You’ve taken the necessary step of filing a mechanics lien to demand payment for a delinquent receivable. But you’re unsure about what to do or expect after filing a mechanics lien itself.
So now that your mechanics lien is recorded, what next?
Here is a step-by-step guide on what to do after filing a mechanics lien.
- Step 1: Take note of all important mechanics lien deadlines.
- Step 2: Send a copy of the mechanics lien to all parties involved.
- Step 3: Follow up with a call to key parties.
- Scenarios after filing a mechanics lien
- Scenario 1: The lien gets paid in full.
- How to file a lien release
- Scenario 2: The lien payment is negotiated.
- Scenario 3: The other party questions the validity of the lien.
- Scenario 4: The other party files a lawsuit against you.
- Scenario 5: You file a lawsuit to the other party.
- Pursuing lien foreclosure
Step 1: Take note of all important mechanics lien deadlines.
Timing is crucial when dealing with mechanics lien.
Prior to filing, you’ve noted the deadlines for both sending the preliminary notice and the filing and recording of the lien. After it’s filed, what you need to take note of is how long the mechanics lien will be effective for, as well as the deadline to file a notice of foreclosure.
How long does a contractor, subcontractor, or supplier have to enforce a lien?
A claimant files a mechanics lien to prompt payment for work done and materials supplied. If not enforced within the amount of time specified by state laws, the mechanics lien will expire.
It’s important to know that different states have different lien laws and the deadline for an action to enforce the lien also varies across states. Here are some states with notable laws on lien duration.
- Florida – action to enforce the mechanics lien should be made within one year from the date the lien is recorded. This duration can be further shortened by the owner through two deadline enforcement exceptions.
The foreclosure period is reduced to 60 days after the lien is filed if the property owner serves a Notice of Contest of Lien. If the owner or other interested parties file a lawsuit and the county clerk issues a summons to the contractor, sub, or material supplier, the foreclosure period is reduced to 20 days.
- Texas – the state has one of the more complicated lien laws in the country. Texas has specific lien laws depending on the type of project, whether it’s residential or non-residential.
For non-residential projects, the foreclosure period is one year from when the project is completed, abandoned, or terminated, or two years after the last available day to file the lien, whichever is later.
For residential projects, the deadline is one year from the when the project is completed, abandoned, or terminated, or one year from the last available day to file the lien, whichever is later.
- California – the action to enforce the lien should be made within 90 days. California’s foreclosure period is one of the shortest in the whole country. Thus, it is important to be proactive towards collecting payment or enforcing the lien before time runs out.
- Ohio – compared to other states, Ohio has one of the longest mechanics lien durations. Action to enforce the lien should be made within six years from when the lien is filed.
- New York – whether you have a residential or non-residential project, the state of New York prescribes a foreclosure period of one year from the day the lien is filed.
It should be noted, however, that receiving payment or the lien expiring does not make the lien automatically disappear.
The mechanics lien is still a matter of public record. It will still cause issues to the owner even if the lien is expired and unenforceable. Anyone doing a title search on the property will see the mechanics lien.
Can a mechanics lien be renewed?
After you’ve filed a lien, you might ask whether it can be extended or renewed in case you may not be ready to file a lawsuit yet or you still need time to collect information for your case.
Unfortunately, most states DO NOT allow claimants to extend the foreclosure period of a mechanics lien. Neither property owners, lenders, or any party involved can allow the contractor, sub, or material supplier to extend the duration of the lien.
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The lien will become unenforceable past the deadline according to the state’s legislature.
While this is the case, there are several states that allow claimants to extend the lien.
- Alaska – the foreclosure period for the state of Alaska is six months from the day the lien is filed. If a claimant records an extension notice within this period, the lien can be extended for six months from the date the notice is filed.
The notice must be recorded in the same office where the mechanics lien was recorded. It must include the recording the date, the book, page, instrument, or serial number of the initial lien, and amount of the lien claim.
- California – the 90-day foreclosure period can be extended if the property owner and the claimant agree to extend credit by recording a notice of extension with the agreed upon terms. This notice should be filed within the initial 90-day period.
The law allows the extension notice to be filed after the initial 90-day period if there is no other party who has acquired rights to the property but not later than one year after the completion of work or improvement.
- Florida – the lien can only be extended if the contractor, sub, or material supplier provides materials or services after filing a mechanics lien. In this case, the claimant can file an amended lien and the foreclosure period becomes one year from the date the amended lien is filed.
