What Happens After You File A Mechanics Lien

So, you fulfilled all of your notice requirements and you filed your mechanics lien on time.  The other party still hasn’t made payment, and you begin to wonder…now what?

Why Mechanics Liens Work

First, before discussing what happens after the lien is filed, let me first address why mechanics liens are effective ways to collect on non-paying projects.

This is an important point when discussing what happens after a mechanics lien is filed because it touches on why mechanics liens sometimes prompt payment without any further action after the filing itself.

Mechanics Liens are effective for the following reasons:

- Without a mechanics lien, you can only sue the party you contracted with.  With a lien, you can sue the property owner, those up the contracting chain from you, and the surety bonding the project.

- A mechanics lien can prevent a property from being sold, transferred or refinanced

- Without a mechanics lien, you have no security when you file suit on your breach of contract claim.  With a lien, your claim has the property has security.

This is a perfect storm of aggravation to the project and the parties working on the project, that frequently results in getting you paid without any action beyond filing the lien.   See how it worked on the MGM Project in Vegas here.

What Happens Next?

But what happens if your mechanics lien does not produce immediate payment?  See article on this topic here.

Most states require the lien be “enforced” or “foreclosed.”   This typically means that you bring a lawsuit against the person you contracted with and/or the other relevant parties (property owner, prime contractor, surety, etc.).    In most circumstances, the lien stays on the books while your action is pending, and if you win…you have the security of the property to ensure you get paid.

It is very important to recognize that you only have so long to enforce or foreclose on your lien.   If you fail to do this within the specified time frame…your mechanics lien will expire completely.

The time you have to enforce or foreclose on a mechanics lien varies depending on the state where the project is located.   We have Construction Lien Law Summaries, and specifically the time period to enforce mechanics liens from each state, available on our State-By-State Lien Law Summaries and Forms Page.

And don’t forget about Zlien’s Lien Pilot, which calculates your project’s deadlines for you (including your deadline to foreclose / enforce a mechanics lien).

What Happens When My Lien Expires?

Well, this is a pretty sensitive subject.   You can always bring your lawsuit against the party in your contract (if you are within the statute of limitations for your state).

But with respect to the mechanic lien’s viability, Kelly Davis has a great article published on her blog on this issue:   Didn’t Foreclose on your Mechanics Lien?  What Should You Do Now?

The Difference Between Public and Private Projects

When it comes to filing mechanics liens and collecting money owed to your company, there is a world of difference between private and public construction projects.   And it’s very important to know the difference between the two.

Why Does It Matter?

Before explaining what distinguishes these projects from one another, let me talk a little about why it matters.

If unpaid on a private project, the laws in most states allow you to file a “mechanics lien” against the property.   This gives your company an actual interest in the real estate your labor or materials improved.   The lien must be filed within a particular period of time, and if the lien is not paid, you’re required to “foreclose” upon the lien to obtain payment, which could result in the property being sold at auction to obtain the funds to payoff your claim.

If unpaid on a public project, there is a much different experience.

Generally, your company is not able to file a “mechanics lien” against a public project because most states (and the federal government) prohibit any party from gaining an interest in public property.   As a result, most public construction projects may only proceed if a “payment bond” is issued.    In the event of non-payment on a public job, rather than file a lien the unpaid party will file a “claim” against the bond.   Instead of foreclosing on the property, the claimant will “foreclose” – so to speak – against the lien, eventually resulting in payment.

What is the Difference Between Public and Private Projects?

Easy.

99 times out of a 100, a project is private when owned by a private person or entity, and is public when owned by the government.

When the government is the United States or a federal agency, the applicable rules are found within the “Miller Act.”   We’ve written a good deal about Miller Act rules and claims here at the Construction Lien Blog.    When the government is the state or a state agency, the applicable rules are usually found within a “Little Miller Act” statute.    These vary state-by-state, a great resource on little miller acts across the country is linked below (and here).

Be very careful when performing work on a private school (i.e. private university) or for a non-profit agency, and even large public corporations.   We sometimes think of these types of organizations as “public” agencies, but that does not necessarily render them a “public construction project.”    Usually, such a designation is reserved for land and projects owned by the federal or state government.    If you’re unsure, it’s a good idea to ask, or to hire an attorney to research the question.

GREAT Resources for Public Lien Laws and Public Contracting Issues

Here are two great resources for folks looking to learn a little more about public contracting in general, and about bond / lien claims against public projects.

1)  Mike Purdy’s Public Contracting Blog:  Mike Purdy is a retired public contracting consultant out of Seattle, WA.  His frequently updated blog addresses public contracting questions and laws across the country.

