Lawsuits have piled up against Utah contractor Makers Line and its owners, Jason and Ellen Winkler, from subcontractors who allege they haven’t been paid for work. Many of the suits include construction lien claims on the associated properties.
H&E Equipment Services filed liens against five properties with which Makers Line is involved. There are roughly a dozen liens pending on Industry SLC, the office building that breathed new life into an old foundry in Salt Lake’s Granary District.
Lien claims in cases against Makers Line could ease the general contractor’s financial liability. It’s the property owners who are primarily on the hook for unpaid debts in lien claims, said attorney Justin Scott. That’s why, Scott said, they are a good tool when general contractors argue in court, as Makers Line has, that they cannot pay subcontractors until they themselves are paid.
But what are construction liens, and what do they mean for unfinished projects?
Construction liens are an automatic right granted to contractors and subcontractors when they provide labor to a property, Scott said. They provide some insurance for contractors in the case that, as LG Concrete is alleging, the general contractor or property owner fails to pay for labor.
Such liens rarely ever end in foreclosure, though. Attorney Joe Ballstaedt, who is not involved in any legal cases against Makers Line but specializes in construction law, said he has never once seen a lien claim make it that far.
And that’s the point. Scott said property owners will often settle before a lien claim reaches foreclosure, because they don’t want to lose their property.
“The hope is by bringing lawsuits, [property owners] will work with subcontractors and get them paid,” Scott said. “It would be in the property owner’s best interest, if they want to finish a project.”
As of Friday, suppliers and subcontractors have filed 15 lawsuits against Makers Line or other companies owned by the Winklers, for work done on properties in Salt Lake City, Ogden and other Utah cities. The lawsuits often also name property owners as co-defendants. The total amount of damages sought in those suits is just shy of $3 million, according to court records.
How do construction liens work?
A lien is, simply put, a request in court to foreclose on a property. If such an order was granted, money from the sale would settle unpaid debts to contractors or subcontractors.
Such foreclosures are rare — as Ballstaedt noted, he has never seen it happen — because property owners usually choose to settle out of court.
Ballsteadt said it’s easier to lose $100,000, for example, than it is to lose millions of dollars in equity already invested in a project. They also take at least a year and a half to move through courts, he said, and can drag on for several years.
Liens are automatically granted when a contractor or subcontractor registers work with the State Construction Registry, which they do on all projects, Scott said. But contractors must still file a formal notice, and then a formal complaint in court, in order to activate their lien rights.
Contractors will often file two separate complaints in the same lawsuit, as many have done in cases brought against Makers Line. A lien complaint primarily targets the property owner; a general contract claim, which most subcontractors have also filed against Makers Line, targets the general contractor and seeks damages associated with a breach of contract.
It’s a one-two punch, Ballstaedt explained — a way to put legal pressure on the general contractor and financial pressure on the property owner.
If a property owner does not settle, and a judge orders foreclosure on the property, money from the property’s sale will settle any debts with contractors or subcontractors. If more than one contractor or general subcontractor has filed a lien claim against the same property, state statute dictates subcontractors get paid first, then general contractors.
And if the property sale isn’t enough to settle all debts? The court could go after other assets — and after other parties.
“If you’re the subcontractor and you have a contract with the general contractor,... the remaining liability gets kicked to the general contractor,” Ballsteadt said.
What happens to the projects?
Since lien claims can take years to move through the courts, it’s often in the property owner’s best interest to settle, and quickly.
But lien claims do not require a property owner to stop construction on their property, Ballsteadt said. Property owners can keep “pumping money” into a project, he said, in the hopes of finishing quickly and selling it.
Still, other contractors and subcontractors will know if there are existing lien claims on a property, Ballsteadt said — and they are not likely to take a job if they know there is a chance they might not get paid.
If a lien claim makes it to foreclosure, and work on a project is unfinished, it is up to the new owner to finish the work or start over. They would need the financing, the permits, and the labor, which all take time.
“The buyer would take the property in its current state,” Ballsteadt said. “You’re buying whatever is there.”
But Ballsteadt has never seen that happen.
Shannon Sollitt is a Report for America corps member covering business accountability and sustainability for The Salt Lake Tribune. Your donation to match our RFA grant helps keep her writing stories like this one; please consider making a tax-deductible gift of any amount today by clicking here.