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Legal Issues


Mechanic's Lien Bill Signed Into Law - April 18, 2017

Commencement of Work Notices for Residential Projects (HF586)

What Does the New Pre-Lien Notice Law Mean For My Company?

On April 7, 2017, the Governor signed House File 586 into law. The law takes effect on July 1, 2017. The law expands the category of residential contractors who are required to file the pre-lien notice termed the "Commencement of Work" Notice (or C.O.W. Notice) in order to preserve their mechanic's lien rights on a residential construction project.

 

As noted in a previous client alert, prior law only required general contractors (i.e., companies directly supplying materials or labor to the homeowner) with subcontractors to file a C.O.W. Notice on the MNLR online registry no later than 10 days from the start of every residential construction project in order to preserve their lien rights. This interpretation of the law was affirmed by the Iowa Court of Appeals in 2016 in the mechanic's lien case of Standard Water v. Jones in which Jodie McDougal represented a residential contractor.

 

The new law requires all general contractors (that is, all contractors who directly work for a homeowner) to timely file a C.O.W. Notice at the outset of each residential project to preserve their lien rights, regardless of whether subcontractors will be used on the project. Thus, even contractors who self perform all work without any "subcontractors," as well as suppliers who supply directly to homeowners, will now have to timely file this C.O.W. Notice within 10 days of the start of their residential projects to preserve their lien rights.

 

While this law, which was introduced and supported by those in the lending and closing industries, negatively impacts certain residential contractors by now requiring them to file C.O.W. Notices, the law positively affects those in the lending and closing industries and will streamline their loan closing practices. In particular, by late 2017, lenders and closing agents will likely no longer ask for all lien waivers; instead, they will check the MNLR registry and only be concerned with general contractors and subcontractors who have properly preserved their lien rights through their timely filing of their pre-lien notices.

 

Bottom Line

As of July 1, 2017, all general contractors, subcontractors, and suppliers on residential projects who want to preserve their mechanic's lien rights on residential projects must timely file their C.O.W. Notice (for general contractors and others working directly for an owner) or Preliminary Notice (for subcontractors) at the outset of such projects. Otherwise, all lien rights are lost.

 

Please contact attorney Jodie McDougal should you have any questions regarding this bill.