By: Daniel M. Drewry
The Indiana Court of Appeals has recently issued an opinion on mechanic’s liens focusing on the technical requirements of the mechanic’s lien statute. In Capital Drywall Supply, Inc. v. Jai Jagdish, Inc. issued September 29, 2010 (http://www.in.gov/judiciary/opinions/pdf/09291001ewn.pdf) the Indiana Court of Appeals confirmed what construction lawyers have suspected for many years – the failure to properly identify the property owner on the notice of mechanic’s lien filed in the County recorders office will render a lien claim unenforceable. In rendering the decision, the Court of Appeals strictly construed the statute and refused to accept the lien claimant’s arguments that the misidentification of the owner was the result of a County government official’s mistake in identifying the owner over the phone. The Court also did not accept the lien claimant’s argument that the true owner received actual notice of the lien.
The Court focused on the two reasons why identifying the owner is so important to the mechanic’s lien process. First, the notice is important because it gives the actual owner notice that a claim has been filed against his property. Second, the notice filed in the County recorder’s office give “third-parties” who may be taking an interest in the real estate at issue after the lien is filed notice that the property is encumbered by a lien. The Court found that while the actual owner of the property in Capital Drywall Supply, Inc. did receive actual notice, third parties would not have found the interest because the owner of the property was misidentified. Thus, the Court held the lien was invalid for failing to comply with the statute.
For construction industry participants this means that if the lien claimant wants to be certain of the validity of the lien, the claimant should consider a physical title search of the property in question to be sure to identify the proper owner. Obviously, this decision increases the costs associated with making sure that the lien rights are perfected. Thus, in determining the best course of action to get paid on a construction project the claimant may decide the level of diligence required based on the amount of the unpaid work – in making the decision to not conduct a physical search of County records, the claimant is taking the risk of misidentifying the owner rendering the lien claim void.