explaining that mechanics’ liens are preferred over all other liens except for a construction mortgage recorded before the subcontractor commenced their work
How later courts described this case
- explaining that mechanics’ liens are preferred over all other liens except for a construction mortgage recorded before the subcontractor commenced their work
- applying the 1979 version of Iowa Code section 572.18 and stating that “the mechanic’s lien arises upon furnishing of labor or material; not upon its filing”
- “We try to read statutes to avoid conflicts . . . .”
- finding that a 31 payoff printout from a third-party vendor should have been admitted into evidence under the business records exception
Written by the judges who cited it.
The opinion
IN THE SUPREME COURT OF IOWA
No. 20–0972
Submitted March 24, 2022—Filed June 17, 2022
BORST BROTHERS CONSTRUCTION, INC.,
Appellee,
vs.
FINANCE OF AMERICA COMMERCIAL, LLC
Appellant.
___________________________________
FINANCE OF AMERICA COMMERCIAL, LLC,
Appellant,
vs.
THOMAS DOSTAL DEVELOPERS, INC., and RANDY T. DOSTAL,
Appellees,
and
KELLY CONCRETE COMPANY, INC., AFFORDABLE HEATING AND COOLING,
INC., 5 STAR PLUMBING, INC., and BORST BROTHERS CONSTRUCTION,
INC.,
Appellees,
____________________________________
BORST BROTHERS CONSTRUCTION, INC.
Appellee,
vs.
FINANCE OF AMERICA COMMERCIAL, LLC,
Appellant.
___________________________________
FINANCE OF AMERICA COMMERCIAL, LLC,
Appellee,
2
vs.
THOMAS DOSTAL DEVELOPERS, INC., and RANDY T. DOSTAL,
Appellants,
and
KELLY CONCRETE COMPANY, INC., DARNELL HOLDINGS, LLC d/b/a
DARNELL CONSTRUCTION, AFFORDABLE HEATING AND COOLING, INC., 5
STAR PLUMBING, INC., BORST BROTHERS CONSTRUCTION, INC., and KEN-
WAY EXCAVATING SERVICE, INC.,
Appellees.
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Linn County, Mary E. Chicchelly,
Judge.
A commercial lender seeks further review of a court of appeals decision
affirming the validity and superiority of certain mechanics’ liens. DECISION OF
COURT OF APPEALS AFFIRMED; DISTRICT COURT JUDGMENT AFFIRMED
IN PART AND REVERSED IN PART ON APPEAL, AFFIRMED ON
CROSS-APPEAL.
Mansfield, J., delivered the opinion of the court, in which Christensen,
C.J., and Appel and Waterman, JJ., joined. McDermott, J., filed a dissenting
opinion, in which McDonald and Oxley, JJ., joined.
3
John F. Fatino of Whitfield and Eddy, P.L.C., Des Moines, for appellant
Finance of America Commercial, LLC.
Matthew L. Preston, Brad J. Brady, and David T. Meyers (until withdrawal)
of Brady Preston Gronlund PC, Cedar Rapids, for appellee Borst Brothers
Construction, Inc.
S.P. DeVolder of The DeVolder Law Firm, P.L.L.C., Norwalk, for appellees
Thomas Dostal Developers, Inc. and Randy T. Dostal.
William H. Roemerman of Elderkin & Pirnie, P.L.C., Cedar Rapids, for
appellee Kelly Concrete Co., Inc.
4
MANSFIELD, Justice.
I. Introduction.
Since 2012, Iowa has used a centralized, internet-based registry for
mechanics’ liens. To assure the smooth functioning of this registry, and also
assure that homeowners and buyers are aware of the risk that such liens may
be placed on a property, general contractors and owner-builders are supposed
to post a notice of commencement of work to the central registry within ten days
of starting work on a residential construction project. If that doesn’t occur, a
subcontractor may nonetheless post the notice. Indeed, if no notice has already
been posted, a subcontractor must do so before posting a preliminary lien notice
and obtaining a mechanics’ lien.
In this case, an owner-builder didn’t post notices of commencement on the
registry for five residential lots that it was developing. Accordingly, two
subcontractors did so, several months after the construction work had actually
begun. When the project went into default, a priority dispute arose between these
two subcontractors and the commercial lender for the project. The commercial
lender claimed that its previously recorded mortgages had priority; the
subcontractors argued that their mechanics’ liens came first. The district court
found in favor of the subcontractors, as did the court of appeals. We granted the
lender’s application for further review.
We now agree with the courts below and conclude that the 2012 law didn’t
change the principle that mechanics’ liens will, in some circumstances, have
priority over previously recorded mortgages. We also conclude that the ten-day
5
deadline for posting the notice of commencement to the registry applies to
general contractors and owner-builders but not to subcontractors. While the
statutory language in isolation is potentially ambiguous, context provides clarity.
It wouldn’t make sense to allow subcontractors to step in only if the general
contractor or owner-builder fails to post the notice of commencement within ten
days, while requiring subcontractors to meet the same ten-day deadline. Meeting
a missed deadline is impossible.
For these reasons, we affirm the decision of the court of appeals and the
judgment of the district court on the questions of lien validity and priority in this
case. On the remaining appellate issues, we let the decision of the court of
appeals stand, although we modify its reasoning on one evidentiary point.
II. Background Facts and Proceedings.
A. Background Facts. This case concerns a residential property
development project in Cedar Rapids known as Hawks Point Seventh Addition.
Five of the thirty-two lots are at issue here: Lots 5, 6, 7, 8, and 10. Thomas Dostal
Developers, Inc. owned these properties and served as general contractor for
their development.
In November and December 2017, Dostal Developers entered into five
commercial loans with Finance of America Commercial (FAC)—one loan for each
property. All five loans were memorialized by promissory notes, secured by
6
mortgages, and secured also by guarantees signed by Randy Dostal.1 The
following table shows the amounts and dates of the five loans:
Lot Principal Documents Mortgage
# Amount ($) Signed Recorded
5 153,000 11/10/17 11/13/17
6 141,750 11/10/17 11/13/17
7 149,250 11/10/17 11/13/17
8 170,250 11/10/17 11/13/17
10 153,000 12/20/17 12/20/17
By February 2018, Dostal Developers stopped making payments on these loans.
In August, FAC sent notices of default and acceleration. Dostal Developers did
not cure the defaults.
Meanwhile, Dostal Developers had hired several subcontractors to work
on the properties, including Borst Brothers Construction and Kelly Concrete
Company. Borst put in sanitary and storm sewers, installed the water main,
created a temporary rock road, and graded the site. Borst’s work began on July
3, 2017, and ended on December 19, 2017. Kelly performed various concrete
jobs between September 2017 and January 15, 2018.
