Mechanic’s Liens - No Collection for “Incompletions”

A mechanic’s lien is a claim created by law for the purpose of securing priority of payment for the price or value of work performed and materials furnished to improve real property. The lien attaches to the real property. Iowa Code Chapter 572 controls mechanic’s liens in Iowa. In a recent Iowa case, the court had to determine what amounts could be recovered when a mechanic’s lien is foreclosed for a contract that was not completed. 

A contractor and homeowners had a contract for the construction of a home. After a disagreement, the contractor discontinued work on the home. He filed a mechanic’s lien and petitioned the court to foreclose the lien. The homeowners counter-claimed for the costs of finishing the work left undone by the contractor.

Trial was held and both parties were awarded judgments. The court offset the judgments and awarded statutory attorney fees to both parties. The homeowners filed a motion to amend the ruling because the trial court awarded costs to the contractor for labor and materials for work that had not been done. The court did not reduce the award for these costs.

The homeowners appealed and asked the court to decide two issues. The first issue was whether the costs for labor and materials for the work not done under the contract should have been included in the judgment award for the contractor. The second issue was whether the amount of attorney fees awarded to the contractor in relation to the size of the contractor’s judgment was reasonable.

Upon review, the Court of Appeals held that the general rule is that contractors can collect the costs for substantial completion of the project, but the cost for completing unfinished work should be deducted. The trial court should have subtracted the amount attributable to the unfinished work from the remainder due under the contract. The contractor claimed he was entitled to the unfinished costs because the homeowners hindered or delayed his performance under the contract. The Court of Appeals found that the issue of whether the contractor was entitled to recover costs when the homeowners hindered the work was only applicable when there was a question regarding whether the contract had been substantially performed. In this case, substantial performance was not at issue. The Court of Appeals reduced the contractor’s award by the disputed amount.

The Court next addressed the trial court’s award of attorney fees to the contractor. The Court held that the Iowa Code requires the recovery of “reasonable attorney fees” in a dispute over a mechanic’s lien. This means that awarding fees was not discretionary for the district court, but the amount awarded is within the court’s discretion. The Court remanded the issue to the trial court for reconsideration of the attorney fees based on the modified judgment. The Court also remanded the issue of appellate attorney fees to the district court to determine an appropriate amount.

Parties subject to a mechanic’s lien in which work was incomplete should be aware that any judgment to a contractor should be reduced to reflect the unfinished work under the contract.  Luke v. Valdez, No. 1-998/11-0750, 2012 WL 1058197 (Iowa Ct. App. Mar. 28, 2012).