Construction Liens in Oregon
Contents
Overview
Oregon is a direct lien state. This means that claimants who comply with the necessary notice and filing provisions have the direct right to file a lien claim even if the person with whom they have a contract (such as the general contractor or higher-tier subcontractor) has been paid.
Construction liens in Oregon are also referred to as "Mechanic's liens" throughout the Oregon Revised Statutes.
Sources
Statutory Liens - ORS §§ 87.001 et seq.
Underwriting
Agents are required to follow the Early Issuance (EI) Process. The approvals are done by state underwriting counsel for Oregon.
Authorized Claimants
For the purposes of construction of any improvement upon real property at the instance of the property owner or construction agent of the owner, the following people may file a construction lien:
- Any person performing labor upon the improvement;
- Any person transporting or furnishing any material to be used in the construction;
- Any person who engages in or rents equipment for construction purposes; or
- An architect, landscape architect, land surveyor or registered engineer who prepares plans, drawings, surveys or specifications that are intended for use in or to facilitate the construction or who supervises the construction.
Lien Priority
Construction liens relate back to the date construction commenced for purposes of establishing priority. ORS 87.025(7). Commencement of the improvement means “the first actual preparation or construction upon the site or the first delivery to the site of materials of such substantial character as to notify interested persons that preparation or construction upon the site has begun or is about to begin." ORS 87.005(1).
Generally, perfected construction liens have priority over both previously and subsequently-recorded mortgages encumbering the improvement or the underlying land. ORS 87.025(1),(2).
However, a construction lien for repairs or alterations to an improvement will not take priority over a preexisting mortgage or trust deed on the subject improvement unless the preexisting mortgage provided financing for the repairs or alterations. ORS 87.025(6). In other words, this statute distinguishes between construction liens arising from new construction and construction liens arising from the alteration or repair of an existing improvement.
Accordingly, a perfected construction lien under ORS 87.010(1) has priority over prior liens, mortgages, and encumbrances if the claimant participated in the original construction of the new improvement. ORS 87.025(6).
On the other hand, if the construction lien arises from the alteration or repair of an existing improvement, the construction lien will have priority over (i) all trust deeds recorded after the commencement of the improvement, and (ii) any trust deed recorded before the commencement of the improvement, if proceeds from the loan were used to finance the alteration or repair. ORS 87.025(6).
Additionally, ORS 87.015 extends the scope of liens created under ORS 87.010 to the portion of the land “that may be required for the convenient use and occupation of the improvement constructed on the site, to be determined by the court at the time of the foreclosure of the lien…if, at the time of the commencement of the improvement, the person who caused the improvement to be constructed was the owner of that site and land.” ORS 87.015(1).
To enforce a construction lien, the improvement may be sold separately from the underlying land, and the purchaser may remove the improvement upon payment to the owner of the land of a reasonable rent for its use from the date of its purchase to the time of removal. ORS 87.025(2).
Notices and Registries
Certain “Pre-Notices” are required before a construction lien may be enforced:
- Any contractor who contracts directly with a residential property owner or sells a new residence directly to the owner must provide an “Information Notice to Owner about Construction Liens”. The notice must be given if the construction contract is for more than $2,000 or if the sale of a new residence occurs within seventy-five (75) days of the completion of construction. Failure to provide such notice will prevent an original contractor from enforcing a claim of construction lien. ORS 87.093.
- Subcontractors, material suppliers, and equipment suppliers who do not have direct contracts with an owner, in order to preserve their lien rights, are required to send a “Notice of Right to Lien” to the owner (and to any mortgagee whose name and address appear in a mortgage or deed of trust of record) within eight (8) days (not including Saturdays, Sundays, and other holidays) after beginning work or services or first supplying materials or equipment. While the notice may be given at any time during construction of the improvement, it only protects the right to perfect a lien on those services provided after a date which is eight days before the notice is given. ORS 87.021.
With respect to the construction lien itself:
- A notice in writing must be mailed to the property owner and the mortgagee notifying them that the lien has been filed;
- A copy of the lien must be attached to the notice; and
- The notice must be mailed not later than 20 days after the date of lien filing.
Special Notice Provision for Materials and Supplies
No lien for materials or supplies shall have priority over any recorded mortgage or trust deed unless notice is given to the mortgagee within eight (8) days after the date of delivery of materials or supplies.
Perfecting a Lien
A construction lien must be perfected not later than 75 days after ceasing to provide labor, rent equipment, furnish materials or prepare plans, drawings, surveys, etc. or 75 days after completion of construction, whichever is earlier.
To perfect a construction lien, a claim must be filed with the recording officer of the county in which the real property is located.
The claim must contain:
- A statement of demand;
- The name of the owner of the property;
- The name of the person by whom the claimant was employed or to whom the claimant furnished materials or rented equipment; and
- A description of the property to be charged with the lien, including the address if known.
Note that a legal description is not required as long as the description provided is sufficient to identify the property. The claim must also include a verified oath by the claimant or someone having knowledge of the facts under penalty of perjury.
Enforcement Deadlines
A construction lien encumbers real property for 120 days after the claim of lien is recorded with the county, unless a lawsuit is filed to enforce the lien within that time frame.
However, if there are terms of extended payment provided in the claim of lien, then the construction lien will encumber the real property for 120 days after the expiration of the extended terms, but in no event longer than two years from the time the claim of lien is filed.
Releases
1. Bond
A property owner may remove a perfected construction lien from the land or improvement by filing a bond with the county recorder's office or depositing a cash deposit with the county treasurer. The bond or cash deposit must be 150% of the amount of the lien claim or $1,000, whichever is greater. The bond or deposit may be made at any time after the claim of lien is filed.
Notice of filing a bond or deposit of money must be served upon the lien claimant within twenty (20) days of the filing or deposit. If notice is not given as required, the bond or deposit is of no effect.
2. Release
A release of a construction lien may also be recorded with the county. It must reference the original construction lien recording document information and property that is subject to the lien, state the lien is paid in full and that the construction lien is released, and be signed by the original lien claimant.
Other
A contractor may not perform work if the aggregate price of the contract work exceeds $2,000, without a written contract. ORS 701.305.
The Oregon Homebuyer Protection Act (ORS 87.007) is designed to protect new home buyers from liens filed related to construction work performed before their purchase. The law applies to the sale of a new single family home (or duplex, triplex, or condominium unit) or to an existing single family home (or duplex, triplex, or condominium unit) that was remodeled at a cost of $50,000 or more within three (3) month before the property is sold.
To protect the buyer and comply with the law, the builder-seller must complete a Notice of Compliance with the Homebuyer Protection Act. Both seller and buyer must sign the form and retain copies for their records. The builder-seller must indicate on the form that they have provided protection for the buyer against claims of lien by: (i) purchasing early issue title insurance; (ii) retaining at least 25% of the sales price in escrow; (iii) obtaining written lien waivers or releases from all contractors; (iv) obtaining a bond or letter of credit in an amount equal to at least 25% of the sales price; or (v) waiting to complete the sale until the 75-day construction lien filing period has expired.
Section 5.002 of the OTIRO Rating Manual, deals with the additional charge to be imposed (commonly referred to as an “early issue” charge) when an owner’s or loan policy is issued after completion of construction but prior to expiration of the 75-day period for the filing of construction liens.
