Bulletin: MA000005

Dear Associates:

For the first time in many years the legislature has amended the provisions of MGL, chapter 254-the Mechanic's Lien Statute. The purpose of this memorandum is to highlight some of the more significant changes.

The authors of the new statue have attempted to eliminate some of the uncertainty under the old rules by tying many of the new provisions to the state of the record title as it stands in the Registry of Deeds.

It also answers several questions which were not specifically addressed in the old statute. In fact, the new law even defines what a written contract is. The new law broadly defines it as "any contract in writing enforceable under the laws of the Commonwealth." Samples of the statutory forms for both a contractors Notice of Contract (§2) and a Subcontractors Notice of Contract (§4) are available through the state office in Boston.

Another example which illustrates the difference from the old and the new mechanisms is the requirement that an attested copy of the complaint to enforce the lien must be recorded within 30 days of the commencement of the action or else such lien shall be dissolved. As you will remember under the old law various legal decisions supplied the requirement that the attested copy had to be recorded within a "reasonable" time. Was 6 days reasonable? 6 weeks? 6 months? Fortunately we no longer have to speculate.

Another expansion of the new law is that it applies not only to those involved in work relating solely to a building or structure upon land but also to other "improvements or alterations to real property". This offers the protection of the statute to a whole new group of workers. We all knew that bricklayers, plumbers, painters, and roofers were all covered but now the company that clears the trees, constructs the road, puts in utilities and paves the road are also entitled to the protection of the act.

A contract between a lessee and a contractor under the new law gives rise to a lien on the leasehold estate. It is now not only the fee simple estate of an "owner" which is subject to a chapter 254 lien. This result was not certain under the old law.

The new statute also provides a comprehensive list of those who can execute the various statutory instruments. This resolves the issue of authority and often eliminates the need for recording votes at the applicable Registry of Deeds.

And since a mechanic's lien is a creature of statute and since all statutes have an effective date, the actual date of the new law is February 7, 1997.

The revised statute also introduces several new forms. Among the more important are the Notice of Substantial Completion and the Notice of Termination. Copies of these both are available through the state office in Boston.

A brief summation of both follow.

NOTICE OF SUBSTANTIAL COMPLETION

This notice starts the clock running for the time within which a lien may be filed. It replaces the "completion date" concept under the old law. Since delays in a project are probably more the rule rather than the exception, and since completion dates were inevitability advanced, it was difficult to tell when the window within which instruments must be recorded/filed would close.

§2 now provides that:

1.The notice must be executed and recorded/filed by owner and contractor.

2.Substantial completion is defined as the point "that work under the written contract is sufficiently complete so that it can be occupied or utilized for its intended use."

3.A copy of the notice with recording information is to be provided by owner to:

a. subcontractors (subs) or suppliers who have recorded a notice of contract under §4 and

by the general contractor to:

a. subs and suppliers who have a written contact with the general contractor; and

b. anyone who has been given a notice of identification by certified mail to the general contractor. A Notice of Identification was created to protect the one class of workers who were most vulnerable under the old law-- lower tier subcontractors and vendors. Under the old system, by the time the subs/vendors learned that there was a problem with the funding of a project, it was too late for them to record/file a Notice of Contract or more correctly a "Notice of Conflict". Please click on the Forms Reference for a sample Notice of Identification.

NOTICE OF TERMINATION

§2B was inserted to cover those situations where the contract is terminated by the owner, prior to substantial completion of the project.

§2B now provides that:

1.If the general contract is terminated, the owner shall record/file a Notice of Termination.

2.A copy of the notice with recording information is to be provided by owner to:

a. the general contractor;

b. anyone who has recorded a Notice of Contract under §4
and by the general upon receipt of such notice from the owner to:

a. those with whom he has a written contract;

b. anyone who has given a Notice of Identification.

Now to briefly summarize each type of lien under the new statute.

§1 lien--LIEN FOR LABOR PERFORMED

1.applies to personal labor (not labor pursuant to a written contract).

2.covers 30 days of labor actually performed during the 90 days next prior to filing a Statement of Account under §8. Please refer to the Forms link below for viewing.

3.inchoate lien-relates back in time. But, in order for the lien to take priority over a prior mortgage, the work for which the lien is claimed must have been begun prior to recording the mortgage.

4.to obtain the lien:

a. record/file a Statement of Account at the Registry of Deeds within said 90 day period.

b. file a complaint to enforce the lien in Superior or District Court within 90 days of filing the Statement of Account.

c. record/file an attested copy of the complaint in the Registry of Deeds within 30 days of commencing the action.

§ 2 lien--GENERAL CONTRACTORS LIEN

1.applies to work or materials furnished pursuant to a written contract with the owner.