- Idaho – the foreclosure period for the state of Idaho is six months from the date the lien is filed. If a partial payment is made or if an extension of credit is agreed upon, the duration of the lien is extended for six months from the date when the partial payment was made or when the extension was recorded.
- New York – the state of New York allows the claimant to extend the foreclosure period by filing an extension within the initial one-year period. This extension request should be filed in the same county office where the lien was recorded. The claimant will gain a one year extension from the date the extension is filed.
If the contractor, subcontractor, or material supplier fails to request for an extension within the initial one-year period, the claimant may attempt to gain an extension through a court of record or a judge or justice. The lien is redocketed and the claimant gains a one-year extension from the date of redocketing to enforce the lien.
- Oregon – the foreclosure period for the state of Oregon is 120 days from the date the lien is filed. This period can only be extended if there are specific provisions included in the lien.If the lien includes terms for an extended payment plan, the deadline to enforce the lien is 120 days after the final date of the extended payment plan. The state laws also specify that no lien can be enforced two years after the date the lien is originally filed.
With vastly different foreclosure periods and extension requirements across states, claimants with multi-state projects should have a handy reference file to ensure the deadlines are met.
Step 2: Send a copy of the mechanics lien to all parties involved.
In almost all states, contractors, subcontractors, or material suppliers are required to send the mechanics lien not just to the owner of the property, but to all parties involved in the project.
You are required to comply with these laws to ensure the validity of the lien and to let due process take its course.
Besides, there are other reasons why this is a good idea outside of it being a legal requirement.
First, it lets the owner, the project lenders, and all interested parties know that you have indeed filed a lien. By sending them a copy of the mechanics lien, you are notifying these parties, and they will be able to take the necessary steps to rectify the situation and take steps to release the lien attached to the property.
In addition, sending the mechanics lien to everyone ensures that they are involved in the settlement of the obligation, not just you and the party you contracted with. Since the lien works in such a way that it is attached to the property and not just a particular party, the property acts as collateral until the debt is paid.
After sending the notification for the mechanics lien, it is good practice to allow the recipients to review the lien and talk about the issue. They will most likely turn the lien notice to their attorney for analysis and to determine the next steps of the legal process.
Step 3: Follow up with a call to key parties.
After giving the stakeholders ample time to discuss the mechanics lien, it is time to make some follow-up calls.
First on the call list is the party most likely to pay you, which, in most cases, is the party you contracted with.
There may have been negotiations between you and the party who hired you prior to the filing of the mechanics lien. The lien gives you substantial leverage. They may have changed their mind now that a lien is filed against the property and are now willing to discuss payment plans to solve the issue.
If the party you contracted with still refuses to pay, make a follow-up call to the owner. The owner of the property has the most at stake in this issue as the lien puts the property at risk of foreclosure. The mechanics lien prevents the property from being refinanced and makes the property unmarketable.
In most cases, property owners are not aware of how mechanics liens work.
✔ Explain to the owner the reason why you filed the mechanics lien and that you have to take the appropriate steps to use the law’s legal remedy.
✔ Be sympathetic to the owner and say that you would rather not involve them in the issue.
✔ However, be firm and say that you will enforce the lien against the property if you don’t receive payment.
At this point, there are several scenarios that can happen. Your next steps will depend on what the other stakeholders do.
Here are some of the scenarios about how stakeholders will react to your lien filing.
Scenarios after filing a mechanics lien
Scenario 1: The lien gets paid in full.
This is the best resulting scenario. You file a lien and the other party quickly pays! Usually the case here was that they intend to pay but was late and you had to file the mechanics lien because of the deadline.
It does happen, and when it does, it’s less work for you.
Getting paid in full means either the party you contracted with or the owner pays the debt in full. The issues have been worked out and you are about to receive payment. In this scenario, the owner of the property will require you to release the lien.
How to file a lien release
The property owner will either request that you file a lien release, or file a lawsuit to have the mechanics lien removed.
If you have already been paid, a lawsuit is not the situation you would want to be in. You will lose the court battle and will pay penalties. This situation can be easily avoided by filing a lien release when you no longer need to pursue the lien.
Lien releases are filed in the county recorder or clerk office where the lien was recorded. This will involve accomplishing a lien release form that is usually required to be notarized. Make sure to double check the information included in the lien release form to prevent any issue arising in the future.
Scenario 2: The lien payment is negotiated.
In this scenario, the parties negotiate either through formal mediation or through informal meetings or phone calls to negotiate the method of payment. The parties agree to settle the lien based on the terms of the negotiation.
