LEGALLY SPEAKING Slander of Title: When Your Mechanic’s Lien Bites Back Mechanic’s liens are a necessary and common, albeit unfortunate, part of construction contracting. While most contractors and subcontractors working on private construction projects are likely aware of their rights to file mechanic’s lien as a means of securing and collecting payment, many may not be aware that an invalid lien can expose the lien claimant to liability. Mechanic’s liens allow a contractor or subcontractor that has not been paid to make a claim against, and take a security interest in, the title of the property on which the contractor has performed work or has furnished materials to improve that property. A mechanic’s lien is a powerful tool, as the lien attaches to and affects the title to property prior to the contractor proving entitlement to payment, putting pressure on the owner to make payment or force a contractor to make payment to its subcontractors. For this reason, courts determining the validity of a lien require that the contractor strictly comply with the statutory procedures for preserving, perfecting, and foreclosing upon lien rights. Similarly, because the lien affects the owner’s title to its property, a contractor can be liable for placing an improper lien on the property. Most jurisdictions provide a cause of action to an owner against anyone making false and malicious written or spoken public statements disparaging or clouding the owner’s title to property and causing the owner harm. This is commonly referred to as “slander of title.” Under certain circumstances, a wrongful lien can be deemed slander of title. As a general rule, mechanic’s lien claimants are protected from liability for the filing of erroneous liens by a judicially- recognized privilege applying to writings and statements made in the course of a judicial proceeding. The extent of the privilege recognized by courts varies by jurisdiction. In some jurisdictions, such as California and Virginia, the filing of mechanic’s liens is absolutely privileged and thus cannot form the basis of claim for slander of title. In those jurisdictions, a contractor with doubts or questions about the timeliness or validity of a lien can file without fear of liability should the lien later be deemed invalid. In other jurisdic- tions, such as Maryland and Florida, mechanic’s liens are afforded a condi t ional privilege. In those juris- dictions, the contractor is protected from liability, provided the lien was filed in good faith and/or was not filed maliciously. Still other jurisdictions, such as New Jersey and Georgia, treat statements in the lien filings as absolutely privileged, but only if a suit to enforce the lien is later filed. T h e d e f i n i t i o n o f Brian Wood Attorney Of Counsel Smith, Currie and Hancock Given the widely varying laws “malice”—for the purposes of slander of title—varies widely by jurisdiction. While some jurisdictions require proof of ill will, lack of good faith, or otherwise bad intent, many jurisdictions consider a claim on title of property malicious if made with knowledge of the invalidity of the claim or reckless disregard as to the validity of the claim. States applying this standard include Indiana, Maryland, Minnesota, Nebraska, New York, Tennessee, Colorado, Kansas, Louisiana, Michigan, Mississippi and Rhode Island. Courts have held that malice includes the failure to determine the validity of a mechanic’s lien before filing. In Display Fixtures Co., a Div. of Stein Industries, Inc. v. R.L. Hatcher, Inc., the Court of Appeals of Indiana held that “[m]alice could be inferred from [the supplier’s] failure to make regarding slander of title, contractors and subcontractors filing mechanic’s liens should always make reasonable efforts to verify the details of mechanic’s lien claims… reasonable inquiry regarding facts dispositive of the question of whether there could be a valid mechanics lien filed.” In that case, the material vendor failed to verify whether it had mechanic’s lien rights by determining whether the materials were used as part of improvement of a property. The vendor also failed to determine the date on which materials were shipped. It was the failure to take steps to determine lien rights, not the invalid lien itself, that created liability for the supplier. Given the widely varying laws regarding slander of title, contractors and sub- contractors filing mech-anic’s liens should always make reasonable efforts to verify the details of mech-anic’s lien claims, including dates of last work, amounts claimed, property description, etc. While mistakes and good faith disputes over lien claims are generally not bases for slander of title actions, disregard as to validity of the lien is in many jurisdictions. Failure to take reasonable steps to verify lien details may be deemed reckless disregard. Also, con- tractors are cautioned against making extraneous statements about the filing of a mechanic’s lien during the course of discussions about payment, as statements indicating negative intent or disregard about the validity of the lien could later be used to prove slander of title. DEEP FOUNDATIONS • JULY/AUG 2018 • 115
