Sometimes a Lien Waiver Isn't a Lien Waiver
Posted on Oct. 26, 2012

The Utah Court of Appeals recently held in Lane Myers Construction, LLC v. Countrywide Home Loans, Inc. that a contractor’s certification that there were no liens or claims that might result in a lien was not equivalent to a written waiver and release of lien rights form required by the Utah mechanics’ lien act.

In the case, the contractor was not paid in full for its work in building a home.  It recorded a mechanics’ lien and sued to foreclose.  The homeowners’ lender argued that the draw requests the contractor submitted to draw funds from the construction loan had effectively waived any mechanics’ lien rights for construction work completed prior to the date of each request. Each draw request contained identical language:

“The Borrower(s) and General Contractor state that . . . available proceeds of the loan are sufficient to finally and fully complete and pay for completion of improvements, and that no suppliers, subcontractors, laborers, or other persons are claiming or are entitled to claim a lien against the property securing the loan.”

During the construction, the contractor had executed at least eleven of these draw requests.  In addition, the contractor executed a final draw request that provided: “The General Contractor has to date been paid in full for all work performed,” “no liens or claims that may result in liens exist against the above-described property,” and “upon said disbursement by Lender the General Contractor will be paid in full under the Construction Contract.”

Based on the language of the draw requests, the lender argued that the requests created a lien release pursuant to former Utah Code section 38‐1‐39 (now 38-1a-802) and barred any claim for foreclosure of the lien.  The trial court agreed and awarded the lender summary judgment.

In reversing the trial court and finding for the contractor, the Court of Appeals noted that, while the draw requests contained much of the information required under Utah Code section 38‐1‐39, the statute must be liberally construed in favor of lien claimants and the draw requests were not “in substantially the form provided” in the statute.  The Court of Appeals concluded that, at a minimum, a valid lien waiver and release form must contain each of the statute’s components to be “in substantially the form provided” and therefore comply with the requirements of section 38‐1‐39.  The lender’s draw requests did not explicitly state that they were intended to be waivers and releases of mechanics’ liens.

The takeaway from this case is that those relying on lien waivers and releases should either use the forms provided by the Utah Legislature or ensure that their “custom” forms contain the required components under section 38-1-39.  As always, consultation with an attorney familiar with lien waivers is recommended.

Construction Law
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About Adam

Adam
Attorney Adam T. Mow

Adam is a trusted resource for architects, engineers and other members of the construction industry in litigation, risk management, contract negotiations and mechanics’ liens. Adam is also a licensed architect and a past president of the Utah chapter of the American Institute of Architects. He has been elected by his peers to the Utah Legal Elite since 2009.

Awards and Recognition

AV Rating

Excellence in the Study of Architecture, American Institute of Architects Certificate of Merit, 1999

CALI Award for Excellence in Mediation and Advanced Negotiation, 2003

Community Mediator of the Year, Utah Dispute Resolution, 2007

Graduate of the Last Decade, Ball State University, 2008

Utah Business Magazine, Legal Elite, 2009-Present

Mountain States Rising Stars (Construction Litigation), 2009-Present