2)  Law Office of David Bransdorfer Miller Act Summaries:   This website, offered by a New York law firm, provides summaries of the Miller Act, and each state’s version of the Miller Act.  It’s a great place to start researching the applicable public contracting claim / lien laws in your state.

Get Results With A Construction Lien

Possible Consequences of A Construction Lien

Most, if not all, property owners are unaware of the consequences of having a lien filed upon their property.  Say they pay the prime contractor they hired in full and the contractor fails to pay those he has hired independently- the owner could still owe money to those workers even after paying the prime contractor.

How is that obligation enforced?   Well, a number of possible ways.

If a lien is filed on a particular property and/or parcel number and the property is later sold, for example, money received in the sale could actually be tied up and placed in escrow because of a mechanics lien filing.   Here are some other possible consequences of a mechanic’s lien:

- Sale can be forced on the property in order to pay for the debt (called a foreclosure of mechanics lien)
- Payment owed to contractor can be increased by attorneys fees and penalties
- Inability to borrow against the property or refinance
- Flag on the title of the property

Of course, each state is different in how mechanics liens are filed and treated.   It’s important to consult with an attorney and the laws of your state to get a full grip on how the mechanic’s lien process can help you.

What’s Key to Filing a Mechanics Lien?

On a Construction Project… deadlines are everything. This is especially true when it comes to your companies right to file mechanics liens.

Is a preliminary notice due? How long do you have to file a lien? When must a lien be foreclosed?

Let us introduce to you an industry leading web-based lien document and deadline management solution: The Lien Pilot.

Our system is easy-to-use…and absolutely free. Track and control your project data, important lien and notice deadlines, project contacts and more. Here are a few features of our proprietary Lien Pilot:

- Automatically calculate lien deadlines, preliminary notice deadlines, and even create custom deadlines
- Get RSS Feed reminders when deadlines are due
- Manage project contacts, job-site data, legal property descriptions and more
- Manage lien documents
- Easy access to an Express Lien Wizard who (for a flat fee) can prepare and file liens, notices, cancellations and more

Learn more about how our Lien Management software works on the “How Express Lien Works” page.

What You Need To Do Immediately After Filing A Construction Lien

So, you filed your construction lien on time.  Whew!   Now what?

If you’re a subscriber to our blog, you know we frequently post about the technical requirements and strict deadlines that lead up to the filing of a construction lien.   We don’t, however, frequently discuss the technical requirements and strict deadlines that follow a lien’s filing.   There are a few, and as usual, these requirements vary state-by-state.

Generally speaking, however, you have to keep two things in mind immediately after filing a construction lien.

First, you may need to send notice of filed lien to the property owner and/or contractors “up the chain.”  In some states (like in Texas) a lien is actually unenforceable unless a copy of the filed lien is delivered to the property owner within 5 days of its filing.   That’s a serious penalty, and a pretty immediate deadline.   Other states have similar penalties (in Oregon, for example, you cannot collect attorneys fees from the other party in foreclosing on lien that was not delivered to the property owner after filing).

Now, here is how Express Lien helps.

Any liens ordered from us (in any state) are delivered to the property owner and all other interested parties (those named on the lien) immediately after filing.   Notice of the filing is delivered certified mail, and a record of the mailing is maintained in your online account, available for you to review or download at anytime.   You simply place your order and forget about it – we do all the rest.

Second, liens expired if they are not “foreclosed upon” or “enforced” within a certain period of time.    In some states, liens must be enforced within just 90 days (California), while other states can provide up to 2 years (Texas).   Failure to file a lawsuit enforcing / foreclosing the lien will result in the lien expiring.

How does Express Lien help with this?

Well, once you put the “Lien’s Filing Date” into our system, the system will calculate your lien’s expiration date.  If you order the lien from Express Lien, we’ll put the date in the system for you.    We don’t actually foreclose or enforce the lien for you (you’ll need an attorney for that), we do give you a heads-up when the deadline is approaching.

If A Construction Lien is Bonded…Does that Circumvent Payment to an Claimant?

Typically, a construction lien is filed to have a number of desired effects:  (1) To prevent the sale or transfer of the property; (2) To hold multiple parties without contractual privity liable for the debt; and (3) To provide contractors with a faster and more direct remedy against parties in litigation.

But if a homeowner (or other interested party) files a bond in response to the lien, does that defeat the purposes of the lien itself?

Quite simply, no.

What is a lien bond?

Most mechanic liens statutes give property owners and other interested parties in a construction project the ability to file a bond in response to a party’s filing of a mechanic’s lien.   Most states require the amount of the bond to equal more than 100% the lien claim.

