While the technical requirements for preparing and filing liens offer countless opportunities for mistakes, two in particular seem to predominate. The first is the failure to properly calculate the 75-day period for filing the lien. The 75-day period begins to run from the earlier of (i) the day the contractor or supplier ceased to provide labor or materials or (ii) the completion of construction. When relying upon the second prong (the completion of construction), contractors often mistakenly calculate the 75-day period from the last day they performed work on the project. Oregon courts have held that, for purposes of the lien statute, “completion of construction” refers to substantial completion, not final completion and not punch-list work. Accordingly, the 75-day period may be running while the contractor is still on site getting the project to final completion.
Contractors are also occasionally tripped up in calculating the 75-day period on projects that have been stopped, perhaps because the owner has temporarily run out of money. They sometimes mistakenly assume that the 75-day period has not started to run yet because the project has not been completed. ORS 87.045 provides that where work on a project has ceased, it shall be deemed completed 75 days after cessation. Accordingly, when work on an uncompleted project stops for an extended period, liens need to be filed within 150 days (the project will be deemed completed 75 days after work stops, and the lien then needs to be filed within 75 days thereafter).
The second-most common mistake with liens is the failure to segregate materials and labor, combined with the failure to serve a notice of right to lien. While an Oregon lien for labor has priority over a prior recorded lien (the most concerning one being a bank’s trust deed), a lien for materials generally has priority over a prior lien only if the supplier provided a notice of right to lien within eight days of delivering materials (the notice only protects materials provided within eight days of the notice). While material suppliers do a good job of providing notices of right to lien, contractors and subcontractors often do not, even though they are providing both labor and materials. Oregon courts have held that where a contractor has failed to provide a notice of right to lien, and has subsequently failed to segregate the labor and materials in the lien, the entire lien will be treated as if it were for materials, which results in its being subordinate to any prior liens. In most cases, for practical purposes, this will render the lien worthless. If the notice of right to lien has not been given, but the materials and labor are segregated, at least the claimant has preserved its priority for the labor portion of the lien.
Our best practical advice about liens is to not wait until the 75th day to file, but to instead file well before the deadline. We’ve seen many liens disqualified because someone was unfortunately wrong about when the 75-day period started to run. Likewise, we always advise segregating labor and materials when preparing a lien. A lien without priority is often the equivalent of having no lien at all.