must be issued to the owner and/or contractor if the materialman or supplier does not have contractual privity with these parties. This pre-lien notice must be issued within 30 days following the first delivery of labor, services, materials or work on the property. Without this pre-lien notice, a Claimant cannot subsequently lien the job.

The lien must be filed within 90 days from the Claimant's last work, labor, services or materials performed or delivered for the construction project. Once filed, the Claimant has two business days to serve or mail a copy of the lien upon the owner and/or the contractor. The lien may be amended to increase or decrease the amount of the claim with such amendment relating back to when the lien was originally filed.

The new law provides further that the suit to enforce the lien must be filed within 180 days of when the lien was filed and a Notice of Lis Pendens must be filed with the commencement of the lien action.

Finally, the new law reiterates the general provision that the lien is only a claim against the property, and as such, the Claimant may obtain a judgment in rem against the property. The judgment is not an in personam obligation of the property owner.

The process for filing a lien against residential property is somewhat different. Rather than the 30-day notice referenced above, the Claimant must provide the owner of the residence a pre-lien written notice at least 10 days before filing a lien. Like the lien above, the claim is only an in rem claim allowing the Claimant to obtain an in rem judgment against the property and does not impose in personam liability upon the property owner.

The statute also allows the owner to shorten the litigation period of 180 days referenced above by serving upon a Claimant a "Notice of Contest." Upon such issuance, unless suit is initiated within the 180-day-period, the lien is automatically extinguished upon the earlier of 90 days after the filing of the "Notice of Contest" or 180 days from the date the lien was filed.

When the contractor obtains a payment bond for the benefit of subcontractors and material suppliers, that bond cancels the ability of the subcontractors and materialmen to obtain a construction lien.

The effective date of the statute will be the date of signing by the governor or 14 days from legislative approval, whichever is earlier.

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