Special Mechanic Lien Rules for Specially Fabricated Materials

Special Mechanic Lien Rules for Specially Fabricated Materials

Time and time again on this blog, I’ve said that if there is one lien law rule consistent from state to state, it’s that in order to qualify for a mechanics lien claim, the materials or labor you furnish must actually be incorporated into the jobsite’s property (click here to see mentions of “incorporation” on blog).

Sometimes, however, there’s an exception that applies to certain parties who manufacture or supply specially fabricated materials. According to these exceptions, a mechanics lien can be filed for materials created, but not ever incorporated into the property, under certain conditions.  This post discusses what specially fabricated materials are, which states have the exception, and under what circumstances the exception applies.

Specially Fabricated Materials Defined

What exactly is a “specially fabricated material?”  Generally speaking, most states who define this term as “materials not generally suited for or readily adaptable to use” in a structure. As you can see, however, this leaves a lot of room for interpretation.

Specially Fabricated Materials are defined as materials not generally suited for or readily adaptable to use.

As a result, you can think about building materials as being part of a spectrum, with some materials absolutely, positively being specially fabricated for a specific project, and others obviously being your run-of-the-mill standard building material that is not specially fabricated. Then, in the middle, there is some gray area.

Most courts will apply a simple test to decide whether a material is specially fabricated, weighing these two factors:  (1) Were the materials specially ordered and specially fabricated for that specific project?; and (2) Can the produced materials be easily used in another structure?

Survey of State Laws Giving Specially Fabricated Materials Special Treatment

There are a handful of states that specifically discuss specially fabricated materials in their mechanic lien laws. These states typically allow a materialman to file a mechanics lien if they produce the materials, and after production, the materials are not incorporated into the property because the order is cancelled or interfered with by the property owner or general contractor.  Some of these states require a special “specially fabricated materials” notice be sent at the time an order is placed.

Here is a survey of the states with special rules on the books about specially fabricated materials.

Colorado

The Colorado mechanics lien statutes are very broad with respect to who has mechanics lien rights, but it is true that C.R.S. § 38-22-101(1) generally provides mechanics lien rights to those parties who furnish labor, materials or services “to be used in construction of the building.”  While this initially looks unfavorable for specially fabricated material claims, Colorado’s liberal construction of the liens actually affords protection in these circumstances.

In Ragsdale Bros Roofing, Inc. v. United Bank of Denver, N.A. (744 P.2d. 750), the Colorado Division One Court of Appeals held that a party could file a mechanics lien for materials specially fabricated for a project even if they were never actually installed or consumed in the construction. The only condition is that the materials themselves must actually be delivered to the owner.  Specifically, they stated:

We agree with the trial court and find that Corneau-Finley furnished the fireplace glass doors and screens within the meaning of the statute since they were custom-made for the structure and, therefore, not of general value to Corneau-Finley. HN11Go to the description of this Headnote.It is not necessary for a lien claimant to show the materials furnished were actually used in the structure against which the lien is sought…

However, we are aware the purpose of the mechanics’ lien statute is to permit a lien upon premises only to the extent that the benefit has been received by the owner…Therefore, we modify the trial court’s judgment by adding the requirement that Corneau-Finley must deliver the fireplace doors and screens to United Bank.

Florida

In Florida, there isn’t a statute that excuses specially fabricated materials from the state’s general requirement that materials must be incorporated into the property to qualify for mechanic liens. However, the courts ahve carved out an equity exception to the general rules for specially fabricated materials, providing they are lienable even if they never arrive at the job site, so long as the materials were manufactured to order and the non-incorporation is the fault (either direct, or by direction) of the property owner.

The jurisprudence was established in Lehigh Structural Steel Co. v. Joseph Langner, Inc. by the 1949 Florida Supreme Court, when the court explained as follows:

We are cognizant of the rule that the Mechanics’ Lien Law should be construed so as to afford to mechanics and laborers the greatest protection compatible with justice and equity…And we have previously noted and approved the rule, followed in many jurisdictions, that the real property to be improved is subject to a lien for materials specially fabricated for such improvement under a contract directly with the owner of the realty when such materials are not used or delivered by the act or direction of the owner. There are strong equitable reasons for holding the owner’s property subject to a materialman’s lien in such cases.

Do note that if you are specially fabricating materials for delivery or installation you must send your preliminary notice earlier than other potential claimants. As explained in this FAQ on zlien’s Florida Mechanics Lien Law Resources, a preliminary notice must be sent at the earlier date of 45 days from first furnishing or “45 days from when work begins on making specialty materials.”