Dostal Developers never posted a statutory “notice of commencement of
work” to the Iowa Mechanic’s Notice and Lien Registry (MNLR) to provide notice
of contracting with subcontractors. See Iowa Code § 572.13A(1) (2018). Instead,
1Randy Dostal was the president of Dostal Developers. He signed the guaranties for Lots
5, 6, 7, and 8 as “Randy T. Dostal.” The Lot 10 guaranty was signed “Thomas T. Dostal Dev.”
But the text of all the guaranties refers to “Randy T. Dostal” as the “Guarantor.”
7
Kelly posted notices of commencement for four of the lots on February 1, 2018.2
Kelly also posted preliminary notices and mechanics’ liens that same day. See
id. §§ 572.8(1), .13A(2), .13B(1). The following day, February 2, Borst posted a
notice of commencement and a mechanics’ lien for all of the Hawks Point
properties it had performed work on.
B. The Borst–Kelly Foreclosure Action. Neither Borst nor Kelly received
full payment for their work. On September 12, Borst filed a petition to foreclose
its mechanics’ lien in Linn County District Court, alleging Dostal Developers still
owed it $198,316.59 plus interest.3 Borst named other lien holders as parties,
including FAC and Kelly.
Kelly filed an answer, cross-claim, and counterclaim on October 12. It
asserted that its mechanics’ liens had first-priority status and requested
foreclosure of those liens in the amount of $39,236.21 plus interest.
On October 17, FAC moved to dismiss the claims of Borst and Kelly. As to
Borst, FAC asserted that it had not posted a timely notice of commencement of
work as required by Iowa Code section 572.13A(2) or a preliminary notice as
required by section 572.13B(4). Borst responded by posting its preliminary
notice on November 8. As to Kelly, FAC argued that if Kelly were a subcontractor,
it had not perfected its liens until February 1, 2018, and, therefore, they were
inferior to FAC’s mortgages as a matter of law.
2Thedistrict court found that Kelly failed to file a notice of commencement for the work
performed on Lot 10.
3Borst later reduced its demand to $143,316.59.
8
C. The FAC Foreclosure Action. On November 26, the district court
denied FAC’s motions to dismiss in the Borst–Kelly lien foreclosure action to
allow for further development of the parties’ positions. By then, FAC had filed its
own petition to foreclose its mortgages in the Linn County District Court.
Therein, FAC alleged that its mortgages had priority over any mechanics’ liens of
Borst and Kelly. FAC also named Randy Dostal individually as a defendant,
asserting that he was personally liable as a guarantor of FAC’s loans. In total,
FAC claimed to be owed $827,983.52 plus interest. Early in 2019, the district
court consolidated the Borst–Kelly case and the FAC case.
D. Summary Judgment and Trial in the Consolidated Proceedings. On
November 22, FAC moved for summary judgment in the consolidated case. FAC
once again argued that the mechanics’ lien holders had failed to post notices of
commencement within ten days of beginning work, rendering their liens invalid.
In the alternative, FAC maintained that all mechanics’ liens were junior and
inferior to its mortgages because the subcontractors’ notices of commencement
had not been posted until after FAC had recorded its mortgages. Kelly and Borst
resisted. The district court denied FAC’s summary judgment motion, and the
case proceeded to a bench trial on all issues, including FAC’s effort to enforce
Randy Dostal’s personal guaranties.
At trial, FAC’s vice president of credit and implementation and
underwriting, Mark Thomas, testified. Through Thomas, FAC offered into
evidence letters addressed to Dostal Developers that detailed the current payoff
amounts for all five loans. FAC’s loan sub-servicer, BSI, had created these payoff
9
statements per FAC’s request. Thomas testified that BSI regularly provided such
payoff statements whenever the borrower or the lender requested them. The
Dostal defendants objected to the admission of the payoff statements on the
ground that they were hearsay “clearly prepared for litigation purposes, not in
the regular course of business.” The district court overruled the objection and
allowed the payoff statements to come into evidence.
Following trial, the district court entered a ruling that FAC, Borst, and
Kelly were all entitled to foreclose on their respective mortgages and liens against
Dostal Developers, with the exception of Kelly’s mechanics’ lien for Lot 10
because Kelly had failed to post a notice of commencement for that lot. The court
found that Borst’s and Kelly’s mechanics’ liens on the residential properties were
valid because the preliminary notices met the requirements for subcontractors
as set forth in Iowa Code section 572.13B. The court also rejected Dostal
Developers’ argument that FAC had failed to meet a contractual requirement that
it give notice before accelerating the balances due under the loans.
Yet the district court found that Randy Dostal, despite having signed
personal guaranties, was not personally liable for amounts due on the FAC loans.
The court reasoned that there was “no evidence in the record to suggest that
Randy Dostal took any actions herein as an individual. Rather, all actions taken
by Randy Dostal, the Court finds, were done in his capacity on behalf of Dostal
Developers.”
Turning to the question of priority, the district court determined that the
mechanics’ liens of Kelly and Borst had priority over FAC’s mortgages because
10
Iowa Code section 572.18 gives a timely posted mechanics’ lien priority over “all
other liens” that are perfected subsequent to the beginning of the contractor’s
work. In the district court’s view, Kelly and Borst posted their mechanics’ liens
on time—i.e., within ninety days of finishing their work on the properties.
Therefore, their liens were superior to FAC’s mortgages that were recorded after
Kelly and Borst began their work. See Iowa Code § 572.18. As between Borst and
Kelly, Kelly had first priority because Kelly had posted its liens first. The district
court also awarded attorney fees to FAC, Borst, and Kelly as prevailing parties.
See id. § 572.32(1).
E. The Decision of the Court of Appeals. FAC appealed, and the Dostal
defendants cross-appealed. FAC raised three issues on appeal, contending:
(1) the mechanics’ liens of Borst and Kelly were invalid and if not, their liens were
inferior to FAC’s mortgages; (2) Randy Dostal signed the guaranties in his
personal capacity and was personally liable; and (3) Borst and Kelly should not
have prevailed and were not entitled to attorney fees. The Dostal defendants
cross-appealed and raised three more issues: (1) the payoff statements used to
show the deficiency amounts were inadmissible hearsay and should not have
been received in evidence; (2) FAC should not have been allowed to foreclose
because it did not provide contractually prescribed notices of default and
acceleration; and (3) FAC should not have been awarded the full amount of
attorney fees it requested. We transferred the case to the court of appeals.
The court of appeals reversed the district court on the issue of Randy
Dostal’s personal liability. The court explained,
11
Randy Dostal served as “Guarantor” on the loans made by FAC to
Dostal Developers. “Thomas Dostal Developers Inc.” was defined as
the “Borrower.” . . . Dostal signed four of the five agreements
individually, and the fifth listed him as guarantor and was signed
individually by [him as] Thomas [T.] Dostal. These signatures stand
in stark contrast to the mortgage agreements, which Randy Dostal
signed as president of Thomas Dostal Developers. The language and
the signatures unambiguously establish Randy Dostal’s intent to
serve as personal guarantor of the loans extended to Dostal
Developers.
