Lawsuit to Foreclose a Mechanic’s Lien:
The Next Step if They Ignore Your Lien
The Next Step if They Ignore Your Lien
Your mechanic’s lien is not valid forever. Because it directly affects the owner’s title, it has a limited shelf-life and must be enforced within a relatively short period of time. That enforcement is done by filing a lawsuit to foreclose, also known as a mechanic’s lien foreclosure lawsuit.
There is a misconception among that filing a lawsuit is merely optional. Some claim a mechanic’s lien will stay on record for years and will have its effect in preventing the owner from re-financing or selling. Unfortunately, this is not true:if a lawsuit to foreclose is not brought, the mechanic’s lien becomes and null and void.
Just like the time deadlines for a Pre-Lien or Mechanic’s Lien, the courts strictly construe time limits to bring the lawsuit which are called statutes of limitation. If you are literally one day late, the lien is ineffectual.
We began with free consultation and the development of a basic litigation strategy. The lien law of each state is researched, specifically as to the relevant causes of action. The various steps in the lawsuit progress are discussed so you have a general idea of what to expect in the future.
You then email us a copy of your proposal/contract, change orders and unpaid invoices.
After a title search, owner verification and confirming addresses to serve, we prepare the actual lien foreclosure lawsuit and forward a copy for review. After approval, it is filed with the clerk’s office of the County in which the project is located. It is then sent out for service on the defendants.
Fee: The cost for the consultation; research; review; preparation of the foreclosure lawsuit; filing; sending out for service; if a Corporation or LLC the assignment of causes of action to one of your principals individually; summons; civil case cover sheet and filing the Notice of Pending Action is a flat fee of $850. This includes unlimited phone calls and consultations.
This is a substantial savings as it is not uncommon for attorneys to charge a $5,000 retainer just to begin.
Costs: These are the actual costs incurred with no mark-up:
- Court Filing Fee: Depends on the jurisdiction and an exact quote will be given before we begin. The fees range anywhere from $70-$435, depending upon the state.
- Notice of Pending Action. The mechanic’s lien foreclosure lawsuit is not the only step. There is also a document known as a “lis pendens”, namely a recorded notice letting the world know you have filed a lawsuit. This effectively prevents the sale or refinance of the subject property. The recording fees are generally the same as the recording of the mechanic’s lien. In some states there is also a requirement of making a special application to the court for permission to record because you are acting in pro se. This application is included in the fee.
- Process Serving. The summons and lien foreclosure complaint must be personally served on the defendants. You can either use the Sheriff’s office or a private registered process server. The fees are generally in the neighborhood of $75–$125 per defendant.
We can also provide a quote for other services on a flat fee, including: a) discovery given and/or responded to (special and form interrogatories, document production, request for admissions, depositions, and subpoenas); b) opposing motions to dismiss and demurrers/motions to strike, c) status conference statements to the court, d) scripts of what to say at a hearing or trial, e) arbitration/trial briefs, f) pretrial motions made or opposed, g) exhibits, h) preparing witnesses, i) briefs and i) other legal matters.
Can I Do it Myself Without an Attorney?
Yes. You have a constitutional right to bring a mechanic’s lien foreclosure lawsuit in your individual name, without an attorney, as a “Plaintiff in Pro Se”. This is usually one of the principals or owners in your office. When you sue in your individual name, there is no need to have an attorney.
And, you do not have to be an expert public speaker or award-winning debater; just someone who knows the facts and can argue your case. In other words, tell your story with clarity. As a matter of fact, you will always know more of what happened, as well as the industry itself, then your attorney. We have great respect for attorneys, but lawyers are certainly not required.
In the free law summary contained in each state’s separate page, near the end of the manual, you will see each state’s statute of limitations. For example, take a California. Within 90 calendar days (not 3 months) of recording your mechanic’s lien, the mechanics lien foreclosure lawsuit must be brought. As far as counting the days, you would not count the first day, but count the last day, unless it falls on a weekend or holiday, at which time you have the next business day to bring your lien foreclosure suit.
Each defendant must be personally served (to acquire personal jurisdiction) by the Sheriff’s office or a private process server. Certified mail is not allowed.
What Does the Lawsuit Do?
In major part, the court will enforce the mechanic’s lien through foreclosure. This means it will end up in the hands of the sheriff’s office who, after posting the property, advertising in a newspaper of general circulation, and giving notice, will sell the property to the highest bidder.
