Last Furnishing, Lien Deadlines, and a Mortgage That Got There First
You are the drywall subcontractor on a $148,000 contract for a 12-unit apartment renovation. You stopped hanging and finishing on March 14 because the general contractor had not paid your February invoice. On April 20 you sent two workers back for two days to patch damaged board so the building could pass its inspection; there was no written change order and you billed $600. The owner's construction mortgage of $9.2M was recorded January 5, and site work began January 10. The GC is now slow-paying everyone and tells you "the owner's money is tied up, you'll get paid when we get paid." You have not yet recorded anything, and the owner's title company is preparing for a spring closing.
1. Determine the last date you furnished labor or material for lien purposes and compute your lien deadline. What is the risk in using the April 20 date?
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The lien period in Minnesota runs from the last date labor or material was furnished under the contract, and it is short - on the order of 120 days to record the lien statement, with service on the owner required shortly after recording. Verify the current statute and the exact service window before you rely on any date.
Substance over the invoice. The April 20 trip was punch-list correction of damage, two days, $600, with no change order. Work of that character - correcting defects, warranty callbacks, and minor touch-up - is generally treated as not extending the lien period, because otherwise every contractor could revive a stale lien with a return visit. The same is true of the "pay when paid" argument: it does not suspend your lien clock. Only a genuine addition to the scope, ordered by the owner or the GC, restarts it.
Compute from March 14: March has 17 days remaining, plus April 30, May 31, June 30 = 108, plus 12 days into July = July 12. That is your conservative outside date.
The risk: if you wait for April 20 and a court finds the patch work was not a scope addition, you have blown your lien by roughly five weeks and you are an unsecured creditor of a GC who is already failing. Record and serve based on March 14. If the lien is later amended, you have preserved the earlier date.
2. Assume your lien is timely recorded. Where does it rank against the $9.2M construction mortgage, and does that change your strategy?
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Priority analysis. A mechanic's lien attaches as of the first visible commencement of work on the improvement - here, January 10. But it attaches to the owner's interest subject to prior recorded encumbrances. The mortgage was recorded January 5, five days before work began, so the mortgage is senior to your lien.
What that means in dollars. Senior debt of $9.2M comes off the top of any foreclosure or sale. Your $148,000 lien is only worth something if the completed project value exceeds $9.2M plus senior costs plus any other senior liens. On a 12-unit renovation that is a real question, and you should assume the answer may be no.
Strategic consequence. Do not spend the next year foreclosing on a lien that is behind the lender. Shift to the remedies that pay in cash:
- Payment bond. Demand a copy of the GC's payment bond from the owner and the GC, and give bond notice immediately - bond notice deadlines can be shorter than lien deadlines. Bond claims are not subordinated to the mortgage.
- Talk to the lender and title company. They are closing in the spring and they need clean title; a recorded lien with a documented amount is leverage at exactly the right moment.
- Joint checks and direct payment demands to the owner, with written notice that you are unpaid and that the owner may be exposed to double payment.
- Suspend work on written notice for the remaining scope rather than extending credit further.
3. The GC responds that under the subcontract you must wait for owner payment before you are entitled to anything. How do you evaluate that defense, and what should you be gathering?
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Treat "pay when paid" as a timing provision, not a risk transfer, and test it against the subcontract language rather than the GC's characterization.
Ask three questions of the document:
- Does it say payment is due when the owner pays (a timing condition), or does it say payment is conditioned upon owner payment such that you bear the credit risk? Courts read these differently, and ambiguity is usually construed against the drafter.
- Is there an outside date? Well-drafted clauses give the sub a right to payment after a stated period regardless of owner payment. No outside date makes the provision far more suspect.
- Has the GC actually been paid for your work? If the GC has received draws covering drywall and simply is not passing the money through, the condition fails on its own terms.
Gather now, while records are fresh: the executed subcontract and all riders; your pay applications and the GC's signed approvals; the GC's lien waivers to the owner (which show what the GC certified it had paid); your invoices and delivery tickets; daily reports establishing last furnishing; and any correspondence about the owner's funding problems. The GC's own waiver to the lender, certifying that subs are paid, is often the single most useful document you will find.