On all other issues, the court of appeals affirmed the district court. The
court “[a]ssum[ed] without deciding” that the payoff statements did not fall
within the hearsay exception. Yet it rejected the Dostal parties’ appeal on this
point because it found that Thomas had “testified without objection to the figures
contained in the documents before the documents were offered or admitted.” It
found that the five notes could be accelerated by FAC without notice, and in any
event, FAC had provided notice.
The court also determined that the mechanics’ liens of Borst and Kelly
were valid based on a “plain reading” of the statute. It reasoned that the statute
doesn’t expressly require subcontractors to post notices of commencement
within ten days as it does general contractors, and such a rule would be
impractical:
Section 572.13A(1) requires the general contractor/owner-
builder—not the subcontractor—to post a notice of commencement
of work within ten days of the commencement of work. Section
572.13A(2) allows a subcontractor to make the posting if the general
contractor/owner-builder does not. . . .
In terms of a subcontractor’s timing of notices, the
subcontractor might not know whether the general
contractor/owner-builder satisfied its obligation to post the notice
of commencement of work until after the ten-day period set forth in
section 572A.13A(1) expires. The subcontractor’s first opportunity
12
to post its notice of commencement would be on the eleventh day
after commencement of work.
Further, based on Iowa Code section 572.18(1), the court of appeals found the
Borst and Kelly liens had priority over FAC’s mortgages.
FAC and the Dostal parties sought further review of this decision, which
we granted. “On further review, we have the discretion to review all or some of
the issues raised on appeal or in the application for further review.”
Wermerskirchen v. Canadian Nat’l R.R., 955 N.W.2d 822, 827 (Iowa 2021)
(quoting State v. Roby, 951 N.W.2d 459, 463 (Iowa 2020)). Here, we choose to
review only two issues: (1) the validity and priority of the subcontractors’
mechanics’ liens, as to which FAC seeks further review; and (2) the evidentiary
ruling that admitted loan payoff statements as business records, as to which the
Dostal parties seek further review. The court of appeals decision shall stand as
the final decision on all other issues.
III. Standard of Review.
An action to enforce a mechanics’ lien is an action in equity. Iowa Code
§ 572.26(1). Equitable proceedings are reviewed de novo. Mlady v. Dougan, 967
N.W.2d 328, 332 (Iowa 2021); see also Iowa R. App. P. 6.907 (“Review in equity
cases shall be de novo.”). But “[w]e review questions of statutory interpretation
for correction of errors at law.” Mlady, 967 N.W.2d at 332 (quoting Standard
Water Control Sys., Inc. v. Jones, 938 N.W.2d 651, 656 (Iowa 2020)).
We review evidentiary rulings on hearsay for errors at law. Buboltz v.
Birusingh, 962 N.W.2d 747, 757 (Iowa 2021).
13
IV. Analysis.
A. Validity of the Borst and Kelly Mechanics’ Liens. FAC first contends
that Borst and Kelly don’t have valid liens because notices were not timely posted
on the MNLR website as required by Iowa Code sections 572.13A and 572.13B.
1. Iowa Code section 572.13A. The first of these two provisions, section
572.13A, is titled “Notice of commencement of work — general contractor —
owner-builder.” Id. § 572.13A. Section 572.13A, subsection 1 requires a general
contractor or an owner-builder (such as Dostal Developers) who has contracted
or will contract with a subcontractor to post a notice to the MNLR website no
later than ten days after work begins and makes the notice effective only for work
completed after this posting. Specifically, this subsection states,
Either a general contractor, or an owner-builder who has contracted
or will contract with a subcontractor to provide labor or furnish
material for the property, shall post a notice of commencement of
work to the mechanics’ notice and lien registry internet site no later
than ten days after the commencement of work on the property. A
notice of commencement of work is effective only as to any labor,
service, equipment, or material furnished to the property
subsequent to the posting of the notice of commencement of work.
Id. § 572.13A(1). Next, this subsection identifies the information required to be
included in the posting. Id. § 572.13A(1)(a)–(g). However, a notice of
commencement of work does not contain information about particular
subcontractors. See id. It only indicates that a general contractor or
owner-builder either has hired a subcontractor or intends to hire one in the
future. See id.
14
In the following subsection—section 572.13A, subsection 2—the statute
expressly allows a subcontractor to post a notice of commencement in the event
that the general contractor fails to do so:
If a general contractor or owner-builder fails to post the required
notice of commencement of work to the mechanics’ notice and lien
registry internet site pursuant to subsection 1, within ten days of
commencement of the work on the property, a subcontractor may
post the notice in conjunction with the posting of the required
preliminary notice pursuant to section 572.13B. A notice of
commencement of work must be posted to the mechanics’ notice
and lien registry internet site before preliminary notices pursuant to
section 572.13B may be posted.
Id. § 572.13A(2).
Whoever posts a notice of commencement of work—whether a contractor,
an owner-builder, or a subcontractor—is required to provide written notice to
the owner of the property (if the owner is not an owner-builder). Id. § 572.13A(3).
Again, this notice provides no information about particular subcontractors. See
id. Its purpose, seemingly, is to provide general notice that there are (or will be)
subcontractors with potential lien rights working on the property. See id.
The notice of commencement of work also results in the MNLR
administrator (i.e., the secretary of state) assigning an MNLR number to the
project. Id. § 572.13A(3)(a); see also id. § 572.1(1) (“ ‘Administrator’ means the
secretary of state.”).
Finally, section 572.13A, subsection 4 states, “A general contractor who
fails to provide notice pursuant to this section is not entitled to a lien and remedy
provided by this chapter.” Id. § 572.13A(4). But only a general contractor’s
15
noncompliance with this section forfeits the right to a lien—there is no mention
of subcontractors here. See id.
2. Iowa Code section 572.13B. The next Code section, 572.13B, sets forth
the notice requirements for subcontractors like Borst and Kelly. It is titled
“Preliminary notice—subcontractor—residential construction.” Id. § 572.13B. It
states as follows:
1. A subcontractor shall post a preliminary notice to the
mechanics’ notice and lien registry internet site. A preliminary
notice posted before the balance due is paid to the general contractor
or the owner-builder is effective as to all labor, service, equipment,
and material furnished to the property by the subcontractor. The
preliminary notice shall contain all of the following information:
....
b. The mechanics’ notice and lien registry number.
c. The name, address, and telephone number of the
subcontractor furnishing the labor, service, equipment, or material.
....
2. At the time a preliminary notice is posted to the mechanics’
notice and lien registry internet site, the administrator shall send
notification to the owner, including the owner notice described in
section 572.13, subsection 1, and shall post the mailing of the notice
on the mechanics’ notice and lien registry internet site as prescribed
by the administrator pursuant to rule. Notices under this section
shall not be sent to owner-builders. Upon request, the administrator
shall provide proof of service at no cost for the notice required under
this section.