Hawaii

Hawaii presents an interesting case, as the statutes do not clearly provide that a party may file a mechanics lien for specially fabricated materials not actually incorporated into the property’s improvement. However, the statutes do mention specially fabricated materials, and therefore, it can be reasonably interpreted to allow a lien in the event these materials are created and never used.

Nevertheless, the statute is not clear on this point, and there doesn’t appear to be any case law interpreting the same.  Here is what the statute says, within H.R.S. 507-41:

“Furnishing of materials” includes supplying of: materials incorporated in the improvement or substantially consumed in construction operations or specially fabricated for incorporation in the improvement; building materials used during construction but not remaining in the improvement, diminished by the salvage value of the materials…

Massachusetts

Massachusetts ALM GL ch. 149, § 29 has a special requirement for those supplying specially fabricated materials, and while the statute doesn’t clearly indicate a mechanics lien could be placed even if the materials were not incorporated into the property, this statute infers the same.

The statute requires that those providing specially fabricated materials must deliver a notice to the property owner within 20 days of when the order for materials is placed. Presumably, if the materials are produced and never incorporated, lien rights would still exist, as the need for the notice doesn’t apply once the specially fabricated materials are built and incorporated. Lawrence Plate and Window Glass Co. v. Varrasso Bros., Inc. At that point, the materialmen is treated like an ordinary material supplier without the notice requirement.

Therefore, the notice requirement is only there to preserve mechanic lien rights in the circumstance that the materials are never installed.

Missouri

Until 2011, there was a lack of any direction from the courts or statutes as to what recovery (if any) was allowed to those who furnish specially fabricated materials to a project. A 2011 bankruptcy court decision, however, spoke to this issue (In Re Trilogy Development Company, Bankruptcy Court, WD Missouri 2011).  The Missouri court digs into the liberal purposes of the state’s mechanics lien statute and the term “furnish” to justify their opinion, stating as follows:

The Court is mindful of the remedial nature of mechanic’s lien law in Missouri, and that the law’s purpose is “to give security to mechanics and materialmen for labor and materials furnished in improving the owner’s property.” . The dictionary defines “furnish” as to “supply, provide, or equip with whatever is necessary or useful….” The Sixth and Ninth Circuit cases discussed above determined that where material is manufactured and specially designed for a building that the material is “furnished” as soon as prepared and ready for delivery. Although both cases are from other states’ courts, the mechanic’s lien statutes in both cases are similar to that of Missouri. The Court also notes that the Uniform Construction Lien Act provides that “furnish” includes specially fabricated materials not physically incorporated into the project.

And the ultimate holding:

Based on the foregoing discussion, the Court finds that these materials which were custom to the Project and have no other use are lienable…

Montana

Montana has a statute dedicated to material suppliers and setting forth the specific circumstances when a materialman has mechanic lien rights, and this statute specifically addresses specially fabricated materials. Mont. Code Anno., § 71-3-524 provides:

(1) A lien for furnishing materials arises only if:
(a) (i) the materials are supplied with the intent that they be used in the course of construction of or incorporated into the improvement in connection with which the lien arises; and
(ii) the intent described in subsection (1)(a)(i) may be shown by a contract of sale, by a delivery order, by delivery to the site by the lien claimant or at the lien claimant’s direction, or by other evidence; and

(b) the materials are:
(ii) specifically fabricated for incorporation into the improvement and not readily resalable in the ordinary course of the fabricator’s business, even though the materials are not actually incorporated into the improvement;

Therefore, the supplier of specially fabricated materials may file a lien if the materials are never incorporated, but only under certain circumstances.  These circumstances in Montana, while statutorily provided, are really similar to the requirements elsewhere that are created by case law.

Nebraska

The rule in Nebraska is very similar to the rule in Montana, as both states specifically address specially fabricated materials in their statutes.  Again, the statutory rule in Nebraska (like Montana) is very similar to the standard created by case law in other states.

Quoting from the Nebraska statute, to file a mechanics lien for non-incorporated specially fabricated materials, the following is required: “Specially fabricated for incorporation in the improvements and not readily resalable in the ordinary course of the fabricator’s business even though not actually incorporated in the improvement.” Neb. Rev. Stat. § 52-134(1)(a)

New York

New York Lien Law Section 9(4) sets for the requirements for the contents of a mechanics lien statement, and therein, suggests that specially fabricated materials may be part of the claim even though not actually incorporated into the property.  This is the exact text:

The labor performed or materials furnished and the agreed price or value thereof, or materials actually manufactured for but not delivered to the real property and the agreed price or value thereof.

