Imagine that you just spent two months renovating the kitchen of a suburban home in Annapolis, Maryland, but the homeowner refuses to pay you the contract balance. What can you do? Maryland law provides a powerful tool to contractors and subcontractors who find themselves unpaid, assisting them in obtaining compensation for their labor or materials.
If a property owner stiffs your company, you can use a legal mechanism called a mechanic’s lien. This is a statutory device that essentially creates a cloud on the owner’s title to the land. Often, the mere filing of a lien is enough to convince an owner (or general contractor, if you are a subcontractor) to pay. As a contractor in Maryland, you should be aware of some basic information on mechanic’s liens.
Placing a lien on a property is a fairly hostile action against a property owner, for the reasons explained in this article. Consequently, filing a lien should not be your first step when trying to get paid.
Most disputes between contractors and owners can instead be resolved through negotiation. You will likely save time and money by dealing directly with the property owner or general contractor rather than initiating a lawsuit or filing a lien.
As in the example above, imagine that you performed a kitchen renovation in Annapolis and the owner refuses to pay the $12,000 owed under your agreement. For most contractors, $12,000 is too much to walk away from. First, you should mail copies of the final invoice and/or statements to the homeowner’s home and business addresses. If that yields no response, telephone the owner. Send an email, even if it’s repetitive, in order to create a paper trail. And then try writing a formal demand letter on your company’s letterhead.
If your communications are still being ignored, you might consider investing in a few hours of a lawyer’s time to write a demand letter, on law firm letterhead. Sometimes, property owners or general contractors may take you more seriously if they believe that you are willing to get an attorney involved. While attorney’s rates differ (rates in metropolitan areas like Baltimore will generally be highest), having a lawyer write a simple demand letter will probably cost no more than a few hundred dollars.
More often than not, some combination of these steps will be enough to push the property owner to pay the balance owed, or at least come to the negotiating table to pay some substantial portion of that amount. These steps can also help you avoid the time and expense of liens and lawsuits.
Sadly, as we know, not all Maryland property owners will be reasonable. Your letters and telephone calls will not always result in payment. What can you do next?
You will not be surprised to learn that Maryland law allows you to sue a homeowner who has not paid you, on grounds of simple breach of contract, or based on other related causes of action (such as quantum meruit). The same theories apply if you are a subcontractor or supplier suing a general contractor. You can assert these claims in the Maryland Circuit Court, which is the state’s primary trial court, or the Small Claims Court (which handles disputes of less than $5,000).
Beyond lawsuits, though, Maryland law allows you to file a mechanic’s lien, which is another important tool in your arsenal. Liens offer a way to pressure an owner to pay by clouding the title to the property.
Liens are the result of a statute known as Md. Code. Ann. Real Property 9-101 et seq. Like in many states, the laws surrounding Maryland liens are somewhat complex. Understanding the basics and structure of this legislation will help you to enforce your lien rights.
The first question that you should ask yourself is whether you are legally eligible to file a mechanic’s lien in Maryland. Fortunately, Maryland is far more permissive than most states in allowing various types of lienors to file.
Under Md. Code. Ann. Real Property 9-102(a), anyone who contracts for work "done for or about the building and for materials furnished for or about the building” can be entitled to a lien in the value of the labor or materials they provided.
The statute lists many different types of work that might qualify, including “ the drilling and installation of wells to supply water, the construction or installation of any swimming pool or fencing, the sodding, seeding or planting in or about the premises of any shrubs, trees, plants, flowers or nursery products, the grading, filling, landscaping, and paving of the premises, the provision of building or landscape architectural services, engineering services, land surveying services, or interior design services that pertain to interior construction and are provided by a certified interior designer, and the leasing of equipment, with or without an operator, for use for or about the building or premises.”
In short, Maryland’s statute is very broad. And while some states limit proper lienors to contractors and subcontractors, Maryland allows third-tier sub-subcontractors and suppliers to file liens, as well as design professionals such as architects and engineers. Therefore, as a construction professional in Maryland, you should realize that the statute is fairly flexible in granting you the ability to file liens.
