In Hobbs Construction and Development, Inc. v. Presbyterian Homes, the contractor filed a claim of lien in the amount of $677,023.15. The owner counterclaimed, alleging that the lien was fraudulent. The deposition of the contractor’s chief engineer established that the lien included amounts for additional field overhead, additional labor, and interest at a rate of 16.5 percent. The trial court found that Hobbs should not have included in the claim amounts not authorized by the contract or by change order.
On appeal, the contractor argued that the lien was compiled with particularity and that if the lien was not valid under Florida law, the contractor would be accountable only for a mistake of law. The appellate court affirmed the trial court’s finding of a fraudulent lien and held:
[T]he Mechanics’ Lien Law is not to be taken lightly as a tool to force improper payments from owners of improved property. One of the purposes of the Mechanic’s Lien Law is to assure to the owner, in an arm’s length transaction, that so long as he complies in good faith with its provisions he will be able to construct a specific improvement on his property for a given contract price …
Hobbs included in its claim of lien those amounts which could not be justified by change orders or the terms of the contract. This supports the trial court’s determination of a willful exaggeration, resulting in an unenforceable fraudulent lien.
In Forest Construction, Inc. v. Farrell-Cheek Steel Co., the Second District Court of Appeal was even more critical of a contractor’s actions with respect to a lien claim. The contractor recorded a claim of lien and filed suit to foreclose a lien in the amount of $325,322.64. At the conclusion of a non-jury trial, the court found that the contractor’s claim had been willfully exaggerated because the majority of the money claimed had not been due at the time the Claim of Lien was recorded. The court reduced the contractor’s claim and, on the basis of the fraudulent lien statute, affirmed the award of attorneys’ fees to the owner in the amount of $22,000.
The Forest Construction decision appears to impose a fraudulent lien where lien claimants simply jump the gun and record a lien prior to payment becoming due. This case is disturbing because some contracts may delay final payment beyond the 90-day time period within which a lien must be recorded. This dilemma is especially true for early subcontractors or suppliers who await project completion to receive their retainage.
A decision by the Second District Court of Appeal reversed this trend to stricter application of the fraudulent lien section. In Vinci Development Co. v. Connell, the trial court had reluctantly held that the contractor’s lien was “fraudulent” because the “jury returned a verdict for contractor in an amount substantially less than his claim of lien,” regardless of the contractor’s good faith in filing the claim. The Second District reversed the trial judge and stated:
A contractor is entitled to a lien based upon the compensation he is due according to the express terms of the contract between the contractor and owner … A subsequent dispute between the parties as to the amount of compensation due according to the contract plan of compensation or even a dispute as to the method of compensation provided in the contract does not convert such a good faith dispute into a fraudulent lien … The legislature clearly did not intend to make fraudulent a circumstance where, as here, a contractor never claims to have performed more work than he has in fact performed but rather has a good faith dispute with the owner as to the method of compensation for that work.
This trend toward consideration of good faith in filing of a construction lien was continued in William Dorsky and Associates v. Highlands County Title. In this case the court viewed the consultation with an attorney, along with presentation of evidence of an entitlement under a theory of substantial performance, as a “good” faith assertion of a supposed right. In 1990 the Legislature codified these cases by inserting consideration of good faith as a valid defense to fraudulent lien claims.
The “bottom line” for prudent lien claimants is to act in good faith. All liens should be compiled carefully, recorded timely and supported by your contract, change orders and appropriate financial records.