FAQ: Can Lost Profits Be Claimed in A Mechanics Lien?

Short Answer:  No

Long Answer:  First, the usual disclaimer is required to answer this question in a general sense, which is that every state’s laws is different and it’s important to consult the law in your particular state.  However, there are very few states (if any) that allow lost profit claims within mechanic liens.  Here’s why:

I previously wrote a blog post about the history of the mechanics lien, and looking to the history and purpose of the lien is critical to understanding why lost profits are not recoverable in a mechanics lien.

The mechanics lien remedy is given to the construction industry allowing those who furnish labor and/or materials to a project to file a lien against the real property to secure their claim for payment. The property itself becomes encumbered to their claim, which is a pretty big deal. No other industry has debt protection like this.

However, before a lien claimant is allowed to encumber the property, they must furnish labor and/or materials that are incorporated into the property itself.  The theory being that the lien is provided to those who permanently improve the property in some way, such that the property owner has a tangible increase in the value of its asset at the hands of the contractor or supplier.

If the materials and/or labor are not actually incorporated into the property, however, the lien usually doesn’t attach.

This brings us to claims for lost profit, and for that matter, liens for unapproved change orders where work wasn’t performed, claims for attorney fees, costs, interest, etc.  All of these claims are for services or fees that did not contribute to an actual increase in the property’s value. As such, they do typically qualify for lien protection.

While you may have a claim for all of these damages, they typically cannot be included within the mechanics lien claim itself.

And if they are?  You may be subjecting yourself to an argument that your lien is exaggerated or fraudulent, resulting in not only the revocation of your lien, but also liability on the property owner’s attorney fees; all regardless of whether you are owed those other amounts.

So, be careful out there, and when in doubt, leave these theoretical amounts out of your lien claims.  Keep the claim in your back pocket, but only file a lien for the physical and tangible contribution to the property.

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Scott Wolfe Jr

About Scott Wolfe Jr

Scott Wolfe Jr. is the CEO of zlien, a company that provides software and services to help building material supply and construction companies reduce their credit risk and default receivables through the management of mechanics lien and bond claim compliance. He is also the founding author of The Lien and Credit Journal, a leading online publication about liens, security instruments and getting paid on every account. Scott is a licensed attorney in six states with extensive experience in corporate credit management and collections law, with a specific emphasis on utilizing mechanic liens, UCC filings and other security instruments to protect and manage receivables. You can connect with him via Twitter, LinkedIn and Google+.

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