Click to Chat

Basics of Nevada’s Mechanic’s Liens. Part 1. What is a Mechanics Lien

Posted by: on Fri, Nov 16, 2012

Share this post

Basics of Nevada’s Mechanic’s Liens.

Part I. What is a Mechanic’s Lien

A mechanic’s lien is a non-voluntary pre-judgment security interest governed by statute.

Mechanic’s liens provide qualified claimants who have provided certain types of material or services related to a construction project with a security interest in the property where the construction project was performed, so as to ensure that the claimant has access to a source of payment for his claims. Because the security interest created by a mechanic’s lien was not voluntarily provided to the claimant by the property owner (as would be the case, for example, with a deed of trust or other voluntary security interest), but is instead created by statute, and because it attaches before a claimant receives any judgment in court against a defendant, it is only available to those who qualify under the statute to obtain a lien in property.

Nevada’s mechanic’s lien statutes are found at NRS 108.221 through NRS 108.260. Nevada also has a voluminous history of Nevada Supreme Court cases clarifying and explaining the Nevada statutes. The statutes have been the subject of frequent amendment and revision by the Nevada legislature, which meets every two years. Substantial revisions to the entire legislative scheme were enacted in the mid-2000s, many of which were lobbied for by contractor and subcontractor trade groups, and largely reflected their interests, as opposed to the interests of owners, lenders, or developers.

Based on the continuing process of statutory revision, it is possible that a court ruling on any issue today or in the future may reject certain of the prior case law previously developed by the Nevada Supreme Court on mechanic’s lien issues. Owners, Banks, Contractors, Subcontractors, Landlords, etc., and others who may have questions about a lien against their property should therefore seek out specific legal counsel to determine the answers to any questions arising in a particular matter.

Contractors should be careful not to confuse the right to lien with other rightful claims. If a claimant does not have a statutory mechanic’s lien right, the claimant may still have other methods for collecting on a claim. It should be understood that mechanic’s liens are designed to turn claimants who would normally be non-secured claimants into secured claimants with a security interest in property which they can look to and foreclose upon to collect a debt. The fact that a party may, for any particular reason, not have a mechanic’s lien claim does not prevent such a claimant from pursuing other recovery methods. For example, even if a claimant has failed to meet the necessary deadlines for obtaining a mechanic’s lien, a claimant may nevertheless have the right to sue a party who owes him money under theories of breach of contract or unjust enrichment. The question will be whether the contractor has the ability to collect on and enforce any judgment obtained at the end of such a suit, if the party in breach has no assets or files bankruptcy.

Mechanic’s lien rights (which are designed to ensure the ability to collect) should not be confused with other basic rights to sue (for breach of contract, unjust enrichment, or other theories) which may still exist even if a claimant has done something to prevent his mechanic’s lien claim from being valid. Mechanic’s liens are designed to deal with the problem of judgment-proof creditors, but if work has been done under contract with a debtor who is able to pay, then a mechanic’s lien foreclosure claim is not the only option. These principles are recognized by Nevada statutory law. For example, Nevada Revised Statute (“NRS”) 108.238, entitled “Right to maintain civil action or submit controversy to arbitration not impaired,” provides that the mechanic’s lien statutes provisions “must not be construed to impair or affect the right of a lien claimant to whom any debt may be due for work, materials or equipment furnished to maintain a civil action to recover that debt against the person liable therefor or to submit any controversy arising under a contract to arbitration to recover that amount.” Likewise, NRS 108.239(12) allows a personal judgment against a debtor for any amounts still owed after a lien foreclosure sale which has not fully satisfied the lien claim.

Nevertheless, a mechanic’s lien claim provides substantial leverage, and contractors should be careful to follow all of the necessary steps to maintain their mechanic’s lien rights. Theoretically, mechanic’s lien claims involve foreclosing against property which has been benefitted by a claimant’s material or services. As a practical matter, very few lien claims actually result in such a foreclosure sale. Rather, in most cases, a mechanic’s lien, or a suit to foreclose thereon, serves as leverage to assist contractors or other claimants to get paid since owners of properties affected by the lien will generally put pressure on the contractor or other party responsible to pay a claimant to resolve any outstanding lien claims in order to free the property from liens. In cases where no resolution of a lien claim is able to be amicably reached and a lien foreclosure action is filed, the mechanic’s lien will often be bonded around, assuring some other security is available to the mechanic’s lien claimant to collect on any judgment in the form of a surety bond, rather than in the form of the owner’s real property. In either event, the claimant is in a far better position than an unsecured creditor.