3. a. A mechanic’s lien perfected under this chapter is
enforceable only to the extent of the balance due the general
contractor or the owner-builder at the time of the posting of the
preliminary notice specified in subsection 1, and, except for
residential construction property owned by an owner-builder, also
is enforceable only to the extent of the balance due the general
contractor at the time the owner actually receives the notice
provided pursuant to subsection 2 or paragraph “b”.
16
Id. § 572.13B(1)–(3).
Some differences between section 572.13B and the preceding section are
noteworthy. First, unlike a notice of commencement of work, a preliminary notice
can sweep backward: “A preliminary notice posted before the balance due is paid
to the general contractor or the owner-builder is effective as to all labor, service,
equipment, and material furnished to the property by the subcontractor.” Id.
§ 572.13B(1). Second, the preliminary notice requires different content. It must
include the MNLR number for the project that the administrator assigned when
the notice of commencement of work was filed. Id. § 572.13B(1)(b). And it must
include information about the subcontractor. Id. § 572.13B(1)(c). Third, a
subcontractor’s mechanics’ lien is only enforceable “to the extent of the balance
due the general contractor or the owner-builder” at the time the preliminary
notice was posted. Id. § 572.13B(3)(a). So to that extent, the preliminary notice
doesn’t sweep backward.
If the requirements of Iowa Code section 572.13B are not followed, that
subcontractor is not entitled to a lien. Id. § 572.13B(4) (“A subcontractor who
fails to post a preliminary notice pursuant to this section shall not be entitled to
a lien and remedy provided under this chapter.”).
Both section 572.13A and section 572.13B apply only to “residential
construction properties.” Id. §§ 572.13A(5), .13B(5).
3. Interpretation of these provisions. Having summarized Iowa Code
sections 572.13A and 572.13B, we now turn to their interpretation and
application in this case. “Our first task in interpreting a statute is to determine
17
whether the relevant language is ambiguous. ‘If the statutory language is plain
and the meaning clear, we do not search for legislative intent beyond the express
terms of the statute.’ ” United Elec., Radio & Mach. Workers of Am. v. Iowa Pub.
Emp’t Rels. Bd., 928 N.W.2d 101, 109 (Iowa 2019) (citation omitted) (quoting
State v. Pub. Emp. Rels. Bd., 744 N.W.2d 357, 360–61 (Iowa 2008)).
We begin with the statute’s text. Calcaterra v. Iowa Bd. of Med., 965
N.W.2d 899, 904 (Iowa 2021) (“When interpreting the meaning of a statute, we
start with the statute’s text.”). FAC’s primary textual argument asserts that
section 572.13A(2)—which allows subcontractors to post a notice of
commencement—expressly sets a ten-day time limit for doing so. FAC points to
the following language:
If a general contractor or owner-builder fails to post the required
notice of commencement of work . . . pursuant to subsection 1,
within ten days of commencement of the work on the property, a
subcontractor may post the notice in conjunction with the posting
of the required preliminary notice pursuant to section 572.13B.
Id. § 572.13A(2) (emphasis added). FAC insists that the italicized clause qualifies
the clause that follows, thus placing a time limit on subcontractors’ ability to post
a notice of commencement. Borst and Kelly disagree and argue that the italicized
clause qualifies the preceding “if” clause, and therefore clarifies the amount of
time general contractors or owner-builders have to post before a subcontractor is
allowed to do so.
Perhaps there is some ambiguity here. Given that the clause in question
is set off by commas on both sides, it is not grammatically clear whether FAC or
the subcontractors get the better of a debate based on punctuation alone. But a
18
broader look at sections 572.13A and 572.13B as a whole provides clarity. See
Calcaterra, 965 N.W.2d at 904 (“Statutes need to be read as a whole . . . .”
(quoting Porter v. Harden, 891 N.W.2d 420, 425 (Iowa 2017))); see also Iowa Code
§ 4.1(38) (“Words and phrases shall be construed according to the context . . . .”);
Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts
167 (2012) (“Context is a primary determinant of meaning. A legal instrument
typically contains many interrelated parts that make up the whole. The entirety
of the document thus provides the context for each of its parts.”). Considering
the statute as a whole, we are convinced that the ten-day time limit in section
572.13A applies only to general contractors and owner-builders, not
subcontractors.
First, timing. As Borst and Kelly point out, it would seemingly be
impossible for a subcontractor to comply with the same ten-day deadline
governing contractors and owner-builders that runs from the commencement of
the overall work. How would a subcontractor know whether a contractor or
owner-builder had failed to meet the ten-day deadline until that ten-day deadline
had passed? And different subcontractors arrive on the jobsite at different times.
What if the subcontractor in question didn’t show up (or wasn’t even hired) until
more than ten days after the overall work commenced? Under FAC’s
interpretation, the ten days a subcontractor has in which to post a notice of
commencement of work must necessarily expire before the condition precedent
for posting it is even satisfied. This result would be absurd, and absurd results
should be avoided. See Iowa Ins. Inst. v. Core Grp. of the Iowa Ass’n for Just., 867
19
N.W.2d 58, 75 (Iowa 2015) (“We have long recognized that statutes should not
be interpreted in a manner that leads to absurd results.”); see also Iowa Code
§ 4.4(3) (“In enacting a statute, it is presumed that . . . a just and reasonable
result is intended.”).
Also, section 572.13A contemplates one notice of commencement of work
per project. See Iowa Code §§ 572.13A(2) (referring to “the required notice of
commencement of work”, .13A(3)(a) (stating that after the notice is posted, the
administrator of the registry “shall assign” a registry number for the improved
property). The notice of commencement of work triggers the assignment of a
unique MNLR number for that project that subcontractors later must reference
when they file any preliminary notices. Id. §§ 572.13A(3)(a), .13B(1)(b).
It would seem odd to allow the fate of all subcontractors to rise or fall based
on whether one early-arriving subcontractor undertook the chivalrous act of
posting a notice within ten days of commencement of the overall work for the
benefit of all subcontractors. Borst and Kelly’s interpretation, by contrast, allows
a subcontractor that is personally concerned about getting paid and plans to
post a preliminary notice to protect themselves by posting any missing notice of
commencement of work “in conjunction with the posting of the required
preliminary notice.” Id. § 572.13A(2).
In fact, section 572.13A anticipates that the notice of commencement
might have to be filed before any subcontractor has even been hired. The notice
of commencement posting requirement applies to “a general contractor, or an
owner-builder who has contracted or will contract with a subcontractor.” Id.
20
§ 572.13A(1) (emphasis added). That being the case, how can subcontractors be
held to the contractor/owner-builder’s ten-day deadline?
