Enforcing or Foreclosing on a Mechanic's Lien

Technically, enforcing a mechanic's lien right is through a foreclosure process, but often the terms are used interchangeably.

As a contractor or material supplier to a work of improvement your goal is to get paid for your materials and/or services. When you are not paid, you have mechanic's lien rights. The Mechanics lien laws identify the types of people who are entitled to mechanic's lien rights as: “Mechanics, materialmen, artisans, and laborers of every class shall have a lien upon the property upon which they have bestowed labor or furnished materials, for the value of such materials, for the value of such labor done and materials furnished"

Just because you are in a class of persons entitled to mechanic's lien rights does not automatically mean that everything that you do can be covered by a mechanics lien. Whatever you do or provide to the property, that does not go directly toward the improvement of the property, may not qualify.

It does not matter if it was a required part of the construction contract, if it does not improve the property, you will probably be challenged on the validity of the lien. You may have other rights to recover the value of your work, though.

A good example of something that is part of the construction project, and may be required by law, but isn't entitled to the mechanics' lien rights is a jobsite fence. This temporary fence is erected as part of the construction contract, prevents the public from injury, and acts as a jobsite security device. It serves a valuable purpose, and may be mandatory per local ordinance. It may be erected before construction starts, and taken down after construction is complete. The cost of the fence is not entitled to a mechanics' lien because it never became a permanent part of the property, and was never intended to become part of the property. The same can be said for temporary electrical service and other equipment. The fundamental requirement is that the goods and services that were used directly in the improvement of the property.

What work is entitled to a mechanic's lien? - Only labor and materials that are directly related to the work of improvement. For links to informative articles on mechanic's liens:

"To Lien or Not to Lien - That is the Question" (PDF)

Mechanics' liens' powerful, but not always efficient" (PDF)

There are new procedures for enforcing mechanics' liens that will be come law in 2011. Click here or the 2011 mechanic's lien law changes. Not following the new changes will cause you to lose your mechanic's lien rights.

Generally, you will need to follow a few key procedures in order to prevail in your mechanics' lien lawsuit.

1. 20 day preliminary notice- You will need to submit this notice to the owner of the property, the lender, and the general contractor. The best practice is to send one to each party before you start work. If you sent it later, you will only be entitled to lien the value of the work for the 20 days prior to your notice date. If you have a direct contract with the owner, a 20-day preliminary notice is not required.

2. Record a mechanic's lien at the county recorder's office where the work is being done. There are deadlines as to when you should record the mechanic's lien, so it is important to know which deadlines apply to you. If you overstate the amount of the lien, or record a false lien altogether, you may be liable for penalties, so treat the lien seriously.

3. Foreclose on the mechanic's lien. You have 90 days in order to file a lawsuit in superior court. Just recording the mechanic's lien is only the first step, in order to enforce the lien you must be prepared to bear the cost of litigation in order to exercise your mechanic's lien rights. This can be costly, and may not justify the amount in dispute. Be forewarned.

5. Once you have a finalized judgement, you can seek to have the property sold in order to pay the debts owed. You have an interest in the property, and if the owner wants to sell, or refinance, you will be the first in line (usually after the lender, if any) to get paid from the proceeds. This sounds simple, but it may take a what seems like a long time to go through the litigation process. If there is a lender involved, and the property is 'upside down' in value, you may end up with nothing after the sale. It is currently a common problem with falling real estate prices, high mortgage balances and lenders being first in line to take their money first.

6. If the property is going into foreclosure, you may lose any mechanics liens that you have on the property. Once the liened property goes into forclosure, and then gets resold, those liens have been lost forever. It does not seem fair, but that is the way the system works.

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