Many lienors wonder whether they need a formal, written contract with the property owner (or general contractor) in order to lien in Maryland. You do not; an oral agreement is sufficient, so long as you fit the definition of improving the property.
Unfortunately, not every aspect of Maryland’s statute is quite so permissive or easy to understand. Indeed, Maryland law has several requirements for would-be lienors that other states do not.
Under Md. Code. Ann. Real Property 9-102(a), a lien is valid only if (i) the labor or materials provided by the lienor improved the property’s value by at least 15%; (ii) the lienor remains unpaid; (iii) the lienor filed a “Notice of Intent to Lien” on the owner within 120 days of the last date on which the lienor provided labor or materials; and (iv) finally, the lienor filed a Petition to Establish Lien in the county’s Circuit Court within 180 days of the lienor’s last date of labor or material delivery.
These requirements are a bit complicated. First, note that Maryland limits liens to any new "building erected and every building repaired, rebuilt, or improved to the extent of 15 percent of its value…” In other words, you can file a lien only if you helped build a new structure or worked to alter or renovate an existing structure in a relatively significant way. (As you might imagine, there are often disputes about whether a lienor’s work actually constitutes a 15% improvement in value or not).
Second, note that the “Notice of Intent to Lien” must be served on the owner before you proceed with any filings. This notice is meant to prevent a situation where the owner faces a surprise lien without warning. This document gives the owner warning that you will soon be filing a lien. It may have the positive effect of bringing the owner to the bargaining table, or if you are a subcontractor, of prodding the owner to pressure the general contractor to pay you.
Third, note that you must receive approval of the Circuit Court to file your lien. (This approval process is not intended to be a final adjudication of whether you are owed the money, but merely whether you have met the statutory requirements for filing the lien.)
There are some important exceptions to these general rules. For example, if you performed work on a public project, such as a school or a roadmyou cannot file a mechanic’s lien. (Instead, you must file a claim against the local municipal government or state government).
Another important exception relates to subcontractors working on single-family homes. A subcontractor cannot file a lien on the home if the homeowner has already paid the general contractor in full. In that situation, a lien would essentially force the owner to “pay twice” for the same work. Instead, the subcontractor must sue the contractor directly, presumably for breach of contract.
As we have already seen, Maryland law requires that prospective lienors send the property owner a “Notice of Intent to Lien” within 120 days of the lienor’s last labor or materials on the construction project.
Beyond that initial deadline, there are two other important deadlines to consider: First, Md. Code. Ann. Real Property 9-105 provides an overall deadline, saying liens must be filed within 180 days of when you last performed labor or provided materials to a construction project. As a practical matter, this means that you should not delay between serving your Notice and filing your lien. Second, once the lien is filed, you must file a lawsuit to enforce (or “foreclose on”) the lien within one year of the filing date.
Admittedly, these deadlines can be a lot to remember for a busy contractor. Keep careful track of the calendar so as not to miss them. Remember, courts in Maryland will construe these deadlines strictly.
Though liens are a powerful tool, they are not without complications and downsides. First, as you can see, Maryland requires a fair amount of advance planning and paperwork in order for someone to actually file a lien.
Second, remember that merely filing a lien will not force the property owner to pay you (nor force the general contractor to pay you if you are a subcontractor). The owner will receive notice of the lien, but unless you file a further lawsuit to foreclose on the lien, then it will merely sit on the property docket. In other words, you will likely need to spend some amount of money on legal fees in order to “force” payment.
However, filing a lien will send an aggressive message. If you take this step, it might put the homeowner on the defensive, and encourage him or her to get lawyers involved, or to retaliate by publicly claiming that you did shoddy work. Perhaps this is the direction that you need to take, unfortunately, if the homeowner is refusing to pay. But be aware that you may quickly escalate the dispute by filing a lien.
Finally, remember that the lien laws in Maryland are highly complex, particularly given the many required notice forms. If you are owed a substantial sum of money, it might be worth your investment in a consultation meeting with an experienced construction attorney in your area who can advise you of your rights. Check out Nolo’s Guide to Finding an Excellent Lawyer for assistance in identifying the right person.