Further, with respect to a subcontractor, the statute says that the
subcontractor “may” post the missing notice that the owner-builder/contractor
has failed to post to the MNLR. Id. § 572.13A(2). It doesn’t say that the
subcontractor “must.” The “must” language applicable to subcontractors
surfaces in the following sentence, which provides “[a] notice of commencement
of work must be posted to the mechanics’ notice and lien registry internet site
[note the passive voice] before preliminary notices pursuant to section 572.13B
may be posted.” Id. Logically, therefore, a subcontractor has an option to supply
a missing notice of commencement of work; the only requirement is that
somebody do so before preliminary notices may be posted.4
FAC points out that House File 675, the bill that established these posting
requirements, had an attached bill explanation indicating that mechanics’ liens
are only effective for the work accomplished after a notice of commencement has
been posted. H.F. 675, 84th G.A., 2d Sess., explanation (Iowa 2012). The
4Itis also worth noting that the secretary of state has interpreted Iowa Code section
572.13A(2) in the same way that we do. Its rule provides,
Prior to the posting of a preliminary notice, a notice of commencement of
work must be posted on the MNLR. If the general contractor or owner-builder has
not posted a notice of commencement of work on the MNLR within ten days of
commencement of work on the property, then the subcontractor may post a notice
of commencement of work on the MNLR prior to posting the preliminary notice.
Iowa Admin. Code r. 721—45.5(1)(b).
We are not deciding today whether the secretary of state has been clearly vested with
interpretive authority over section 572.13A(2). Iowa Code section 572.34(1) provides that the
secretary “shall adopt rules pursuant to chapter 17A for the creation and administration of the
registry.” We simply note that the party charged with administering the MNLR—the secretary of
state—concurs in our interpretation of the underlying statute.
21
explanation stated, “A preliminary notice posted before the balance due is paid
to the general contractor or owner-builder by the owner is effective as to all labor,
service, equipment, or material furnished to the property subsequent to the
posting of the notice of commencement of work.” Id. (emphasis added).
While we do “give weight to explanations attached to bills as indications of
legislative intent” when a statute is ambiguous, ultimately, “[t]he legislature
enacts the bill—not the accompanying explanation.” Iowa Ins. Inst., 867 N.W.2d
at 76 (quoting Star Equip., Ltd. v. State, 843 N.W.2d 446, 454 & n.3 (Iowa 2014)).
In this instance, the bill explanation cited by FAC is at odds with the actual text
of section 572.13B(1), which provides, “A preliminary notice posted before the
balance due is paid to the general contractor or the owner-builder is effective as
to all labor, service, equipment, and material furnished to the property”—without
qualification. Iowa Code § 572.13B(1) (emphasis added).
The bill explanation appears to have mistakenly blended section
572.13A(1) with section 572.13B(1). The former states, “A notice of
commencement of work is effective only as to any labor, service, equipment, or
material furnished to the property subsequent to the posting of the notice of
commencement of work.” Id. § 572.13A(1). But section 572.13A, as we have
discussed, deals with owner-builders and contractors and the validity of
contractor liens. It is titled “Notice of commencement of work — general
contractor — owner-builder.” Id. § 572.13A; see State v. Hall, 969 N.W.2d 299,
307 (Iowa 2022) (“Although the title of a statute cannot change the plain meaning
of the statutory text, it can be considered in interpreting the text.”). By contrast,
22
section 572.13B is titled “Preliminary notice — subcontractor — residential
notice.” Iowa Code § 572.13B. It is only logical to conclude that “effective,” as
used in section 572.13A(1), refers to the effectiveness of a contractor lien; while
“effective,” as used in section 572.13B(1), refers to the effectiveness of a
subcontractor lien. Otherwise, the two provisions would be in conflict. See State
v. Iowa Dist. Ct. for Warren Cnty., 828 N.W.2d 607, 614 (Iowa 2013) (“We try to
read statutes to avoid conflicts . . . .”).
FAC also claims that Borst and Kelly’s interpretation is unfair to
construction lenders and will allow “third parties [to] be surprised by mechanics’
liens arising months or years after a subcontractor commences work.” We think
this concern is overstated.
Lenders are no worse off than they were before House File 675 was enacted
in 2012. In fact, they are better off. Previous law allowed all subcontractors to
perfect mechanics’ liens on residential projects within ninety days after the
completion of their work without needing to worry about a notice of
commencement of work having been posted. See Iowa Code §§ 572.8–.9 (2011).
Also, under current law, as under prior law, a construction lender that
(unlike FAC) recorded its mortgage before a particular subcontractor began its
work gets priority over that subcontractor’s mechanics’ lien. See id. § 572.18(2)
(2018). This can apply even to advances that the lender makes after the mortgage
is recorded. See Blue Grass Sav. Bank v. Cmty. Bank & Tr. Co., 941 N.W.2d 20,
23–29 (Iowa 2020) (recognizing that a mortgage’s priority can extend to funds
advanced after the recording of the mortgage). Additionally, with respect to
23
residential construction, a mechanics’ lien is enforceable only to the extent of
the balance due the contractor or the owner-builder when the preliminary notice
is filed. Iowa Code § 572.13B(3)(a). A prudent lender can use self-protection
methods such as requiring its borrower to bond the project, joint check or escrow
arrangements, or requirements that subcontractors waive or subordinate their
lien rights. Finally, it’s worth noting that subcontractors who work on property
presumably enhance the value of that property, and thus enhance the value of
the lender’s collateral—even when the lender stands in a second position behind
them.
The point of Iowa Code section 572.13A is to incentivize contractors and
owner-builders to promptly post the notice of commencement of work and
thereby activate the MNLR for the jobs they manage, not to penalize
subcontractors that were not in a position to post that notice of commencement
until sometime later.
For all these reasons, we conclude that Borst and Kelly have valid
mechanics’ liens even though no notices of commencement were posted as to
any of the five properties until February 2018, months after work on those
properties actually commenced. The ten-day deadline in both subsections 1 and
2 of section 572.13A applies to contractors/owner-builders, not to
subcontractors. Also, Borst’s and Kelly’s mechanics’ liens cover all work they
performed, subject to the limits in section 572.13B(3)(a), not merely the work
performed after the notice of commencement was posted. See id. § 572.13B(1).
24
B. Priority of the Borst and Kelly Mechanics’ Liens. Chapter 572 allows
mechanics’ liens to obtain priority over other types of liens if certain conditions
are met. Section 572.18 describes these conditions as follows:
1. Mechanics’ liens posted by a general contractor or
subcontractor within ninety days after the date on which the last of
the material was furnished or the last of the claimant’s labor was
performed and for which notices were properly posted to the
mechanics’ notice and lien registry internet site pursuant to sections
572.13A and 572.13B shall be superior to all other liens which may
attach to or upon a building or improvement and to the land upon
which it is situated, except liens of record prior to the time of the
original commencement of the claimant’s work or the claimant’s
improvements, except as provided in subsection 2.
