Fraudulent Construction Liens: Willful Exaggeration or Good Faith Dispute?

If you’re a contractor trying to foreclose on a construction lien, you might face a defense claiming that your lien is fraudulent. This could lead to a lawsuit and damages against you. Even if you know you’re an honest contractor, it’s important to carefully review how you put together your claim to avoid these problems. This article looks at different situations where fraudulent lien claims come up and the court cases that decide how these claims are handled. It’s a good starting point for understanding potential fraudulent lien cases. If a contractor doesn’t follow the law when filing a lien on a property, it can be considered fraudulent. This means the owner can defend against the lien and even sue for damages. When there’s a dispute, a jury might decide on the contract issues, while the judge handles the lien problems. This happens when people don’t agree on money owed for construction work. If a contractor files a claim of lien for work they didn’t actually do, the property owner can argue that the lien is fraudulent. This happened in the case of Viyella Co. v. Gomes, where the contractor admitted to not completing a substantial portion of the work they claimed to have done. The court ruled in favor of the property owners, saying the contractor’s own inconsistencies and admission of not completing the work proved the lien was fraudulent. When someone files a claim of lien for things that are not allowed by law, like damages for breach of contract, it can be difficult for courts to decide if the lien is fraudulent or not. Different courts have different standards for deciding this. Some courts look at whether the lienor acted in good faith, while others only consider whether nonlienable items are included in the claim of lien. The second approach is probably better because it gives a clearer answer and is easier to compare with other cases. But the first approach is more consistent with other cases that say good faith contract disputes are not considered fraudulent liens. If someone files a lien claiming they did work but there’s a dispute about whether the work was actually done, the court will look at whether the person honestly believed they did the work. If they honestly thought they did the work, then the lien is okay. But if they know they didn’t do the work, then the lien is fraudulent. In some cases, when a property owner disagrees with how a contractor calculated the amount owed for work, the contractor may try to file a fraudulent lien to get more money. However, the law says that the lien is not fraudulent if the contractor only includes the amount for work actually done. This means that if the contractor and owner have a disagreement about how much the work is worth, it’s not considered a fraudulent lien. If a contractor tries to assert a lien for work that wasn’t authorized by the owner or wasn’t part of the contract, it’s considered fraudulent. This means they can’t claim money for things that weren’t agreed upon in writing. Even if they argue they acted in good faith, the court usually won’t accept it. This is because the law says a lien is fraudulent if the contractor knowingly asks for more money than they’re entitled to. If there’s a genuine disagreement about how much is owed, that’s a different story. But if the contractor is trying to get paid for something that wasn’t approved, it’s likely to be considered fraudulent. Fraudulent lien claims can happen for different reasons, so it’s important for a lawyer to carefully consider whether a client’s lien might be found fraudulent. Even if the lien holder had good intentions, there are still some situations where a court might rule the lien fraudulent. This could happen, for example, if the lien includes things that can’t legally have a lien placed on them. Florida Statutes §713.05 allows for liens to be placed in order to recover the value of labor, services, materials, or other items required by, or furnished in accordance with, the direct contract. If a lien is found to be fraudulent, it must be based on evidence in the record. If a contractor does not deduct certain undisputed credits from its lien, it cannot be concluded as a matter of law that this was a willful miscalculation. Matthew S. Nelles is a lawyer in Ft. Lauderdale who specializes in resolving disputes related to construction and business.

Source: https://www.floridabar.org/the-florida-bar-journal/fraudulent-construction-liens-willful-exaggeration-or-good-faith-dispute/