Dot the I's and Cross the T's
Lien laws vary by state, but most spell out the time frame for notice and filing, lien notice contents (required documentation), and process for waiving or extinguishing a lien. Other provisions routinely include priority of payment, properties covered, and assignment of attorney fees. It’s common for the non-prevailing party to pay the attorney fees. Ohio REALTORS® didn’t have such a provision in the state’s original lien law, but they successfully advocated for an amendment, which went into effect in March of 2021. “The ability to recover reasonable attorney fees and costs has helped our members stay out of court,” Garland says. “It eliminates the scenario where the client assumes the broker will not pursue a lawsuit because the attorney fees might exceed the value of the due commission.”
Too often, brokers find themselves lacking the necessary documentation to file a lien. “The first thing a broker should do is determine what the law requires,” advises Goldsmith. Most states require a written and signed contract for providing “licensed services” in exchange for a fee. That’s not always easy. “There are a lot of commercial deals that never get listed,” says Jim Helsel, CCIM, CPM, owner of Helsel Inc., REALTORS®, in Harrisburg, Pa. “I always try to get something in writing—ideally a letter, but an email is better than nothing and can help with negotiation.” (Helsel is the author’s spouse.)
“Legal language can be tricky,” says Goldsmith. “Brokers must ask themselves what they did to effect the transaction.” For example, is it sufficient if the seller produces the buyer or lessor with no contact with the listing or cooperating broker? A skilled attorney can be creative in what constitutes a “licensed service,” notes Goldsmith, but a contract clearly defining the services provided in exchange for a fee is essential for a successful lien. Brokers should familiarize themselves with the lien law and work with counsel to create a standard contract that will stand up to the scrutiny of the law.
Deena Zimmerman, vice president of SVN Chicago Commercial, advises new agents to carefully review the brokerage section of the lease to ensure correct documentation. “I’ve seen brokers lose out because they didn’t notice that their name was not in the lease agreement as representing one of the parties to the transaction.”
Repercussions of Filing a Lien
Because a broker can meet the statutory requirements to file a lien does not necessarily make it the right course of action. “I learned a long time ago that the last thing I want to do is escalate problems with a lease by bringing an attorney to the table,” says Kris Keller, CCIM, of Keller Williams ONEChicago. “It usually leaves a sour taste in the mouth of the landlord, who may have other properties for which we’d like to be the leasing agent.”
Some brokers get a more aggressive response. Greg Hrabcak, CCIM, a Columbus, Ohio, broker in the commercial division of HER, REALTORS®, had a landlord’s broker threaten to run up legal fees if he filed a lien. “The other brokerage had in-house counsel, and I knew they could bleed us to death, but I felt it was my duty to file the lien on behalf of the associate broker who put together the deal.” The parties eventually settled, with Hrabcak’s firm getting half of the owed amount. Hrabcak says in most cases, the warning of a lien is enough.
Greg Herb, CRB, owner of Herb Real Estate in the Philadelphia area, also is hesitant to file a lien. “I want to be a problem solver, not threaten litigation,” says Herb. “We file to find a resolution,” he says, but he admits it is uncomfortable. “It’s tempting to turn the other cheek, but that’s not good for our industry.”
Helsel recalls weighing the risk of filing a lien for a multiproperty sale that would generate only enough funds to cover the sellers’ debt and broker commission, with no proceeds for the sellers. The co-listing broker had a personal connection to one of the sellers. “She begged me not to do it, believing they would pay,” Helsel says. “She was correct, and I was glad not to have filed. It was apparent, though, that they knew of my concern. One seller still won’t speak to me. Any time you upset a client,” he says, “others may unfairly judge you—and your reputation,”
The agents in Zimmerman’s firm routinely discuss the possible need for a lease lien. “To avoid offending a client,” she says, “we try to write agreements to cover ourselves in the case of nonpayment, such as retaining the security deposit, but some landlords won’t agree. If we have any concerns, we lien the property.”
Some firms file liens as a standard business practice, primarily for large transactions. Delivering the notice of lien with the contract minimizes the suggestion of distrust. Still, it may be off-putting to the seller or lessor. Firms should also detail in writing the actions that will extinguish the lien.
Rolling the Dice
Most brokers agree that the real value of the lien law is forcing a discussion around a resolution. Davisson recounts one incident in which a developer client wanted to change the commission structure in a land sale transaction arbitrarily. “I could have easily used the broker lien, but we would have lost the opportunity to work with this developer going forward,” he says. “The threat of the lien led to a resolution satisfactory to both parties, and we were able to continue the relationship with the developer.” Davisson’s view is that “a piece of the pie is better than no pie at all.”
A willingness to seek a mutual resolution is the prevailing sentiment. None of the brokers interviewed for this article regretted their decisions not to file a lien—even in instances where they lost money. “I believe most people are fair,” says Helsel, “but you roll the dice every time.”