The construction industry received great news when Governor Reynolds signed SF2229 into law, repealing the so-called “anti-collateral” statute that disallowed mechanic’s liens in instances where material suppliers and others utilized personal guarantees and other forms of collateral. This repeal is most impactful to material suppliers, from cabinet and flooring suppliers to lumberyards and larger building material suppliers, in the residential and commercial construction industry.
Construction attorney Jodie McDougal has been personally working on this issue for several years, including researching the “anti-collateral” provision of Iowa’s Mechanic’s Lien Statute (Iowa Code § 572.3), providing education to industry associations and leaders about the problematic aspects of the current statute (see white paper), as well as advocating for a repeal of the statute with Iowa legislators. The bill was passed by the legislature and Governor Reynolds signed the bill into law on April 10. It will take effect on July 1, 2018.
The anti-collateral provision was written into Iowa Code over 175 years ago, in 1851. The effect of the law was that claimants were not entitled to a mechanic’s lien if the claimant’s construction contract, or credit application, with the owner or general contractor, contained a provision providing for some type of collateral or was otherwise secured by collateral (such as a promissory note, personal guaranty, or other asset).
Because this was a relatively obscure part of the law, material suppliers and others in the construction industry were unknowingly losing their mechanic’s lien rights due to this anti-collateral provision. When Jodie recognized the detrimental impact on her clients in the construction industry, she got to work on changing the law. Indeed, the initial rationales for the law in the 1800’s were no longer applicable, and the law was not otherwise justifiable under modern public policy rationales and considering the extreme impact on unknowing contractors and subcontractors, thereby justifying its repeal. With the repeal of this anti-collateral provision, Iowa law now matches that of all surrounding states and the vast majority of states nationwide.
Contact Jodie McDougal with further questions.
Thanks to the Home Builders Associations of Greater Des Moines and of Iowa for their support in pushing for this change.
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