In most cases, there is a reduction in the lien amount. This usually happens when the party you contracted with claims faulty work or there is more work needed to complete the scope of work specified in the lien.
The next step to take when the lien payment is taken to negotiation depends on whether you accept the terms of negotiation or not. It is all about weighing the available options.
- If the terms are accepted, the property owner may require you to file a lien release similar to the first scenario. Accepting the terms of the negotiation will save you from the stress of filing a lawsuit. It also retains your working relationship with the other party and is best practice if you wish to do work with them again in the future.
- If the terms are rejected, you may continue giving a counter-offer or choose to enforce the lien through foreclosure.
Scenario 3: The other party questions the validity of the lien.
When you send the property owner and other interested parties your lien notice, the best course of action for them is to let their attorney examine the claim. The attorney will analyze if the lien is valid, and if it is, they will advise the other party of their rights.
In most cases, however, the attorney will point out the deficiencies of the filed lien and assert that the lien is invalid because of these technicalities.
Some of these deficiencies include:
- the lack of preliminary notice,
- delayed filing, and
- missing information in the lien.
If the contractor, subcontractor, or material supplier fails to include the property description or the scope of the work performed, the lien may be deemed invalid.
If this happens, you will receive a letter from the attorney or law firm representing the other party stating the facts that invalidate the lien and demand its removal. If the lien is not removed and is then removed by court order, you will be liable to pay penalties as well as attorney’s fees.
In this scenario, you need to review the state laws and the facts surrounding your lien claim. Just because the letter says that the lien is invalid doesn’t make it so.
What happens next is the client’s attorney will draft a letter to the party who filed the lien or his authorized representative. The letter will lay out in detail all the facts and law for the matter which justifies the claimant to remove the lien. If the lien is not removed and then is later removed by court order, there could be some steep penalties, such as being liable for the attorney fee and costs of the party who forced the lien to be removed.
You and your attorney need to review the facts and law surrounding your lien to make sure that your lien has a solid legal argument to remain. If the lien is indeed valid, you may choose to enforce the lien. If there are deficiencies in your lien, the other party will be able to contest the lien. The best move is to remove the mechanics lien to avoid an adverse judgment.
The bottom line: always mind your deadlines and be careful in putting information in your lien claim.
Scenario 4: The other party files a lawsuit against you.
The other party’s attorney sending a letter to the claimant usually indicates the intent to file a lawsuit. However, in some instances, the other party will skip this and just file a mechanics lien suit.
The best step in this scenario is to file a countersuit and assert your lien rights against the other party. If you have a solid foundation for your lien rights, you have the legal advantage.
Scenario 5: You file a lawsuit to the other party.
When nothing else elicits payment or a payment plan, the only way to preserve your rights is to enforce the lien and pursue lien foreclosure.
Pursuing lien foreclosure
A mechanics lien foreclosure is an action initiated by an unpaid claimant to force the sale of the property so that the lien can be satisfied out of the proceeds of the sale. As the lien only gives the right to action, it is only through the enforcement of the lien can the claimant receive payment.
It is best practice to send a notice of intent to foreclose to involved parties. This will serve as their final warning to pay the lien claim in full or negotiate a payment plan. The notice is not required by law, but there are no restrictions in sending one either.
Filing a notice shows your diligence in seeking an alternative to the lawsuit by giving them an option to pay before the suit is filed. At the same time, it shows your willingness to enforce your rights in a court of law.
If payment still doesn’t happen, it is time to file a mechanics lien foreclosure.
The process of filing a lien foreclosure is the same as any other lawsuit. You need an attorney to secure legal filing. Then, you need to present a case explaining why you are owed the amount stated in the foreclosure.
In most states, you will be required to file a lis pendens or a Notice of Pending Action with the country recorder where the property is recorded since the foreclosure affects real property. This notice notifies prospective purchasers and lenders that a foreclosure action is pending on the property.
Court proceedings to enforce the full power of the mechanics lien
The case proceeds as with any type of lawsuit. The defendants will answer the allegations in the complaint, motions will be filed with the court until eventually, the claims are resolved and judgment is reached. In the case of several claimants, the judgment will also include the decision on who gets paid first. The court will facilitate the sale of the property and the proceeds will be used to pay the claims.
The steps you take after filing a mechanics lien is as crucial as the lien itself. To recover payments, make sure you’re diligent in taking the appropriate steps after you file the lien. The mechanics lien is a powerful tool for contractors, subcontractors, and materials suppliers to be able to secure payments–however, it’s powerless when not used and executed right.