Causes of Action: The lawsuit will contain the following causes of action or claims: 1) breach of verbal or written contract, 2) unjust enrichment (quantum meruit / quasi-contract), 3) implied-in-fact contract for unsigned change orders, 4) account stated, 5) foreclosure of the mechanic’s lien, 6) pre-judgment interest or finance charges (if in your contract), 6) other consequential damages against the owner, such as delay or impact damages, and 7) attorney’s fees if there is such a provision in the contract.
Can I Represent Myself if My Company is a Corporation or LLC?
Yes. It is improper to represent your own corporation or LLC because it is a separate entity and is equivalent to practicing law without a license. However, all you need to do is assign the cause of action in the name of the corporation/LLC to yourself personally and then bring the action.
Can I Bring in an Attorney of my Choice any Time?
Yes. If you decide to have an attorney appear at trial or on a motion, you can retain one at any time.
Or you can simply bring in an attorney for consultation or to act as a “coach”. They can give you legal advice and then you can run with the ball at the next hearing.
And if you want an attorney to do the appearances and filings, our staff can prepare the research, briefs, and pleadings for them to review and sign. Or they can simply use one of our templates. This will greatly eliminate the cost as opposed to the attorney doing everything him or herself.
What if I Am Late in Filing a Lawsuit?
If you fail to file the mechanic’s lien foreclosure lawsuit within the time limits of a statute of limitations (for example, 90 days of recording the lien in California), all is not lost. In most states, you have many years to file a complaint for breach of contract and unjust enrichment. This will be against the party in which you have your contract. So if you are a general contractor, you can sue the owner for these causes of action. If you are a subcontractor, you can sue the general contractor (but not the owner if you are too late foreclosing the lien).
And when you receive a judgment, it is just as powerful as the mechanics lien because you can enforce it by collecting assets and even selling the property.
Where to File:
In the Superior Court (also known as circuit or district courts in other states) of the county in which the project is located. To find more information about the court, do a Google search as follows: “Santa Clara County Superior Court, California” or “Cook County Clerk’s Office, Chicago, Illinois”. It will have information about hours, location, and fees. But remember, many court clerks will not answer what is called “legal questions”. If you have such a question with any form of complexity, the best thing to do is call us and we will help you out. We’re not attorneys, but we are entitled to give you basic legal information about the lien foreclosure filing.
After bringing the mechanic’s lien foreclosure, because the proceeding directly affects title to the property, as seen above you will file what is called a “Notice of Pending Action” or Lis Pendens in the recorder’s office. This is a summary or abstract of the lawsuit and tells the world that a proceeding has been brought against the property to foreclose, putting everyone on notice.
How Often is the Property Actually Sold in Foreclosure?
Our lawyer tells us that after practicing for over 38 years, he has only seen three properties go all the way to foreclosure. And the ones that did, usually ended up in that position because there was little equity in the property to save or your rights have been foreclosed against by a senior mortgage holder. But the good news is that in almost every case, it is settled before the sale and you get your money.
What Happens at the Foreclosure Sale?
It is just like an auction. People show up, typically with multiple denominations of cashier’s checks, primarily on the courthouse steps, and bid to get the property. The winning bidder gets the property and hopefully you get money in your pocket to satisfy the mechanic’s lien.
Example 1: You perform substantial renovation work on a property worth $300,000. You are owed $100,000. At the sale, there is fierce bidding, but the proud owner is able to buy the property for $200,000. Title is transferred to that bidder, and after costs of sale, you get $100,000 and the previous owner gets the other $100,000.
Example 2: In the same example above, the bank holding a mortgage is owed $100,000 on the first deed of trust. They start the proceedings out by credit bidding their $100,000. It goes back and forth until they are eventually the winner at $200,000. They get the property, pay you your $100,000, and then re-sell the property for a profit of $100,000.
Example 3: Same as example 2. The bank starts the proceedings out by credit bidding their $100,000. It goes back and forth until they are eventually the winner at $150,000. They get the property, pay you $50,000, and then re-sell the property for a profit of $50,000.
Example 4: Same as example 2. But no one bids except the bank and they take it over. They wipe out your lien and you get nothing.
Example 5: Same example above except someone steps in and out-bids the bank by purchasing the property for $200,000. The bank gets $100,000, you get $100,000, and the new buyer has a property worth $300,000.
This is an excellent way to collect on smaller dollar limit cases. Remember, getting a small claims judgment is just as effective as a mechanic’s lien because you can record, in the form of an abstract of judgment, in the county in which the owner has property, and it will also prevents sale or refinance.
