welcome to the ncs 2018 webinar series · copyright 2018 c&s associates, inc. 800.826.5256...

Copyright 2018 C&S Associates, Inc. 800.826.5256

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Today’s Webinar: Mechanic’s Lien Foreclosures

Welcome to the NCS 2018 Webinar Series


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Agenda

• Introduction to the lien process

• Value of protecting accounts receivable

• Examination into the different interests in a building project

• Steps required to protect lien rights

• Diligence involved with each step

• Issues to be considered in the foreclosure process


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Mechanic’s Lien Filing Process: Three Steps

Notice Lien Foreclosure

20 days

from first

furnishing

90 days

from last

furnishing

One year

from lien

filing

Above deadlines are examples


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• A right given by state law

• Applies to suppliers of goods or services

• Allows supplier to impose (a lien) on property improved

by their goods or services where payment has not been

received

• Applies even if there is no contractual agreement

between the owner and the creditor

The claim attached to the land as well as the

buildings and improvements on that land.

What is a Mechanic’s Lien?


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How Much Can I Claim?

• In most states, you can claim the reasonable value of materials or

work supplied to the project or the contract price, whichever is lower.


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• Typically you cannot claim attorney’s fees, interest or court costs in

a mechanic’s lien

• You generally can, however, once you go to foreclosure/litigation

How Much Can I Claim?


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Mechanic’s Liens Priority

• In many states, liens take priority not from the time

they are recorded, but from commencement of

the construction work on the project.

• In some other states, a claim of lien takes priority

from when the claimant first did work or

supplied materials to a jobsite.

• In most states, however, all mechanic’s lien claims

have the same priority no matter when the work

was done or the claim recorded.


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• Claims are generally junior to any mortgages

recorded prior to the commencement of work.

• A recorded mortgage is not a lien against real

property unless it secured as an actual obligation

• If the debtor records a mortgage, but delivers the

related promissory note later, the mortgage

doesn’t take effect as a lien until the note was

delivered



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Lis Pendens: A pending lawsuit

• Liens are recorded at the county

recorder’s offices and lawsuits are filed

in court houses.

• Lis pendens is a document recorded in

the county recorder’s office to give

notice of an action that may affect the

title to real property



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Bank

Material

Distributor

Owner

Sub

Contractor

Sub

Contractor

General

Contractor

Sub

Contractor

Material

Supplier

Service

Provider

Material

Distributor

Building/Land

Full/Unpaid Balance

The Ladder

of Supply

Claims filed below this line may be

questionable.


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• The lien is limited to the unpaid portion of the contract

• File the lien/Serve the notice as early as possible to “trap” the unpaid funds

Unpaid Balance Lien States


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Bank

Material

Distributor

Owner

Sub

Contractor

Sub

Contractor

General

Contractor

Sub

Contractor

Material

Supplier

Service

Provider

Material

Distributor

Building/Land

Mechanic’s Lien Process

The Ladder

of Supply


questionable.


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• The lien is enforceable for the full amount regardless of payment made by the

owner

Full Balance Lien States


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Mechanic’s Lien Filing Process:

Three Steps

Notice Lien Foreclosure

20 days

from first

furnishing

90 days

from last

furnishing

One year

from lien

filing

Above deadlines are examples


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Foreclosure

One year

from lien

filing

A legal action to enforce a Mechanic’s

Lien against real property. This usually

involves a forced sale of the property at

public auction with the proceeds of the

sale being applied to satisfy lien.


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Lien Foreclosure Considerations


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Construction Litigation Pointers

Litigation is a process rather than

an event.

• Knowing about the process will

help you avoid it.

• Get your attorney involved in the

early stages of the problem.


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Though your corporate attorney

may have already reviewed your

collection processes…

• Have an attorney familiar with

construction litigation review them

to increase your chances of

success.



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Be sure the transaction billing

method makes sense for that

project.

• Contingent fees

• Hourly fees



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What to expect for hourly fees:

• $125 - $350 per hour

• $500 - $1,000 per month

• Discovery and trial prep can last

six months to one year



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Selecting Attorneys

Considerations:

• What are their areas of

expertise?

• Big firm, big bills

• Who will actually be working on

your case

• Trust and comfort


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ATTORNEY: Now doctor, isn't it true that when a person dies in his

sleep, he doesn't know about it until the next morning?

WITNESS: Did you actually pass the bar exam?

ATTORNEY: The youngest son, the 20-year-old, how old is he?

WITNESS: He's 20, very close to your IQ.

