What are Persuasive Defenses to a Fraudulent Lien Claim?
Following the filing of a construction lien, a lienor may be faced with an allegation that the lien is fraudulent and thereby unenforceable. Not only may a fraudulent lien claim act as a complete defense, but such a claim may also support an action by the lienee to recover damages stemming from the fraudulent lien.
What are the lienor’s options when met with a fraudulent lien claim? The following defenses may be raised to avoid costly punitive damages and successfully enforce a construction lien.
I. Fraudulent Liens
Pursuant to Florida Statute Section 713.31(2)(a) the court may find a lien to be fraudulent if any of the following apply:
Any lien asserted under this part in which the lienor has willfully exaggerated the amount for which such lien is claimed or in which the lienor has willfully included a claim for work not performed upon or materials not furnished for the property upon which he or she seeks to impress such lien or in which the lienor has compiled his or her claim with such willful and gross negligence as to amount to a willful exaggeration shall be deemed a fraudulent lien.
For more on fraudulent liens see our blog: When Is A Construction Lien Deemed Fraudulent?
II. Defenses to Fraudulent Liens
At the heart of the analysis, the lienor must show good faith in the claim of lien. While good faith alone is often insufficient to defend against a fraudulent lien, it is an essential factor in the court’s determination regarding the validity of the lien claim. See Sam Rodgers Props. v. Chmura, 61 So. 3d 432 (Fla. 2d DCA 2011); Onionskin, Inc. v. DeCiccio, 720 So. 2d 257 (Fla. 5th DCA 1998).
When faced with a fraudulent lien claim, the lienor must justify the lien amounts in excess of the total contract price, by providing supporting documentation to avoid a finding of willful exaggeration of the lien amount. Hobbs Constr. & Dev., Inc. v. Presbyterian Homes of Synod of Florida, 440 So. 2d 673 (Fla. 1st DCA 1983). If an error exists, the lienor may make a showing that the lien error is a “minor mistake or error in a claim of lien, or a good faith dispute as to the amount due…” to negate the claiming party’s assertion of willful exaggeration to constitute a fraudulent lien determination. Fla. Stat. §713.31(2)(b).
According to the Fifth DCA, the trial court ultimately “has discretion in determining the intent and good or bad faith of the lienor….” Stevens v. Site Developers, 584 So. 2d 1064 (Fla. 5th DCA 1991). In Stevens, the Fifth DCA rejected a fraudulent lien claim based on the inclusion of non-lienable amounts because the ultimate determination of whether lien amounts were made in good faith rests upon the trial judge. Id.
Moreover, obtaining legal counsel is a meaningful way to show the absence of bad faith or exaggeration. While not providing complete protection, the court will generally find good faith on the part of a lienor that obtains legal counsel so long as he gives full and complete disclosure of the pertinent facts to the counseling attorney. William Dorsky Assoc., Inc. v. Highlands County Title & Guaranty Land Co., 528 So. 2d 411 (Fla. 2d DCA 1988); Stevens, 584 So. 2d 1064. However, the lienor is not protected if they provide the counseling attorney with false information, and a bad faith finding is the likely result. Sharrad v. Ligon, 892 So. 2d 1092 (Fla. 2d DCA 2004).
While less common, some districts, such as the Third DCA, follow an objective standard, finding a lien to be fraudulent so long as there is competent, substantial evidence that the lien includes non-lienable items. See, e.g., Ponce Inv., Inc. v. Financial Capital of Am., 718 So. 2d 280 (Fla. 3d D.C.A. 1998); Delta Painting, Inc. v. Baumann, 710 So. 2d 663, 664 (Fla. 3d D.C.A. 1998). The approach taken by the Third DCA allows less wiggle room for defense and requires more careful planning when commencing the lien to be sure that the claim is free from non-lienable items, good faith aside.
III. Navigating the Fraudulent Lien Claim- Highlights
Depending on the district, a court may take different approaches when evaluating a fraudulent lien claim. However, the following take-aways remain key for defending against such a claim:
- Support lien claims with documentation.
- Include only lienable items in the total sum claimed.
- Use an appropriate lien calculation method.
- Obtain legal counsel to support a good faith claim finding by the court.
- Be upfront and honest with legal counsel regarding the facts supporting your lien claim.
Following the above guidelines will greatly increase a contractor’s chances of defeating a fraudulent lien claim. Even so, given the strong public policy to protect homeowners in Florida, a contractor should be prepared to substantiate the lien amount and defend against a fraudulent lien claim regardless of the circumstances.
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