In Louisiana, for example, a lien bond must be 125% the amount of a claim.   In Washington, the bond must be 150% the claim amount.

The bond itself is deposited with the recorder or clerk’s office and theoretically “takes the place” of the lien. A filed bond, therefore, usually has the effect of eliminating any barriers to the sale or transfer of property and nullifying any rights to sue parties without contractual privity.

So, if a lien can be bonded and all of the lien’s benefits nullified…what’s the point of the lien?

The Bond’s Benefits

While the lien bond acts to nullify some positive aspects of a party’s claim of lien, it does not defeat the purpose of the lien statutes.   The claimant loses some benefits of the lien itself, but it gains the benefits of the bond.

Here are some benefits of the bond:

• The entire amount in dispute (plus an additional amount – 25%, 50%, etc.) is filed with the court, and is securely awaiting determination of ownership.   This means that upon a court award, you won’t have to spend any money “collecting” the judgment.   The money is there.
• The lawsuit to foreclose or enforce your lien becomes a lot less complicated.   Sometimes, a subcontractor’s lien claim can include a handful of parties (owners, GCs, suppliers, etc.).   The more parties in litigation, the more expense and procedural hurdles.   When a lien is bonded, it reduces the litigation to a one-on-one dispute and narrows the scope (and expense) of the action.

In short, while a bonded lien does not prevent the sale or transfer of property and may reduce the number of parties a claimant can sue….the bond also eliminates the need for those remedies.  It places the entire amount in dispute (plus sum) into the reach of the claimant, and the claimant can move forward in a clean and uncomplicated procedural action to recover the funds.

If your lien is bonded, it has already succeeded to some degree (it has produced the cash).  Now, it’s only a matter of proving that the cash is yours.

Mechanics Lien – Is it like a Mortgage? Yes and No.

In most states, contractors and suppliers can file “Mechanics Liens,” whereby they acquire a privilege against the construction jobsite’s property.    The liens usually work like a mortgage on the property, such that it must be satisfied before a property is sold, transferred or refinanced.

While liens act a lot like mortgages, they certainly are not identical to mortgage instruments.

First, in most states, mechanics liens themselves expire.    Most states require that the contractor file a lawsuit to “enforce” or “foreclose” on the lien within a certain time period (sometimes short), to extend the life and effectiveness of a lien.   Here are some example timeframes:

In Louisiana, liens must be enforced within 1 year from filing.  In Washington, lien foreclosure is due within 8 months of filing.  In California, you must foreclose within just 90 days of filing!

Second, depending on the state, liens are given more or less “priority.”    Lien priority effects the order the instruments are paid in the event of a property sale or foreclosure.   In other words, if a property is foreclosed upon but sold for an amount less then the sum of all liens, and there are two mortgages and a mechanics lien on record, who gets paid and who doesn’t?

The answer to this question depends on your state.   In Louisiana and Washington, liens take a junior priority to mortgages and similar instruments.  In other states, however, the rules are or, depending on circumstances, can be different.    In Virginia, mechanics liens have priority over construction loan mortgages.   In Minnesota, depending on when the respective instruments are filed, a mechanics lien can take priority over mortgage-type instruments.

Illinois Mechanic’s Liens: Chicken And Waffles Case Ensures Protection to Subcontractors

The great state of Illinois has run through its share problems with its mechanic’s lien laws. Recently, the state has met persistent attempts at giving a facelift to the lien laws, at least as far as those protections for owner-occupied residences.

The law firm of Foran, Glennon, Palandech & Ponzi PC has a wonderful blog entitled the Illinois Construction Law Blog. Recently, the blog has produced several articles commenting on the congressionally proposed amendments to the state’s lien laws.

The blog’s authors have raised concerns about the vague and often redundant nature of the proposed changes. In fact, the authors find that the bill’s purpose could simply be served “if Section 32 [of the bill] were just removed.”

Regardless, the bill’s final change actually seems to have some teeth. The end-all-be-all would be to eliminate subcontractor liens against owner-occupied residences unless their is a provision in the general contract providing for such a lien. The law also adds the following penalty:

"(iv) The failure of a contractor to include the statement contained in paragraph (i) on the face of the contract relieves the owner of the property of any legalobligation to pay any subcontractors under this Act."

It certainly seems that Illinois is taking a step towards restraint of contractor rights, but another one of the firm’s posts gives an indication that the courts are still with the contractors, in the good fight to get paid.

The interesting case of Springfield Heating v. 39477-55 King Drive at Oakwood, LLC, et al (1st Dist., Doc. No. 1-07-2987), provides a snapshot of judicial interpretation of the state’s fraudulent claim restrictions.