ATTORNEY: Were you present when your picture was taken?

WITNESS: Are you sh#!!ing me?

All attorneys are not created equal…

Charles M. Sevilla, Disorder in the Court: Great Fractured Moments in Courtroom History, W.W. Norton and Company, 1999


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ATTORNEY: She had three children, right?

WITNESS: Yes.

ATTORNEY: How many were boys?

WITNESS: None.

ATTORNEY: Were there any girls?

WITNESS: Your Honor, I need a different attorney. Can I get a new attorney?

ATTORNEY: How was your first marriage

terminated?

WITNESS: By death.

ATTORNEY: And by whose death was it terminated?

WITNESS: Take a guess.

ATTORNEY: Doctor, how many of

your autopsies have you performed

on dead people?

WITNESS: All of them. The live

ones put up too much of a fight.

All attorneys are not created equal…

Charles M.Sevilla, Disorder in the Court: Great Fractured Moments in Courtroom History, W.W. Norton and Company, 1999


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What to expect for hourly fees:

$10,000 per case

$150 per hour

$500 month X 6 = $3,000


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Too much time is wasted talking

about what your attorney has and

what you need to send next.

Forward your whole file to the

attorney early in the process.



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Never Say Die!

• Though you may believe your

claim is unenforceable, maybe

it can be fixed

• An amended lien notice may be

possible

• There may be novel theories



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Discuss Strategy with Your

Attorney

• Demand letter before suit?

• Public, private or federal…

• Is there a personal guarantee,

bankruptcy or other special

circumstance?



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Though you want to send the

signal that you are prepared to

“go all the way…”

• 95 percent of cases settle

before trial

• Even if it’s adversarial in the

early stages



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Bankruptcy Considerations

Who Filed?


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Who Filed? Owner

Section 546 (b) (1) of the Bankruptcy Code

permits the post-petition perfection,

maintenance, or continuation of perfection of

mechanic’s liens that arose prior to a debtor’s

bankruptcy filing


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Who Filed? Owner

It does not address creditor’s post petition

enforcement of mechanic’s lien rights.



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Who Filed? Owner

This means that a creditor will need to get

relief from the automatic stay from the

Bankruptcy Court to enforce their lien in the

post-petition.



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Who Filed? Owner

Section 546 (b) (2) of the bankruptcy code

states that a creditor can timely file a lien

preservation notice.



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Who Filed? General Contractor

The bankruptcy courts have generally held

that monies paid to the general contractor are

in trust, and therefore are not part of the

bankruptcy estate of the contractor.



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• Who filed?

• Are there funds still held in trust?

• Is there equity in the property?

• Are there mortgages ahead of you?

• What is the date of your lien?

• Preference claims



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• Courts have generally ruled that the monies paid to the general

contractor are in trust, and therefore not subject to preferential claims.

Preferential Payment Protection


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• There are cases in which creditors have waived lien or bond claim

rights in exchange for a check, only to have the check bounce when

presented.

• The replacement checks, when paid, were subject to preference

claims as they were not contemporaneous exchanges for new

value.

Preferential Payment Protection


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Construction Credit

Construction

Credit

Private

Construction

Public

Construction

LIENS

Owner

Corporation

Partnership

Individual

BONDS

Owner

State

Municipal

Federal


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Bank

Material

Distributor

Owner

Sub

Contractor

Sub

Contractor

General

Contractor

Sub

Contractor

Material

Supplier

Service

Provider

Material

Distributor

Building/Land

Mechanic’s Lien Process

The Ladder

of Supply


questionable.


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Claims

70% • Disputed

• Stagnant

30% • Undisputed

• Dealings seem

forthright


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Review of Topics Covered

• Preserving mechanic’s lien rights is critical to those contributing to the

improvement of real property, particularly under the current economic

conditions.

• If the filing of a mechanic’s lien does not generate payment, foreclosure

actions are the next step.

• As with preliminary notices and mechanic’s liens, state’s outline time

frames in which foreclosure actions must be initiated or rights are lost.

• Understanding the nuances of this step of the process can dramatically

improve your chances of payment.


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Questions & Comments

Thank you for your time!

Visit us online: www.ncscredit.com

Email us: [email protected]

Call us: 800-826-5256

Jerry Bailey: [email protected]

http://www.ncscredit.com/

mailto:[email protected]


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Contact us to learn more.

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welcome to the ncs 2018 webinar series · copyright 2018 c&s associates, inc. 800.826.5256...

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