2. Construction mortgage liens shall be preferred to all
mechanics’ liens of claimants who commenced their particular work
or improvement subsequent to the date of the recording of the
construction mortgage lien.
Iowa Code § 572.18; see, e.g., Midland Sav. Bank FSB v. Stewart Grp., LC, 533
N.W.2d 191, 193 (Iowa 1995) (explaining that mechanics’ liens are preferred over
all other liens except for a construction mortgage recorded before the
subcontractor commenced their work).
The first condition that Kelly and Borst had to satisfy to attain priority over
other types of liens was to post their mechanics’ liens “within ninety days after
the date on which the last of the material was furnished or the last of the
claimant’s labor was performed.” Iowa Code § 572.18(1). Both subcontractors
did so. Borst’s work ended on December 19, 2017, and Borst posted its lien on
February 2, 2018, forty-six days later. Kelly’s final day working on the property
was January 15, 2018, and Kelly posted its liens on February 1, eighteen days
later.
25
Next, Borst’s and Kelly’s notices of commencement and preliminary
notices had to be “properly posted” to the MNLR website. Id. We have already
determined that this occurred.
Finally, the subcontractors had to commence their work on the properties
before FAC recorded its mortgages in order to get priority over FAC. See id.
§§ 572.18(1)–(2). Borst started work on July 3, 2017. Kelly started sometime in
September 2017. FAC’s earliest mortgages were not recorded until November 13,
2017, well after the subcontractors had begun their work. That being so, Borst’s
and Kelly’s mechanics’ liens have priority over FAC’s inferior mortgages.5
C. Response to the Dissent. The dissent argues that the phrase
“commencement of the work” as used in the second sentence of Iowa Code
section 572.13A(2), refers to commencement of that subcontractor’s work. This
argument avoids some of the possible absurdities discussed in part IV.A above.
No longer would the subcontractor potentially be required to file the notice of
commencement of work before arriving at the project or even being hired. But it
creates other problems.
For one thing, when the same term is used repeatedly in the same statute,
we normally give it the same meaning each time. See, e.g., State v. Paye, 865
N.W.2d 1, 7 (Iowa 2015); State v. Sewell, 960 N.W.2d 640, 643 (Iowa 2021). It
would be very odd for every other use of “commencement of work” or
5Mechanics’ liens have long been given this preference in Iowa. See, e.g., Nw. Nat’l Bank
of Sioux City v. Metro Ctr., Inc., 303 N.W.2d 395, 398 (Iowa 1981) (applying the 1979 version of
Iowa Code section 572.18 and stating that “the mechanic’s lien arises upon furnishing of labor
or material; not upon its filing”).
26
“commencement of the work” to be referring to the commencement of the work
as a whole, and this use alone to be referring to only that subcontractor’s work.
Let us quote again Iowa Code section 572.13A(2):
If a general contractor or owner-builder fails to post the required
notice of commencement of work to the mechanics’ notice and lien
registry internet site pursuant to subsection 1, within ten days of
commencement of the work on the property, a subcontractor may
post the notice in conjunction with the posting of the required
preliminary notice pursuant to section 572.13B. A notice of
commencement of work must be posted to the mechanics’ notice and
lien registry internet site before preliminary notices pursuant to
section 572.13B may be posted.
(Emphasis added.) Under the dissent’s interpretation, “commencement of work”
as used in the first and second sentences refers to something totally different
from “commencement of the work” as used in the first sentence. That is
implausible.
Note also the use of the definite article, i.e., “the work,” rather than a
possessive, i.e., “its work.” Id. If anything, that helps clarify that the statute is
referring to the overall work on the property, rather than a specific entity’s work.
In section 572.18, subsection 1, when the legislature wanted to refer to the
subcontractor’s commencement of their own work, it used the qualifying phrase
“the claimant’s work or the claimant’s improvements.” Id. § 572.18(1). In
subsection 2, when the legislature again wanted to refer to a subcontractor’s
commencement of their own work, it used the qualifying phrase “their particular
work or improvement.” Id. § 572.18(2). No qualification here.
Furthermore, under the dissent’s interpretation, any notice of
commencement of work has to be filed by the subcontractor within ten days of
27
the subcontractor’s commencement of their work. But it also has to be filed “in
conjunction with the posting of the required preliminary notice.” Id.
§ 572.13A(2). So subcontractors would have to regularly check the MNLR before
furnishing anything to a residential jobsite, no matter how minor. If no notice of
commencement of work appeared in the search, the subcontractor would need
to file both a notice of commencement of work and a preliminary notice
immediately. Subsequent subcontractors would not be so time-limited in their
filing of the preliminary notice since they would not be subject to the “in
conjunction with” requirement. That seems inequitable.
Moreover, the dissent’s interpretation fails to harmonize and give effect to
both Iowa Code section 572.13A(1) and section 572.13B(1). The former states, “A
notice of commencement of work is effective only as to any labor, service,
equipment, or material furnished to the property subsequent to the posting of
the notice of commencement of work.” Id. § 572.13A(1). The latter states, “A
preliminary notice posted before the balance due is paid to the general contractor
or the owner-builder is effective as to all labor, service, equipment, and material
furnished to the property by the subcontractor.” Id. § 572.13B(1). As we have
already discussed, the logical way to reconcile the two provisions is to conclude
that the former provision applies to contractors (since the preceding sentence
talks about the contractor or owner-builder’s duty to post the notice of
28
commencement of work), whereas the latter provision applies to subcontractors.
The dissent gives no effect to the latter provision.6
Additionally, the dissent’s interpretation still leaves some of the absurdity
in place. What if the overall work and the subcontractor’s work begin at the same
time, as can often happen? Once again, the subcontractor won’t know if the
contractor/owner-builder failed to do what it was supposed to do until the ten
days have passed, at which point it would be too late for the subcontractor to
file.
Finally, it’s notable that the Iowa Practice treatise rejects the dissent’s
reading of section 572.13A(2) and agrees with ours. According to that treatise:
If a general contractor or owner-builder fails to post the
required notice of commencement of work to the mechanics’ notice
and lien registry internet Web site pursuant to I.C.A. § 572.13B(1)
within 10 days of commencement of the work on the property, a
subcontractor may post the notice in conjunction with the posting
of the required preliminary notice. A notice of commencement of
6The dissent worries about disparate treatment between contractors and subcontractors
if the scope-of-the-lien provision in Iowa Code section 572.13A(1) applies only to contractors and
not subcontractors. Again, the dissent overlooks the fact that the preceding sentence applies
only to contractors and also overlooks the fact that its interpretation gives no effect to the
scope-of-the-lien provision in section 572.13B(1).
