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Iowa Liens: Master Mechanic’s for All Projects

Credit management is a risky business. Every credit decision is directly influenced by ever-changing micro- and macro-economic factors. To better mitigate risk, credit professionals must be proactive in their credit limit assessments for new and existing customers. According to a recent eNews poll, most credit professionals review existing customer credit limits on an annual basis (64%), while some reassess credit limits as frequently as every six months (23%). Others reassess credit limits less often, such as 18 months (4%) or 24 months (10%) at a time. The frequency of reviewing credit limits can be due to one or a combination of factors.
 |  Kendall Payton, social media manager  |  , ,
Structural engineer and foreman worker with touch pad discuss, plan working for the outdoors building construction site.

A mechanic’s lien is a tool to secure payment across all states. However, each state has adopted their own unique set of rules or statutes which must be followed to preserve and protect rights. Nearly 10 years ago, statute laws in Iowa changed, developing a registry for filing preliminary notices on residential projects.

Changes in the statute have also impacted commercial and public projects in Iowa. For example, if a lien is filed on a property, the contractor who put the lien on the property can also file in court to enforce the lien, leaving the court to decide if the property will be sold to pay off the amount owed. Also, if the contractor did not complete the work up to par, you can object to the amount of money that the contractor claims is owed.

“It’s essential to be able to understand what a mechanic’s notice and lien registry entails,” said Chris Ring of NACM’s Secured Transaction Services. “If there is a project where a preliminary notice needs to be served, it must be done through the mechanic’s notice and lien registry for residential projects in Iowa. Commercial projects are not listed on the mechanic’s notice and lien registry, but to maintain your lien rights, you must serve the preliminary notice within 30 days of the first version.”

Another important aspect of mastering mechanic’s liens in Iowa is knowing the difference between unpaid balance lien states and full-price lien states. In a full-price lien state, your lien rights will be intact if all processes are done timely and accurately for the statute, regardless of the amount of money owed to the general contractor. In an unpaid balance lien state, if the owner can prove that they paid the general contractor prior to the lien being filed, then the owner has a defense to that mechanic’s lien. Iowa is listed as an unpaid balance lien state because once the preliminary notice is served on commercial jobs or through registry on residential jobs, it can trap unpaid funds, turning into a full-price lien. However, late trades like paint and flooring face a dilemma if there are costs that overrun. Even though the preliminary notice is served or registered, there may be limited or no funds owed to the general contractor.

“For Iowa, I would look at it compared to most of the other states that require a first furnishing notice,” said Issac Kotila, Credit Support Manger at Insulation Distributors (Chanhassen, MN). “You have to let the owner and general contractor know you’re supplying material to the project or providing a service and that you do intend on getting paid after performing the work. It gets that initial notice out of the way instead of doing that on the backend when payment hasn’t been received.”

Liens are typically required to be filed within 90 days of the last furnished material. In Iowa, if you miss the 90-day window, you can still present your reasoning in court, which is an option for recourse not available in many other states. “It’s nice for suppliers to have that back-up option in case the lien is filed incorrectly,” said Kotila. “The biggest impact of securing or maintaining lien rights in Iowa is the security you obtain on the funds you have out for that project. We as credit professionals work daily on collecting funds and maintaining these balances on these projects, so having those lien rights to fall back on in the event of non-payment is a great tool at our disposal to ensure those funds are paid.”

Iowa’s mechanic’s lien can be used as an efficient process for credit professionals to collect because it provides as a supplement to the contract in the state, being an additional remedy. From a legal perspective, it is especially important to pay attention to any waiver language included in contracts. “Though it is on a case-by-case basis, the new statute has created a major number of open questions for lawyers to litigate,” said John Fatino, attorney at Whitfield & Eddy, PLC (Des Moines, IA). “Immediately figure out what the paradigm is, whether public, residential or commercial and then try and get to the statute as fast as possible. Reach out to counsel and move quickly within 90 days.”

Interested in learning more about mechanic’s lien laws in Iowa? Be sure to register for NACM’s upcoming webinar on Mastering Mechanic’s Liens in Iowa: Distinguishing Commercial, Residential and Public Projects on Dec. 14. You can learn more about the intricacies of mechanic’s lien laws in each state by purchasing the 2022 Manual of Credit and Commercial Laws Volume III.

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Kendall Payton, social media manager

Kendall Payton is a social media manager at NACM National. As a writer who covers all things in B2B trade credit, her eNews stories and Business Credit magazine articles are crafted to keep B2B credit professionals abreast of industry trends. When she’s not in writer mode, she’s hosting the Extra Credit podcast or leading NACM’s Credit Thought Leaders forum—a platform for credit leaders to network and discuss challenges and solutions. Though writing and podcasting have become her strong suits, Kendall loves to edit and create video content in her free time.