2.lien arises on recording/filing of notice of contract.

3.notice of contract may be recorded/filed at any time after execution of the written contract but it must be recorded/filed not later than the earliest of

a. 60 days after recording/filing a notice of Substantial Completion.

b. 90 days after recording/filing a Notice of Termination; or

c. 90 days after such person last performed labor/furnished materials.

4.except for 1-4 family residential projects, however, a lender can still fund the project after a §2 lien if

a. applicable conditions in the loan documents are satisfied.

b. lender gets a partial waiver and subordination of lien form. Please refer to the Forms link below for viewing. It illustrates how the contractor waives his lien through the stated payment period except for retainage and subordinates the lien (again except for retainage) through the 25th day after the end of the present payment period provided the lender actually funds within said 25 day period.

c. the priority of the contractor's retainage is recognized. Retainage represents work which the contractor has completed but has not been paid for.

5.party claiming the lien must record/file a sworn Statement of Account showing the balance due in the Registry of Deeds not later than the earliest of:

a. 90 days after recording/filing of a notice of Substantial Completion;

b. 120 days after recording/filing of a Notice of Termination; or

c. 120 days after such person last performed labor or furnished material. Note: Statement of Account may be recorded/filed prior to the recording/filing of a Notice of Substantial Completion or a Notice of Termination.

6.civil action to enforce the lien must be brought within 90 days after the recording/filing of a Statement of Account or else the lien is dissolved.

a. attested copy of complaint must be recorded/filed with Registry of Deeds within 30 days of commencement of the action or such lien shall be dissolved.

§ 4 liens--SUBCONTRACTORS/SUPPLIERS

1.subs/suppliers may record/file a notice of contract at any time after the execution of the written contract....but it must be recorded/filed not later than the earliest of

a. 60 days after recording/filing a notice of Substantial Completion;

b. 90 days after filing/recording a Notice of Termination; or

c. 90 days after last day a general or anyone claiming by, through, or under him performed labor or furnished materials or furnished rental equipment, appliances or tools.

2.serve copy of notice of contract upon owner by certified mail, return receipt requested.

3.lender not required to fund over a §4 lien provided loan documents allow lender to withhold payment.

4.if lender was unconditionally committed to make a disbursement, a §4 lien would be subordinate to such a disbursement. I can't imagine however loan documents requiring this. Make sure yours don't.

5.party claiming the lien must record/file a sworn Statement of Account showing the balance due in the Registry of Deeds not later than the earliest of:

a. 90 days after recording/filing a notice of Substantial Completion;

b. 120 days after recording/filing of a Notice of Termination; or

c. 120 days after such person last performed labor or furnished material. Note: Statement of Account may be recorded/filed prior to the recording/filing of a Notice of Substantial Completion or a Notice of Termination.

6.civil action to enforce the lien must be brought within 90 days after the recording/filing of a Statement of Account or else the lien is dissolved.

a. attested copy of complaint must be recorded with Registry of Deeds within 30 days of commencement of the action or such lien shall be dissolved.

Finally the new statute provides for a summary procedure to resolve disputes which undoubtedly will arise. The forum is either the superior or district court.

CONCLUSION

The changes to the statute were the result of lengthy efforts by lenders, owners, general contractors and subcontractors. Since laborers can now claim for a period of 30 days of labor rather than 18 days under the earlier law, we might well experience an increase in §1 liens.

Consequently, in order to delete the mechanic's lien exception from Schedule B of a Residential Loan Policy, the agent must obtain an executed Mechanic's Lien/Parties-in-Possession Affidavit, the form for which has been revised and is available through the references at the end of this bulletin. This form may be photocopied and used in your office. Since a §1 lien can now include 30 days of labor provided within the previous 90 day time frame, you can well imagine how quickly such a lien could arise and how expensive such a lien can become. Therefore, in particular, the agent should take due care and caution in situations involving new construction or recent home improvements. In these cases, the legal department should be consulted (prior to your closing, if at all possible) to review the particulars of your transaction and to determine if additional requirements will be needed to safely delete the mechanic's lien exception.

As far as an owner's policy is concerned, the mechanic's lien exception should remain intact. If a request is made to delete it, please contact the legal department. The same is true if you are dealing with a Commercial Transaction. For any Commercial Transaction, we request that you contact the legal department to discuss the transaction and to determine if additional requirements will be needed to delete the mechanic's lien exception from the Commercial Loan Policy to be issued.

Stewart Title Guaranty Company
99 Summer Street, Suite 930
Boston, MA 02110
(617) 737-8241
1-800-628-2988
Fax: (617) 737-8241
Legal Dept. Fax: (617) 737-8247