Does the Wrongful Lien Statute Apply to Mechanics' and Other Types of Liens?

• Jurisdiction: Utah,United States
• Citation: Vol. 21 No. 6 Pg. 10
• Pages: 10
• Publication year: 2008

Utah Bar Journal Volume 21.

Vol. 21, No. 6, 10. Does the Wrongful Lien Statute Apply to Mechanics' and Other Types of Liens?

Utah Bar Journal

Vol. 21, No. 6

November/December 2008

Does the Wrongful Lien Statute Apply to Mechanics' and Other Types of Liens

by R. Spencer Macdonald

Although the response to the question in the title of this note may seem obvious, attorneys in Utah may be surprised to learn that several district courts have concluded that the Wrongful Liens and Wrongful Judgment Liens Statute, (the Wrongful Lien Statute), see Utah Code Ann. § 38-9-1 to -7 (2005), categorically does not apply to mechanics' liens. However, recent developments on this issue have demonstrated that the Wrongful Lien Statute can, in fact, apply to mechanics' liens (and other types of liens) in some circumstances.

The question posed in the title is important to lien claimants (who may be exposed to substantial liability under the Wrongful Lien Statute), property owners (who may not be aware of this powerful tool for quickly dispensing with wrongful liens), and attorneys (who may not be aware of recent developments that may have a significant impact on lien claims).

INTRODUCTION

In Utah, liens are exclusively creatures of statute, most of which are found in title 38 of the Utah Code. See id. § 38-9-1(6)(a) (prohibiting all liens not "expressly authorized by this chapter or another state or federal statute"). One of the most common types of lien is a "mechanics' lien," which is available to "all persons performing any services.in the construction, alteration, or improvement of any building or structure or improvement to any premises.for the value of the service rendered." Id. § 38-1-3.

A mechanics' lien, like all liens recorded against real property, constitutes a cloud on title and must be cleared if the owner wishes to sell or refinance the property. Getting rid of a lien can be particularly time-sensitive, for example, in a new construction situation where the owner wishes to convert a construction loan into permanent financing. Unfortunately, there are only two ways an owner can expeditiously remove a cloud on title caused by a lien (other than paying off the lien claimant).

First, the owner can litigate the enforceability of the lien and, during the pendency of the litigation, have the lien released by posting alternate security (a surety bond or cash deposit) pursuant to section 38-1-28. This option can be expensive (the bond amount varies between 150% and 200% of the lien amount) as well as odious to a property owner who believes the lien is frivolous or otherwise improper. It may also be unavailable to a property owner whose financial condition may not enable him to qualify for a bond.

The second option is to file a petition and request an expedited hearing to have the lien declared wrongful pursuant to the Wrongful Lien Statute. A sufficient petition will trigger a hearing "within ten days to determine whether the document is a wrongful lien." Id. § 38-9-7(3)(b). No other matter may be heard at this summary proceeding, as its sole purpose is "to determine whether or not a document is a wrongful lien." Id. § 38-9-7(4).

A successful petition under the Wrongful Lien Statute will not only result in the release of the lien, but also an award of damages, attorney fees and costs. The statute contemplates two possible penalties. The lesser penalty applies to a lien claimant who receives written notice from the property owner that the lien is wrongful and refuses to remove or correct it within ten days. See Utah Code Ann. § 38-9-4(2). The penalty under this provision is $3000 or treble actual damages, whichever is greater, as well as reasonable attorney fees and costs. See id.

The other, more severe penalty applies to a lien claimant who records a lien while knowing or having reason to know that the lien is wrongful, groundless or contains a material misstatement or false claim. See id § 38-9-4(3).(fn1) The penalty under this provision is $10,000 or treble actual damages, whichever is greater, as well as reasonable attorney fees and costs. See id § 38-9-4(3).

Some attorneys and district courts in Utah are under the impression that the Wrongful Lien Statute does not apply to mechanics' liens. This note explores this question and concludes that a...