In Springfield, a subcontractor entered into a contract to do substantial remodeling of the Chicago’s Home of Chicken and Waffles. The Illinois Construction Law Blog has a great synopsis of the case which can be found on their blog.

After terminating their contract, the sub brought  suit to foreclose two liens it had filed against the two buildings it worked on, and to bring equitable claims for unjust enrichment and quantum meruit (for unjustified enrichment of the Defendant). The liens sole issue was that each lien contained the full amount of the project debt, essentially meaning that the sub had claimed double the amount due. Because of this error, the trial court found that the liens were fraudulently brought and must be dismissed, as opposed to amended. Furthermore, the judge dismissed the equitable actions.

On Appeal, the court found that the statute which provides for the cancellation of fraudulent liens, requires the defendant to show an intent to defraud. Certainly, in this scenario, there had been no such attempt, but rather a last ditch effort to protect the sub’s sole means of recovery against the owner, where there was confusion about how to file the lien and sever the amount due.

As the blog’s author states:

“While no one is going to recommend filing a lien that hasn’t been proofed and double-proofed, it’s nice to see the intent of the law given form here to help people get paid even if a small technical error arises.”

The court’s ruling just goes to show that the subcontractor’s one friend left is the construction lien – many times, its sole source of recovery against an owner.

5 Fast Facts About California Mechanic’s Liens

The Contractor’s Secret Weapon blog posted an article providing 5 fast facts about California Mechanic’s Liens.

Here they are:

1)    If you didn’t contract with the property owner, within 20 days after first providing materials or services to a project, you must deliver a Preliminary 20-Day Notice to their customer, the property owner, the general contractor and the construction lender.

2)    Failing to provide the Preliminary 20-Day Notice is grounds for disciplinary action by the Registrar of Contractors.

3)    Mechanics Liens must be recorded either:  (a) within 90 days from completion of project if Notice of Completion or Cessation is not recorded; or (b) within 30 days from completion of project if Notice of Completion or Cessation is recorded.  Prime contractors have 60 days.

4)    Your construction lien does not last forever.  You must file an action to foreclose on your lien within 90 days of its filing.

5)    If you don’t file an action to foreclose on your lien, the contractor must record a Mechanic’s Lien Release.   Failure to do so could subject the claimant to statutory penalties of up to $2000 for property owner’s legal costs in getting the lien removed.

Virginia – Strongest Liens of them All?

In the past, we’ve posted about the strength and effectiveness of construction liens.    Across the nation, construction or mechanics liens can be used as a powerful collections tool by contractors, suppliers and others working on construction projects.

The state of Virginia, however, has perhaps the most powerful mechanics liens in the nation.

In most circumstances, a mechanics lien will get resolved without the property being foreclosed or the property owner filing bankruptcy.   However, there are occasions (and in this economy, increasingly so) when a project falls apart, and those working on the jobsite find themselves waiting for proceeds to trickle down from foreclosure or bankruptcy proceedings.

In most states, a filed mechanics lien takes priority below the construction loan bank’s mortgage.   Further, the filing of bankruptcy usually defeats any lien rights.

In Virginia, however, the opposite is true.  A properly filed mechanics lien in Virginia will not get defeated in bankruptcy, and it will have priority over the construction loan bank.   Earlier filed mechanics liens have priority over later filed instruments.

We’ve posted in the past on why its important for contractors to lien unpaid construction projects.   This review of the powerful lien laws in Virginia stands as a reminder of how effective a mechanics lien can be, and why its important to make your claim timely & properly.

Top 10 Construction Lien Errors

Debb & Derkin, P.A., a law firm practicing construction law in Florida and filing construction liens in that state, published an article listing the Top 10 Construction Lien Errors.

While the article and Top 10 listing is related to Florida lien laws, since most lien laws in the U.S. are substantially similar, the same errors appear time and time again on liens across the nation.

The Top 10 Lien Errors highlight by Mr. Debb in the article are:

1. Failure to Timely Serve Notice to the Owner
2. Failure to Serve Notices on Proper Parties
3. Failure to Serve Notices by Proper Method
4. Contingent Payment Clauses
5. Overstatement of Amounts Due and Owing
6. Failure to Respond to Sworn Statement Requests
7. Failure to Timely File a Claim of Lien
8. Failure to Provide Copy of Claim of Lien
9. Failure to Foreclose on Claim of Lien within Time Required by Statutes
10. Failure to Secure Proper Licensing

Express Lien, Inc. is experienced in filing construction liens in states across the country, and ensuring that your lien is filed professionally and accurately. Trust your next construction lien to our professionals.

It’s why we say: Lien Smarter…Get Paid.