Getting Paid Faster with Liens, Bonds and Contracts - Minnesota Webinar

In this webinar, presented by Sunray Construction Solutions, we will cover essential aspects of getting paid in the Minnesota construction industry, focusing on mechanics liens, payment bonds, contract rights, and alternative legal remedies.  

What is a Mechanics Lien?

A mechanics lien is a legal claim against a property that has been improved through labor, materials, or services. It acts as a security interest, ensuring that contractors, subcontractors, and suppliers are compensated for their contributions. Unlike common law claims, mechanics liens are created by statute, meaning they must be followed precisely to be enforceable.

Why Are Mechanics Liens Important?

Mechanics liens provide a secured claim on the property, increasing your chances of getting paid. If the lien procedures are not followed correctly, you may lose this security interest, leaving you with only an unsecured claim against the property owner or contractor. A secured claim makes it significantly easier to collect payment, as the property cannot be sold or refinanced without satisfying the lien.

Key Benefits of Mechanics Liens:

• Creates a legal obligation for payment.

• Prioritizes your claim over other unsecured creditors.

• Encourages prompt payment from property owners and general contractors.

Who Can File a Mechanics Lien in Minnesota?

Mechanics liens are available to various construction professionals, including:

• General contractors

• Subcontractors

• Material suppliers

• Engineers and land surveyors

• Any party contributing labor, skills, materials, or machinery for real estate improvement

Licensing Requirements for Mechanics Liens in Minnesota

In many states, including Minnesota, you must be properly licensed to maintain lien rights. Failing to meet licensing and insurance requirements can result in the loss of lien rights, making it crucial to stay compliant with state regulations.

Public vs. Private Projects

Mechanics liens apply only to private projects. Public projects are protected by payment bonds, which serve as an alternative to mechanics liens and ensure that those working on public projects receive compensation.

The Process for Securing a Mechanics Lien in Minnesota

1. Pre-Lien Notice

Many states require contractors and suppliers to send a pre-lien notice before filing a mechanics lien. In Minnesota -

• General contractors: Must include a pre-lien notice in their written contract. If there is no written contract, a separate written notice must be sent within 10 days of the agreement.

• Subcontractors and suppliers: Must send a pre-lien notice within 45 days of starting work. These notices must comply with statutory requirements, including formatting and specific language.

Pro Tip: Work with a lawyer to ensure your contracts automatically include pre-lien notices.

2. Filing the Mechanics Lien Statement

If payment is not received, a mechanics lien statement must be filed with the county recorder within 120 days after the last contribution to the project. The lien statement must also be served on the property owner via certified mail or personal delivery.

Important Considerations:

• Do not overstate your claim. Overstating the lien amount can invalidate the entire lien.

• Last contribution matters. The 120-day clock starts from your last substantial work, not minor adjustments (known as the "screen door doctrine").

• Warranty work does not extend the deadline.

3. Foreclosing on a Mechanics Lien

If payment is still not received, you must begin foreclosure proceedings within one year of your last work.

• Judicial Foreclosure: Filing a lawsuit to enforce the lien.

• Foreclosure by Advertisement: A non-judicial method with different requirements.

Getting Paid on Public Projects: Payment Bonds

Since mechanics liens are not applicable to public projects, payment bonds ensure contractors and suppliers are compensated.

What Are Payment Bonds?

For public projects over $75,000, both performance bonds and payment bonds are required:

• Performance Bonds guarantee project completion.

• Payment Bonds ensure contractors and subcontractors get paid.

If unpaid, you can file a claim against the bond rather than a lien.

Contract Rights and Legal Protections

Your contract is your first line of defense for getting paid. A well-drafted agreement can prevent disputes and strengthen your legal standing.

Why Written Contracts Matter

• Define project scope and payment terms.

• Establish clear expectations.

• Protect against disputes and non-payment.

If you lack lien or bond rights, a breach of contract lawsuit is your best option for recovering payment.

Alternative Legal Remedies

If you don’t have a written contract, you may still be able to recover payment through legal doctrines such as:

• Unjust Enrichment – Claiming the property owner benefited unfairly from your work.

• Promissory Estoppel – Enforcing promises made to you.

• Quantum Meruit – Seeking payment for the reasonable value of services rendered.

Common Questions Contractors Ask

1. What is the deadline to file a mechanics lien in Minnesota?  

The deadline is 120 days from your last work on the project.

2. Do lien deadlines differ for residential vs. commercial projects?  

No, the 120-day rule applies uniformly across all project types.

3. What happens if someone files a lien before me?  

Lien priority is based on when work started, not when the lien was filed. Earlier contributions have higher priority.

4. Can I still recover payment if I don’t have a contract?  

Yes, through claims such as unjust enrichment or quantum meruit, though it may be harder to prove your case.

5. What if my mechanics lien is invalid?  

You may still pursue a breach of contract claim or payment bond claim if applicable.

6. How can I avoid payment issues?

• Always have a written contract.

• Send pre-lien notices on time.

• Monitor payment schedules.

• Work with a lawyer to enforce rights.

Final Thoughts

By understanding mechanics liens, payment bonds, and contract rights, construction professionals can better protect their financial interests and ensure they get paid for their hard work. If you have concerns about getting paid, consulting an experienced attorney can provide clarity and solutions tailored to your situation.