The Tennessee Court of Appeals released another opinion in a construction dispute earlier this week. In East Tennessee Grading v. Bank of America (.pdf), the court grappled with competing ownership claims and made its decision primarily on grounds of timing.
In this case, the owner of a residential development did not pay the excavation contractor. The contractor filed suit to enforce its $2 million lien for excavation and road work. An agreed judgment was entered as to the contractor's claims against the owner, awarding judgment for materials and labor performed on the property. It was discovered that one parcel of the total 150 acres of property was owned by someone other than the developer. That small parcel was subject to a deed of trust in favor of Bank of America.
The trial court held that Bank of America had priority over the contractor as to 1.9 acres because the contractors had not filed its "Notice of Lien" in a timely matter to maintain priority over the subsequent owners pursuant to Tenn. Code Ann. § 66-11-112. However, the trial court also held that the contractor had priority over Bank of America as to the remaining 4.46 acres because the contractor's Notice of Lien was filed before the Amended Deed of Trust in favor of Bank of America was filed. The appellate court affirmed the trial court's decision
The decision provides some key practice points for lien claimants:
- You must know, understand and follow your deadlines. The case was brought under the pre-2007 amendments and the court in East Tennessee Grading had to carefully walk through the timeliness of notice requirements. Also, since the contractor abandoned the work based upon the owner's non-payment, there was an additional timeliness question for "completion or abandonment" of the work. You need to make sure you understand all the notice requirements and filing deadlines.
- A lien may be enforced even against subsequent purchasers. In limited circumstances, if a sworn statement is not recorded within the applicable statutory time period, the lien's priority as to subsequent purchasers or encumbrancers is determined as of the date of the recording. In other words, you may lose priority over a subsequent purchaser even if the work was performed prior to the sale.
- Tennessee is now a "substantial compliance" state. This is a new standard within the past few years. Tennessee lien law once required “strict construction,” as was stated in the East Tennessee Grading opinion. However, the General Assembly changed the law in 2007 to require only “substantial compliance.” The new statute is to be “construed and applied liberally.” T.C.A. § 66-11-148(a). This was a significant change in the law.
Image: Catherine on Flickr