In any event, there is no disparate treatment. It is the responsibility of the contractor to
post the notice of commencement of work. See id. § 572.13A(1) (“[A] general contractor . . . shall
post a notice of commencement of work . . . .”). This notice doesn’t identify any particular
subcontractors but gives notice that there are or will be subcontractors on the job. This notice
contains information that should be readily available to the contractor—i.e., the name and
address of the owner and the date of commencement of the overall work—but that may not be
readily available to a subcontractor. See id. § 572.13A(1)(a), (e). Thus, it is fair for the contractor
to have its lien potentially impacted if it doesn’t do what it is supposed to do.
By contrast, a subcontractor “may post” the notice of commencement of work if the
contractor fails to do so. See id. § 572.13A(2). The subcontractor’s lien also may be affected by a
delay in the posting of the notice of commencement of work, but the effect is only indirect because
the subcontractor can’t post a preliminary notice until there is a notice of commencement of
work on file. See id. § 572.13B(3)(a) (stating that the subcontractor’s lien is enforceable only to
the extent of the balance due the contractor “at the time of the posting of the preliminary notice”).
It is fair and reasonable for the effect on the subcontractor’s rights to be secondary because the
subcontractor’s responsibility is secondary.
29
work must be posted to the mechanics’ notice and lien registry
internet website before preliminary notices pursuant to I.C.A.
§ 572.13B may be posted.
10 Barry A. Lindahl, Iowa Practice Series: Civil Practice Forms § 61:3, at 717
(2022 ed. 2022); see also id. § 61:3, at 718 (“A general contractor who fails to
provide the required notice is not entitled to a lien and remedy provided by this
chapter.”). The citation to section 572.13B(1) is a technical error; it should be
section 572.13A(1). But substantively, the treatise agrees with our view that the
second comma is the one that does the work. The treatise also agrees that the
“effective” language in that section applies to the general contractor. Id. § 61:3,
at 717.
We respectfully decline to adopt the dissent’s views.
D. Admissibility of FAC’s Loan Payoff Statements. We now address the
evidentiary issue raised by the cross-appeal. Dostal Developers and Randy
Dostal contend that the loan payoff statements created by FAC’s sub-servicer
and offered into evidence through an FAC employee were inadmissible hearsay.
The district court, however, admitted the payoff statements under the business
records exception. When the court of appeals considered this issue on appeal, it
determined that any error in admitting the records would have been harmless
because FAC’s Mark Thomas “testified without objection to the figures contained
in the documents before the documents were offered or admitted.”
We question whether Thomas actually testified to the figures contained in
the documents “without objection.” This was a trial to the court. In the course of
attempting to lay foundation for the admission of each of the five payoff
30
statements, FAC’s attorney asked Thomas to describe the contents of each such
statement, including unpaid principal and interest. This occurred without
objection. But when FAC tried to offer the statements themselves into evidence,
the Dostal parties objected. Although the better practice would have been to
object to testimony about the contents of exhibits that were not yet in evidence,
we are not prepared to accept the court of appeals’ characterization of the
situation as a waiver, at least with a bench trial. So, we turn to the merits.
FAC argues the payoff statements were properly admitted anyway under
Iowa Rule of Evidence 5.803(6) as business records. In the proceedings below,
the Dostal parties objected on the ground the statements were prepared for
litigation purposes rather than in the ordinary course of business.
We disagree. The record shows that FAC’s loan sub-servicer, BSI, routinely
furnished these types of payoff statements per FAC’s request. Thomas explained,
“It’s the standard practice for how we order payoffs when we, the lender, want to
know what is outstanding on the loans.” He confirmed it was “the regular
practice of FAC to get payoff statements to show the balance of a loan at any
given time.” So while these particular statements may have been requested for
litigation purposes, from the standpoint of the party that prepared them (BSI)
they were ordinary business records. See, e.g., U.S. Bank Tr., N.A. v. Jones, 925
F.3d 534, 537–38 (1st Cir. 2019) (Souter, J.) (upholding the admission under the
business records exception of a computer printout that contained an account
summary and a list of transactions related to the loan); Deutsche Bank Nat’l Tr.
Co. v. de Brito, 235 So. 3d 972, 975–76 (Fla. Dist. Ct. App. 2017) (finding that a
31
payoff printout from a third-party vendor should have been admitted into
evidence under the business records exception); Beal Bank, SSB v. Eurich, 831
N.E.2d 909, 913 (Mass. 2005) (“Clearly, EPS, as the bank’s servicing agent, had
a business duty accurately to maintain such records for the bank. Given EPS’s
obligation to maintain these records, and the bank’s reliance on such records,
the judge was warranted in finding that the two computer printouts were made
in good faith and in the regular course of business.”).
V. Conclusion.
For the foregoing reasons, we affirm the decision of the court of appeals.
We reverse the district court on the issue of Randy Dostal’s personal liability but
affirm it in all other respects. The case is remanded for further proceedings
consistent with this opinion.
DECISION OF COURT OF APPEALS AFFIRMED; DISTRICT COURT
JUDGMENT AFFIRMED IN PART AND REVERSED IN PART ON APPEAL,
AFFIRMED ON CROSS-APPEAL.
Christensen, C.J., and Appel and Waterman, JJ., join this opinion.
McDermott, J., files a dissenting opinion, in which McDonald and Oxley, JJ.,
join.
32
#20–0972, Borst Bros. Constr., Inc. v. Thomas Dostal Devs., Inc.
McDERMOTT, Justice (dissenting).
I respectfully dissent from the majority’s holding that the mechanics’ liens
have priority over the bank’s construction mortgages in this case. I disagree with
the majority’s interpretation of the mechanic’s lien recording statutes found in
Iowa Code sections 572.13A and 572.13B (2018), and would hold that the
required notices in this case weren’t properly posted and thus the
subcontractors’ mechanics’ liens are subordinate to the bank’s construction
mortgages.
As the majority correctly recites, section 572.13A, subsection 1 requires a
general contractor or owner-builder who has contracted with a subcontractor to
post a “notice of commencement of work” to the mechanic’s notice and lien
registry website “no later than ten days after the commencement of work on the
property.” Id. § 572.13A(1). The statute continues: “A notice of commencement
of work is effective only as to any labor, service, equipment, or material furnished
to the property subsequent to the posting of the notice of commencement of
work.” Id.
Dostal Developers, the owner-builder, failed to post a notice of
commencement. Section 572.13A, subsection 2 spells out the requirements for
subcontractors to file mechanics’ liens when the general contractor or owner-
builder doesn’t file a notice of commencement:
If a general contractor or owner-builder fails to post the required
notice of commencement of work to the mechanics’ notice and lien
registry internet site pursuant to subsection 1, within ten days of
commencement of the work on the property, a subcontractor may
33
post the notice in conjunction with the posting of the required
preliminary notice pursuant to section 572.13B.
Id. § 572.13A(2).
