We have previously covered significant changes to Iowa’s mechanics’ lien law by the Iowa courts and legislature. Today, the Iowa Supreme Court issued a decision in Standard Water Control Systems, Inc. v. Jones that significantly affects the leverage contractors have when they file mechanics’ liens on residential property.
This case has been a fountain of rulings on Iowa’s mechanics’ lien law. We first covered the case in 2016 when the court ruled a contractor could enforce a mechanics’ lien on residential construction without filing a commencement notice. Then, we covered new legislation that effectively reversed the court’s decision by clarifying that contractors working on residential construction must always file a commencement notice.
Today’s decision affects a contractor’s ability to recover attorneys’ fees from enforcement of a mechanics’ lien. The mechanics’ lien law allows contractors to collect not only the amount due, but also attorneys’ fees incurred in pursuing collection. This often makes it viable for contractors to pursue relatively small dollar disputes, because if they prevail then the other side pays the contractor’s attorneys’ fees.
The decision today concluded that a contractor who sues to enforce a mechanics’ lien on residential property may not be able to recover attorneys’ fees from the sale of that property if the property is a person’s primary residence, i.e. their “homestead.” Homeowners who assert the homestead exemption may limit a contractor’s recovery to the principal amount due.
The facts of Standard Water Control illustrate why this is significant. The dispute began over approximately $5,400 worth of work, but the contractor’s attorneys’ fees reached approximately $60,000. The ruling means that going forward, contractors may only be able to recover the principal amount due from the sale of the property, not their attorneys’ fees.
The ruling made clear that this is an issue that could be addressed legislatively. Like the earlier decision in this case, the legislature may step in and change the mechanics’ lien law to allow the recovery of attorneys’ fees. Without a change, contractors that perform work on residential properties may find that their mechanics’ liens are worth a lot less, because they will not be able to recover their attorneys’ fees directly from the sale of the property.
With that in mind, there are certain things contractors can do to protect themselves from potentially not being able to recover attorneys’ fees. For example, contractors should include provisions in their contracts that allow for the recovery of attorneys’ fees in the event of a dispute with a homeowner over a project. For now, contractors will have to rely on their contracts, not the mechanics’ lien law, to recover attorneys’ fees in disputes related to residential construction.