§ 16.9 Foreclosure of Lien

• Library: Construction Law in Oregon (OSBar) (2019 Ed.)

§ 16.9 FORECLOSURE OF LIEN

§ 16.9-1 Timing

A suit to foreclose a claim of lien must be commenced while the lien binds the property. A claim of lien binds property for only 120 days after its filing, or for 120 days after the expiration of an extended payment agreement set forth in the claim of lien. ORS 87.055. However, no claim of lien can bind property for more than two years after the lien has been filed. ORS 87.055.

PRACTICE TIP: In the authors' experience, extended payment provisions that are set forth in the claim of lien are extremely rare, and most lawyers may never encounter such provisions. Because a lien-foreclosure action may include parties that are not part of the extended payment agreement underlying the lien claim, those parties may argue that the extended payment terms are not binding on them. Thus, as a practical matter, a lawyer for a lien claimant should be extremely cautious before filing a foreclosure action beyond the normal 120-day deadline.

Note that commencing an arbitration will likely not satisfy the 120-day deadline of ORS 87.055. That statute requires the claimant to file suit in a proper court before the deadline expires.

Regarding other parties who are construction-lien claimants, a suit to enforce the lien is commenced when the complaint, counterclaim, or cross-claim is filed, regardless of whether the summons is served on the other parties as required by ORS 12.020. ORS 87.055(2). See § 16.9-3 (parties). The date of service relates back to the date of filing if service is effectuated within 60 days of filing the complaint, counterclaim, or cross-claim. ORS 12.020(2).

PRACTICE TIP: The time period of ORS 87.055 is a statute of duration, not a statute of limitations. See Brian Blum, Mechanics' and Construction Liens in Alaska, Oregon and Washington § 8.3, at 286-87 (1994) (citation not verified by publisher). See also Harris v. Dyer, 50 Or App 223, 228, 623 P2d 662, modified, 292 Or 233 (1981). After the expiration of the 120-day period set forth in ORS 87.055, the improvement is free of the claim of lien. Thus, a claimant should not forgo the filing of the foreclosure suit based on an adverse party's waiver of the statute. Assuming that the statute of duration could be waived, it would require a waiver by all necessary parties (i.e., the mortgagees and all other lien claimants, not just the owner of the improvement).

PRACTICE TIP: Before filing the suit to foreclose, the lawyer must remember to check the timing of the notice of intent to foreclose (see § 16.6-6). See also Appendix 16B, which is a checklist for evaluating lien claims and ensuring that all steps were taken timely. See also the practice tip in § 16.7-4(b) (name of owner) concerning obtaining a date-down endorsement.

§ 16.9-2 Jurisdiction and Venue

A suit to foreclosure a construction lien must be brought in the circuit court of the county in which the improvement is located. ORS 87.060(1); ORS 14.040(4).

NOTE: A construction contract in Oregon may not include an out-of-state choice-of-law provision nor an out-of-state forum-selection clause. Any such provisions are deemed void and unenforceable. ORS 701.640.

§ 16.9-3 Parties; Notice of Lis Pendens

Persons who are not made parties to a foreclosure suit are not bound by its outcome. ORS 87.060(7). See HGC Ltd. v. Cascade Pension Tr., 174 Or App 464, 468, 26 P3d 842 (2001) (the failure to name the actual owner whose interest vested a year before the filing of the construction lien meant that the owner was not bound).

Persons against whom a personal judgment is sought, other construction-lien claimants, and the owners whose interests are subject to the claim of lien must be named as parties. ORS 87.060(7).

The determination of which additional persons may also be named as parties focuses, in part, on whether the lien claimant will or will not allege priority over that person's lien, encumbrance, mortgage, or interest. Again, no judgment is effective against persons not named in the action.

PRACTICE TIP: Before drafting the foreclosure complaint, the lawyer should consider obtaining a foreclosure report/guaranty from a title company. If other lien claimants have filed prior claims, the lawyer should consider checking to see if they have already filed a complaint (to avoid subsequent motions to consolidate).

If a bond or cash deposit is filed or posted, the necessary and proper parties in a lien-foreclosure suit do not include mortgagees or other lien claimants. ORS 87.083. In a suit to foreclose a lien in which a bond or cash deposit is filed or posted, the county or an officer or employee of the county may not be named or otherwise made a party to the suit. ORS 87.083(2). See § 16.10-1 (posting a bond or cash deposit).

One question that sometimes arises is whether a claimant should file a notice of lis pendens (also known as notice of pendency of an action) at the time of filing a lien-foreclosure action. The only Oregon case that generally discusses this idea is Hoyt v. Am. Traders, Inc., 301 Or 599, 604-05, 725 P2d 336 (1986). In Hoyt, the court held that there was no need to file a notice of lis pendens when the complaint described the property to be affected and listed the parties' names and the object of the suit. The court found that this satisfied the substantive requirements of ORS 93.740, the lis pendens statute.

Before relying on the Hoyt case, a lawyer should be aware that the version of ORS 93.740 at issue in Hoyt was different from the current version. For some purposes, the differences may be important. However, in Miller v. C.C. Meisel Co., Inc., 183 Or App 148, 172-73, 51 P3d 650 (2002), the court held that the intermediate 1987 amendment to ORS 93.740 "did not change the fundamental nature of the notice filed under it."

The Washington Supreme Court has specifically ruled that a construction-lien claimant does not need to file a notice of lis pendens. John Morgan Constr. Co., Inc. v. McDowell, 62 Wash App 79, 813 P2d 138, 140-41 (1991). Washington's lis pendens statute, RCW 4.28.320, is similar to the current Oregon statute.

Notwithstanding the above, some lawyers feel more comfortable filing a notice of lis pendens after commencing a lien-foreclosure action. Then, if the 120-day deadline expires (ORS 87.055), there will still be a document in the real-property records. Thus, one advantage to filing a notice of lis pendens is to make it easier for title companies and other parties to be aware of the continuing nature of the lien claim against the real property. Given the discretionary wording of ORS 93.740, there should be no serious argument that filing a notice of lis pendens in these circumstances is not permitted. See Form 16-4 for a sample lis pendens form.

§ 16.9-4 Priorities

The priority of a perfected construction lien as against other encumbrances is set forth in ORS 87.025. See § 16.9-4(a) to § 16.9-4(c)(2) for further discussion.

§ 16.9-4(a) Lien Claimant versus Other Lien Claimants

The 1987 Legislature codified prior case law in ORS 87.025, which generally provides that perfected construction liens have equal priority.

The exception to equal priority among...