Better yet, attorneys are not required. In most states, even though attorneys can appear, they rarely do because of the cost (Exception: in California, Michigan, and Nebraska, they are barred from appearing unless the attorney himself or herself is the plaintiff). Truly being the People’s Court, there is absolutely no reason why you cannot represent yourself. And we can help you. On our web site has a full small claims Kit which has detailed instructions as to what to do and say, how to deal with the judge, exhibits, direct and cross-examination, opening and closing statements, and scripts.
But you cannot enforce your mechanic’s lien in small claims court. It is considered an inequitable device which is outside its subject matter jurisdiction. But who cares? If your dollar amount is within that jurisdiction, getting a judgment is just as good as enforcing a mechanic’s lien. You can garnish wages, pick-up and sell property through a writ of execution, and unpaid civil judgments reduce one’s credit score through Experian, TransUnion and Equifax. Even if the judgment is paid off, it may remain on the credit report, although marked paid, for up to ten years.
And, start to finish, you can usually do all this within two months.
How much can you get? Here is a summary:
- Alabama – $3,000
- Alaska – $10,000
- Arizona – $2,500
- Arkansas – $5,000
- California – $10,000 (Except that a plaintiff may not file a claim over $2,500 more than twice a year)
- Colorado – $7,500
- Connecticut – $5,000
- Delaware – $15,000
- District of Columbia – $5,000
- Florida – $5,000
- Georgia – $15,000
- Hawaii – $5,000
- Idaho – $5,000
- Illinois – $10,000
- Indiana – $6,000
- Iowa – $5,000
- Kansas – $4,000
- Kentucky – $2,500
- Louisiana – $3,000
- Maine – $6,000
- Maryland – $5,000
- Massachusetts – $7,000
- Michigan – $3,000
- Minnesota – $7,500
- Mississippi – $3,500
- Missouri – $5,000
- Montana – $7,000
- Nebraska – $3,500
- Nevada – $7,500
- New Hampshire – $7,500
- New Jersey – $3,000
- New Mexico – $10,000
- New York – $5,000
- North Carolina – $5,000
- North Dakota – $10,000
- Ohio – $3,000
- Oklahoma – $6,000
- Oregon – $7,500
- Pennsylvania – $12,000
- Rhode Island – $2,500
- South Carolina – $7,500
- South Dakota – $12,000
- Tennessee – $25,000
- Texas – $10,000
- Utah – $10,000
- Vermont – $5,000
- Virginia – $5,000
- Washington – $5,000
- West Virginia – $5,000
- Wisconsin – $10,000
- Wyoming – $6,000
Many construction contracts state that all disputes will be decided by binding arbitration, as opposed to a court proceeding by judge or jury. In fact, it has long been a tradition to do so in the construction industry.
Arbitration it is usually quicker and less costly, especially because it cuts down on expensive discovery. The decision is final and binding, with no right to appeal. You lose your right for a jury trial, but few contractors want that in the first place. You usually pick an experienced construction attorney or retired judge to hear the case in their conference room. It is just like a court proceeding in the form of the traditional mechanic’s lien foreclosure lawsuit, with the same general rules of evidence, but more informal.
On the other hand, you can only foreclose your mechanic’s lien through a court proceeding, not arbitration. So, how do you keep arbitration rights and at the same time preserve your lien rights? Simple. Bring a lawsuit to protect the lien and then immediately request the court to stay the court proceedings. When arbitration is done, you go back to court and turn the arbitration award into a judgment.
Breach of Contract:
If you have failed to perfect your mechanic’s lien, you can always sue the party with whom you have a contract personally. This means the general can sue the owner personally and the subcontractor can do the same against a general contractor. When a judgment is entered, this will be a lien against their property which is similar to a mechanic’s lien, so all is not lost. So, the general has a cause of action for breach of contract personally against the owner as well as the owner’s property in the foreclosure of a mechanic’s lien. A subcontractor has a personal action against the general, but only a right to foreclose on the property against the owner and can never hold the owner personally liable.
Won’t Prior Mortgages Simply Wipe out the Mechanic’s Lien?
They certainly can, but only in limited circumstances. In almost all cases, bringing the lien foreclosure lawsuit will engender settlement with the contractor being paid some substantial monies. Of course, if the mortgage is not being paid, the lender can foreclose.
