May 22, 2009

Failure to properly apportion liens made them valid against general contractor but invalid against buyers who already purchased homes from contractor


In this suit to enforce materialman’s liens, we have concluded that the lienor was statutorily required to perfect a lien for each townhouse instead of a blanket lien in order for the liens to have priority against subsequent purchasers and encumbrances. The lien was properly preserved, however, with respect to the original owner.

Opinion may be found at the TBA website:

“The pertinent statutory language stated that the lienor “who has performed labor or furnished materials therefor shall, in claiming a lien, apportion the lienor’s contract price between the separate buildings, units or improvements thereon as applicable and file a separate claim of lien for the amount demanded against each such separate building, unit or improvement.” ... We interpret “therefor” to reference the “more than one (1) building, condominium unit or other improvement” mentioned in the first sentence of Tenn. Code Ann. § 66-11-118(b)(1) and the phrase “as applicable” to reference the building, condominium unit or other improvement for which labor or materials are being used. Since this case involves materials provided to build separate townhome units, we believe that the townhomes are the applicable basis for apportionment. We therefore interpret Tenn. Code Ann. § 66-11-118(b)(1) to require an apportionment of the lien between the separate units or improvements, in this case, the townhomes. “ Id.

“The requirements of Tenn. Code Ann. §§ 66-11-117 and 66-11-118 have been interpreted as applicable only to the lienor’s rights against subsequent purchasers and encumbrances. Walker, 509 S.W.2d at 517. Tenn. Code Ann. § 66-11-112, quoted in full above, expressly addresses the priority of the materialman’s lien “as concerns subsequent purchasers or encumbrancers for a valuable consideration without notice thereof, though not as concerns the owner.” ... D.T. McCall, 796 S.W.2d at 461. Thus, as to the owner, “simple notice without registration or filing will suffice.” ... To be effective as to subsequent purchasers or encumbrancers, however, registration is necessary. Id. We therefore conclude that, as to Pulte, WCRM’s notices of lien were sufficient to perfect the liens. As to the other defendants, WCRM’s recorded unapportioned notices did not afford it priority with respect to subsequent purchasers or encumbrancers without notice.” Id.