As you can see, there is contemplation for “materials actually manufactured for but not delivered to the real property.” This language is actually quite broad as there is no clear requirement that the manufactured materials must be specially manufactured, which means that even folks manufacturing regular materials may find some protection under the statute. The truth, however, is that we don’t quite know how broad or narrow this provision is because the New York courts have spent very little time interpreting it, at least not in the reported records.

North Dakota

Similar to the situation in Nebraska and Montana, North Dakota statutes build-in a reference to specifically fabricated materials, suggesting that lien rights exist in the state for material specifically fabricated for a project, but never actually incorporated therein.  The statute in North Dakota specifically provides as follows, in its definition of materials that materials include “custom or specially fabricated materials for incorporation in the improvement.”

Unlike the statutes in Nebraska and Montana, there is no specifying that the specially fabricated materials are worthy of a lien absent incorporation. However, since the statute specifically mentions specially fabricated materials and defines them as materials “for incorporation in the improvement,” it makes one wonder if there is an inference here that they are qualified for lien rights absent physical incorporation.

Ohio

Ohio has protection for those furnishing specially fabricated materials built right into their mechanics lien statute. Ohio R.C. §1311.12(A)(3) provides that a mechanics lien may be filed for furnishing materials if the materials are:

Specifically fabricated for incorporation in the improvements and not readily resalable in the ordinary course of the fabricator’s business even if not actually incorporated in the improvement.

Tennessee

Tennessee Code Ann. §66-11-101(4)(A)(iii) includes in its definition of “furnish materials,” to “specially fabricate materials for incorporation in the improvement and, if not delivered to the site of the improvement, are not readily resalable by the lienor.”  This definition, like the definitions in some of the others states listed herein, make it evident that there are lien rights if specially fabricated materials are ordered, but not physically incorporated into the building.

Texas

The Texas Property Code provides a specific exception for specially fabricated materials to the general requirement that to file a lien, a supplier’s materials must be used in or delivered to the construction project. Section 53.0231(b) provides – quite clearly – that “A person who specially fabricates material has a lien even if the material is not delivered.”

Such clarity is surprising for a state whose lien laws are among the most complex in the nation.  Ah, but that is not all, of course.  To protect this right to lien for non-incorporated specially fabricated materials, the supplier must send a “Notice of Specially Fabricated Items” to the property owner.

All Other States

In this survey of specially fabricated mechanic lien laws, I’ve focused on those states that have statutes or cases mentioning these types of materials, and even further, allowing liens for the same. Just because a state doesn’t have a statute or a case addressing specially fabricated materials, however, doesn’t mean lien rights for these materials don’t exist.

As you can see in the case referenced under the above Florida discussion, providing lien rights to specially fabricated material suppliers is an equity exception to the state’s general incorporation rule. Every state who has an incorporation rule may, if the circumstances warrant, provide for such an equity exception.

Of course, there are some states who forbid such liens.  There are probably some other states that specifically allow these liens who have been overlooked in this post.  (Readers?  Lawyers?) However, this is a good survey of specific laws addressing this issue, and if you’re in a state not mentioned, you can probably apply the same equity principles to find a mechanics lien right.

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  • http://constructionlawva.com Christopher G. Hill

    Great post Scott, in Virginia, I cannot presently find anything that speaks either way regarding this issue. As best I can state, contractors and suppliers just have to be careful and make sure that tracing their materials to the site is an easy process

    • http://www.zlien.com Scott Wolfe Jr

      Thanks for chiming in Chris. There seems to be a lot of states that are up in the air about these things.

  • Name(required)Rob Pitkin

    Until a month ago, I would have told you that Missouri law required that materials “actually entered” into the improvements in order to form the basis for a mechanic’s lien claim. However, in a ruling on 12/29/11, a Bankruptcy judge held that “specially fabricated” materials justified a mechanic’s lien in Missouri. In doing so, the court seemed to rely a lot on the principle that mechanic’s lien laws are remedial in nature and should thus be given a liberal construction.

    • http://www.zlien.com Scott Wolfe Jr

      Thanks for chiming in Rob. I find that this is a really interesting issue, because allowing lien rights for unincorporated specially fabricated materials clearly goes against the grain of standard mechanic lien laws. And while some states have statutory exceptions (see the above post), most states do not…yet, the courts still rely on common law principles to create the lien right. I understand the equity in doing so – these specially fabricated manufacturers are left with a useless product – but I also understand that it’s a round peg in a square hole as far as lien laws and principles are concerned. Ultimately, I believe giving lien rights for specially fabricated materials is the right thing to do, though, and I guess we can chalk up Missouri as another state providing for the same (for now). Thanks again.

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