The question is one of priorities. Between the holder of a mortgage and mechanic’s lien, who wins? This depends when the mortgage is recorded in relation to the first work on the property. Under the rule of relation back, the very first day anyone does work on a project becomes the date of priority for a mechanic’s lien. And, all contractors, suppliers, and subcontractors thereafter, get that same priority date.
If the mortgage is recorded after that first day on the job, it will be second in priority. But if it is recorded, as is the case typically, before the work has begun, that mortgage would have priority.
What if I Hear or Receive Notice of Bankruptcy?
A. Owner’s Bankruptcy. If you are a general or sub/supplier, and either hear or receive notice of the filing of a bankruptcy by the owner, what should you do? Section 362 of the Bankruptcy Code places an automatic stay at the commencement of filing as to any collection actions, especially lawsuits. This also means you cannot take any steps to collect, including hiring an attorney, writing demand letters, attaching property, or the like. However, you are allowed to record a mechanic’s lien to protect your time limits. But, you cannot bring a lawsuit to foreclose the lien in state court. If you have recorded your lien, you will be considered a secured creditor and have preference over unsecured creditors when it comes for distribution. But do not get your hopes up, because there is rarely any money paid in bankruptcy to a lien claimant. You will receive a blank Proof of Claim from the bankruptcy court, and you should fill this out and send it in to the bankruptcy clerk.
If the bankruptcy is completed and the owner gets a final discharge of debts, you are pretty much out of luck. But, if the owner decides to drop or voluntarily dismiss the bankruptcy on their own accord, you will then be able to start or complete your foreclosure proceedings. You do not have to worry about the time limits in bringing a foreclosure action because it is “tolled” or frozen during the pendency of the bankruptcy. So, if you had two months left on the time to file a lawsuit when the bankruptcy was commenced, after dropping the bankruptcy, your time will start where it left off under that two-month period. You can also start your foreclosure action if the bankruptcy court or trustee dismisses the bankruptcy proceedings against the owner. In many cases, this applies if the owner has acted in bad faith, abused the bankruptcy process, or filed false statement in his or her bankruptcy schedules.
Even with the owner’s bankruptcy, you can immediately sue the general contractor (or the subcontractor if you have a contract with that person) for breach of contract in state court. Since the general contractor has not filed bankruptcy, nothing prevents you from doing this, even though the owner’s bankruptcy is pending. You have two years on an oral and four years on a written contract to sue the general contractor or subcontractor.
B. General Contractor’s Bankruptcy. If the general contractor files bankruptcy (or a subcontractor if you have a contract with that person), you are precluded from bringing a lawsuit for breach of contract and can only file a proof of claim and hope to get some monies in the proceeding. The general rule is that you would be free to sue the owner in state court on the foreclosure of a mechanic’s lien. But, unfortunately, there are some exceptions. Some federal circuits state you cannot foreclose the lien against the owner’s property while the bankruptcy with the general contractor is pending. This is based on the theory that the mechanic’s lien depends on how much is actually owed from the general contractor, and that will not be determined until the bankruptcy is concluded. Not all courts uphold this view, but be careful of this exception. You will definitely need competent bankruptcy counsel to help you. Go ahead and sue the owner to foreclose the lien and wait for them to bring up this defense.
C. Special Problems if the Tenant Files Bankruptcy. There are even more complications if your contract is with a tenant. Assume you
perform major remodeling services to the kitchen of a hospital. Your contract is with the long-term tenant and not the owner. The tenant fails
to pay you and then files bankruptcy. You submit your Proof of Claim in the bankruptcy proceeding, but also start a state court action to foreclose the mechanic’s lien against the owner. The owner goes to state court and requests the judge to hold off until the bankruptcy is determined. Unfortunately, there is some law to this effect and you should also be careful in this area of the law. Again, seek competent bankruptcy counsel and go ahead and file your foreclosure action and wait for them to bring up this defense.
If I Don’t File My Lien Or Lawsuit on Time, Can’t My Lawyer Argue the Equities or Come Up with Some Kind of Technicality?
Nice try! Mechanics’ lien laws are very picky – you are either in the box or not. They are strictly construed by the courts and they show no forgiveness. We are all aware of equitable principles of fairness that apply throughout the law. And, how could we forget the numerous technicalities that an inventive lawyer could come up with. It will not work in these cases. A subcontractor attempting to go against an owner after an invalid lien under esoteric theories of common counts, quantum merit, unjust enrichment, promissory estoppel, constructive trust, and equitable liens have, for the most part, fallen on deaf ears.