It should be noted that mechanic’s lien rights do not typically apply to public works projects, which are statutorily immune from such claims. In lieu of such lien rights, most public works projects will therefore require a payment bond be posted. Contractors who work on federal public works projects will need to follow the procedures of the Federal Miller Act to assure payment from payment bonds required to be posted on federal public works projects. Likewise, Nevada state law provides for a similar bond procedure since contractors have no right to claim a mechanic’s lien against public works of improvement. The state statutes governing payment bonds and payment bond claims are sometimes referred to as “little Miller Acts.”

NRS Chapter 339 typically requires prime contractors on public works projects to furnish a payment bond for the protection of persons supplying labor or materials to the prime contractor or their immediate subcontractors on the project, and a performance bond for the protection of the state or local (i.e., municipal) government or other state subdivision as the contracting agency (owner) in a public works project. The bonding requirements and claims procedure for public highways are governed by NRS Chapter 408.313 et seq., instead of NRS Chapter 339.

It should be noted that the payment bond statutes may only protect those parties providing materials or services to the prime contractor or an immediate subcontractor of the prime contractor. A claimant who is too far down in the chain (i.e., a person supplying material to a materialman of the prime contractor or a person providing labor or material to a subcontractor of a subcontractor of the prime contractor) will not typically necessarily be protected by the public works bond.

Even for those who do fall within the protection of the bond statute, there are differences in the preliminary notice procedures depending on how direct a relationship one has with the prime contractor versus simply with one of his immediate materialmen or subcontractors. For example, those who did not contract directly with the prime contractor and who have not been paid must serve a preliminary written notice on the prime contractor within 30 days of the first date the party furnished materials or performed labor on the project setting forth the information required by statute (NRS 339.035(2) and 339.055). Payment to such parties from the bond is limited to charges incurred 30 days or less prior to this notice. AMFAC Distr. Corp. v. Housing Auth. of Las Vegas, 100 Nev. 573, 688 P.2d 318 (1984). Such entities must thereafter file a written demand for payment within 90 days of the last date the party furnished materials or performed labor on the project. These notices must be by registered or certified mail followed by a suit within one year.

By contrast, materialmen and contractors with a direct contractual relationship with the prime contractor are not required to serve the preliminary written notice but are subject to the same claim procedures with respect to a written demand for payment within 90 days of the last date of payment (NRS 339.035(2) and 339.055).

Subsequent blog articles will address how a contractor preserves its mechanic’s lien rights. These issues can be complicated, and legal advice throughout the process is recommended. The legal professionals at Albright, Stoddard, Warnick & Albright have many years of experience in litigating these questions, on behalf of both owners and contractors, and other interested parties such as lending institutions. Contact us for a consultation on any issues that arise, each of which must be examined carefully in light of the facts of the specific case, and in light of the most recent legal developments. Given the constant revisions to the statute and new case law on point, blog articles such as this one should not be relied upon as providing the most up-to-date information, in lieu of a specific discussion with a legal professional.

D. Chris Albright

About the Authors: The law firm of Albright, Stoddard, Warnick & Albright is an A-V Rated Nevada-based full-service law firm having attorneys licensed in Nevada, California and Utah. Our firm’s practice includes a strong emphasis on commercial litigation, including employment law litigation matters, such as non-compete agreements.

Note: This article, and any other information you obtain at this website, is not offered as legal advice, nor should it be relied upon as such, nor is it a solicitation for legal services. Only a licensed attorney can advise you with respect to your specific legal needs. We welcome your contacting our firm to discuss such representation. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.

About the Authors: The law firm of Albright, Stoddard, Warnick & Albright is an A-V Rated Nevada-based full-service law firm having attorneys licensed in Nevada, California and Utah. Our firm’s practice includes a strong emphasis on personal injury accidents. Call us at 702-384-7111.

Note: This article, and any other information you obtain at this website, is not offered as legal advice, nor should it be relied upon as such, nor is it a solicitation for legal services. Only a licensed attorney can advise you with respect to your specific legal needs. We welcome your contacting our firm to discuss such representation. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.