Both the majority and I read the sentence as an “if-then” statement (also
known as a “conditional” sentence); we just disagree on where the unwritten,
implied “then” goes. I believe the sentence must be read as follows: “If a general
contractor or owner-builder fails to post the required notice of commencement
. . . pursuant to subsection 1, [then] within ten days of commencement of the
work on the property, a subcontractor may post the notice in conjunction with
the posting of the required preliminary notice.” Id. (emphasis added). The
majority’s reading places the implied “then” later: “If a general contractor or
owner-builder fails to post the required notice of commencement . . . pursuant
to subsection 1, within ten days of commencement of the work on the property,
[then] a subcontractor may post the notice in conjunction with the posting of the
required preliminary notice.” Id. (emphasis added).
The phrase “within ten days of commencement of the work on the
property” is set off by commas on both sides. Id. The majority’s reading more or
less ignores the comma between “subsection 1” and “within ten days.” Such a
reading thus treats the phrase set off by commas as simply providing more
information about the requirements of subsection 1. But that’s already achieved
by the sentence’s explicit reference to it: “pursuant to subsection 1.” Id.
Subsection 1, as we know, requires the posting within ten days of
commencement. Id. § 572.13A(1). The legislature had no need to repeat the
particular detail that subsection 1 included a ten-day deadline.
34
Conversely, if we read the sentence in a way that gives effect to the comma,
the phrase “within ten days of commencement of the work on the property” does
some work in the sentence: it imposes a deadline on the subcontractor to post
the notice of commencement if the general contractor or owner-builder didn’t
already. The majority’s reading suggests that there’s no deadline; the
subcontractor could post the notice of commencement months, or potentially
years, after starting its work on the project without consequence. By reading the
phrase “within ten days of commencement of the work on the property” as
establishing a deadline tied to the subcontractor’s actual start of work on the
project, the “notice of commencement” actually gives meaning to the word
commencement.
The majority also reads “the work” in section 572.13A, subsection 2 to
refer only to the general contractor’s or owner-builder’s work, not the
subcontractor’s own work. On this, too, I disagree with the majority. The word
“work” is used over twenty-five times in chapter 572. See generally id. ch. 572.
It’s not defined anywhere in the statute, but by context we see that it refers
generally to furnishing labor or materials that improve the property, without
regard to any particular person. For instance, Iowa Code section 572.2 sets forth
the “persons entitled to lien” and refers to “work” by owners, owner-builders,
general contractors, and subcontractors:
Every person who furnishes any material or labor for, or performs
any labor upon, any building or land for improvement, alteration, or
repair thereof, including those engaged in the construction or repair
of any work of internal or external improvement . . . by virtue of any
35
contract with the owner, owner-builder, general contractor, or
subcontractor shall have a lien upon such building or improvement.
Id. § 572.2(1) (emphasis added). The term “the work” in section 572.13A,
subsection 2 can be, and makes most sense in context, applied with reference to
the subcontractor’s work on the project. Id. § 572.13A(2). Such a reading also
resolves the potential problem that the majority raises about a subcontractor
needing to file the notice of commencement within ten days of the general
contractor’s or owner-builder’s work on the project, which a subcontractor
(particularly one hired for the project long after other work has started) might
have no information about.
A notice of commencement of work posted to the mechanic’s notice and
lien registry website puts the world on notice that at least one subcontractor has
performed (or is about to perform) work on the project that will trigger potential
lien rights against the property. I disagree with the majority’s suggestion that “[a]
prudent lender can use self-protection methods” (including, for example,
“requiring the borrower to bond the project”) to guard against the prospect of
unrevealed mechanic’s lien claimants. If the statutory requirements are followed,
a lender advancing funds on a project should be able to check the mechanic’s
notice and lien registry website to determine whether a notice has been filed and
thus whether a mechanic’s lien claimant might exist. A “notice and lien registry”
that provides no notice of any potential lien isn’t much of a “notice and lien
registry.” The majority’s interpretation torpedoes an obvious benefit of the
statute.
36
Perhaps more importantly, as section 572.13A, subsection 1 states, a
notice of commencement of work is only effective for labor or material furnished
after the notice of commencement of work is posted. The majority points out that
this particular sentence isn’t restated in subsection 2, and from that concludes
that the limitation applies only to general contractors and owner-builders. But I
struggle to pull that from the text of the statute, considering that the sentence
merely states: “A notice of commencement of work is effective only as to any
labor, service, equipment, or material furnished to the property subsequent to
the posting of the notice of commencement of work.” Id. § 572.13A(1). The
limitation, by my reading of section 572.13A, attaches to the notice of
commencement irrespective of the party that filed it.
Besides running contrary to the text of section 572.13A, subsection 2, the
majority’s reading that this limitation applies only to general contractors and
owner-builders but not to subcontractors would have a strange result. The notice
of commencement requirement has a simple function: it discloses that a general
contractor or owner-builder “has contracted or will contract with a subcontractor
to provide labor or furnish material for the property.” Id. § 572.13A(1). It
announces, in other words, that as to the particular property at issue, at least
one potential lien-exercising subcontractor exists. Under the majority’s reading,
there’s no consequence to a subcontractor that fails to timely post the notice of
commencement disclosing that it (a subcontractor) exists, but a general
contractor or owner-builder that fails to timely post the same notice about a
subcontractor suffers a consequence. Considering the subcontractor-disclosing
37
aim of section 572.13A, the disparate treatment strikes me as contrary to both
text and logic.
Iowa Code section 572.18 grants mechanic’s liens priority over other liens
in certain circumstances. Section 572.18(1) describes those circumstances:
Mechanics’ liens posted by a general contractor or subcontractor
within ninety days after the date on which the last of the material
was furnished or the last of the claimant’s labor was performed and
for which notices were properly posted to the mechanics’ notice and
lien registry internet site pursuant to sections 572.13A and 572.13B
shall be superior to all other liens which may attach to or upon a
building or improvement and to the land upon which it is situated,
except liens of record prior to the time of the original commencement
of the claimant’s work or the claimant’s improvements, except as
provided in subsection 2.
(Emphasis added.) Subsection 2 then states that construction mortgage liens
have priority over all mechanic’s liens whose claimants commenced their
particular work after the date that the lender recorded its construction mortgage
lien. Id. § 572.18(2).
For mechanics’ liens to have priority over other liens, the mechanics’ liens
(1) must be posted within ninety days from when labor or materials were last
provided and (2) notices must be “properly posted to the mechanics’ notice and
lien registry internet site pursuant to sections 572.13A and 572.13B.” Id.
§ 572.18(1). Because Borst and Kelly failed to timely file a notice of
commencement within ten days of beginning their work, notices were not
“properly posted to the mechanics’ notice and lien registry internet site pursuant
to sections 572.13A and 572.13B.” Id. Their mechanics’ liens thus should not
have priority over Finance of America’s construction mortgage under section
572.18, and I would reverse the district court’s ruling that held to the contrary.
38
McDonald and Oxley, JJ., join this dissent.