Power of Attorney - August 2005

Nevada Construction Liens

Precautions Can Prevent Trouble

by Georlen Spangler

Imagine you moved into your new house or office building two months ago, you paid the general contractor and life is good – or so you thought. There’s a knock at the door and you are served with a Notice of Lien, also known as a mechanic’s lien, in which a local plumbing company claims it is owed thousands of dollars for the labor and materials supplied to your project. What happened? And, more importantly, what steps could you have taken to prevent this from happening?

        To help individuals obtain payment for improving real property, the Nevada Legislature enacted mechanic lien statutes, found in Chapter 108 of the Nevada Revised Statutes. Every person who performs labor upon or furnishes material valued at $500 or more to be used in the construction, alteration or repair of any building or other structure has a lien upon the building or structure that was improved. The property may eventually be sold, if necessary, to satisfy the debt. If a license is required to perform the work, only a person with a valid contractor’s license, his employees or material suppliers may institute a lien.

So, how does the lien process take place and how can you protect yourself? First, always record a Notice of Completion. A mechanic’s lien may be recorded up to 90 days after the project is completed. However, if the owner records a Notice of Completion, the lien period is cut down to 40 days. Once a mechanic’s lien is recorded, it must be served on the owner within 30 days and a lawsuit to foreclose on the lien must be commenced within six months.

Material suppliers and subcontractors working under the contractor are required to serve the owner with a "Notice of Right to Lien" (also known as a pre-lien notice) after the delivery of material or performance of work. The Notice of Right to Lien puts the owner on notice that the person or entity sending it is doing work or providing materials to the project. By knowing the names of the subcontractors and suppliers, individuals can make sure these companies receive payment. If necessary, the owner can cut checks made out jointly to the contractor and the subcontractor or supplier.

Every payment made should be made in exchange for lien releases in the amount of payment. For example, if an owner makes a monthly payment of $1,000 to plumbing company, the owner should receive a "Conditional Waiver and Release Upon Progress Payment" in the amount of $1,000, which states that when the check has cleared the bank, the release will release any lien rights for the amount paid. The following month, the owner will receive an Unconditional Waiver and Release for that $1,000 and give a new Conditional Waiver for the current payment. At the end of the project, the owner can use the conditional and unconditional waivers with respect to the final payments.

If a property is liened, the owner should immediately consult an attorney. A lien can be removed from the property by: (1) paying the amount; (2) obtaining a surety bond for one and one-half times the amount of the lien, which is then substituted for the property as security for the debt; (3) making an application to the court to have a frivolous or excessive lien either removed or reduced; or (4) successfully defending a lawsuit brought to foreclose on the lien.

Georlen Spangler
Georlen Spangler is an attorney with the Las Vegas law firm of Kolesar & Leatham, Chtd.