So, you sent all the required pre-lien notices, recorded a mechanics lien in your local county clerk’s office, and notified all the relevant parties that a lien has been attached to their property. But what if you still don’t get paid?
If your mechanics lien does not produce payment from the property owners before your lien expires, the next best course of action is to initiate a foreclosure action to enforce your mechanics lien.
The mechanics lien is arguably the most effective tool for forcing property owners to settle their outstanding debts. Sometimes, however, property owners do not always easily pay up. They could be going through a difficult financial situation, or they could be looking to contest your lien claim in court.
In any case, if you do not get paid after recording a mechanics lien, you must look into filing a foreclosure lawsuit to recover the payment that you duly earned.
What does a mechanics lien foreclosure entail?
Foreclosing upon a mechanics lien means initiating a foreclosure lawsuit to force the sale of a property. When a property gets sold, the proceeds get split among the different parties that hold interest over the property, including the claimants of valid mechanics liens.
Mechanics lien foreclosure is, therefore, one of the final steps to take to recover payment from a delinquent client. Be aware that foreclosing on a lien cannot be done at just any time, and there are important deadlines by which you must abide.
When to foreclose on a mechanics lien
Timing plays a crucial role in filing a foreclosure lawsuit. You do not want to file a foreclosure lawsuit too soon, but you also do not want to wait until it is too late.
1. Initiate a mechanics lien foreclosure lawsuit before a mechanics lien expires.
Always keep in mind that a mechanics lien is not valid forever. All mechanics liens have expiration dates, which means that your lien must be enforced before it gets redacted from the property’s records.
Mechanics lien expiration dates vary per state, and they could range from 3 months to two years after the lien recordation date. A California mechanics lien, for example, is enforceable only within 90 days of filing, while a Washington DC mechanics lien is valid for 180 days after filing.
Some states have more complicated rules regarding the validity of their mechanics liens. In Texas, the deadline for a mechanics lien foreclosure falls within a) two years of the last day from when you can file a mechanics lien, or b) one year after the completion or termination of the project, whichever is later.
2. Initiate a foreclosure action when prompted by the property owner(s).
It is also possible for property owners to encourage the filing of a foreclosure lawsuit by a mechanics lien claimant. If, say, a property owner believes that you have a fraudulent lien claim, they may want you to initiate a lawsuit so they can formally contest it in court.
In Ohio, a property owner can shorten the lien expiration date from 90 to 60 days by serving you a Notice to Commence Suit. A similar rule applies in Florida, where the 1-year lien expiration period is shortened to 60 days once an owner files a Notice of Contest of Lien.
You must familiarize yourself with the specific mechanics lien expiration date and foreclosure rules in the state that you are working in. You must keep track of this date; otherwise, you might miss the deadline and completely lose your hold on a property.
Foreclosing on a mechanics lien
1. Serve a Notice of Intent to Foreclose on a Lien.
Serving a Notice of Intent to Foreclose on a Lien is a voluntary step in most states, including California, Illinois, and Ohio. Even if this step is not always mandatory, you are still encouraged to notify the property owner of your plan to file a foreclosure lawsuit.
Sending this notice to property owners can be considered a final warning before you force the sale of a property. Sometimes this notice works effectively in encouraging property owners to shell out the money for payment, so you also end up saving your money and resources that you would have spent on the lawsuit itself.
2. Prepare a case and file it in court.
Initiating a foreclosure lawsuit against property owners is just like filing any other type of lawsuit. You must prepare a case, which means that you should gather evidence and documented proof that you indeed have a valid mechanics lien claim against a property.
When filing a foreclosure lawsuit, you have to bring your legal papers to the court and have them officially marked “filed.” Bring at least two copies of your legal case to court; they usually keep one copy, so you need another copy for your own documentation.
Also, note that filing a lawsuit is not free, so make sure that you bring enough funds to court to cover your filing fees. Specific filing fees vary per local court per state.
3. Serve your court papers on the property owners.
Part of filing any kind of lawsuit is notifying the other party that a suit has been filed against them. The specific service requirements vary per jurisdiction, but serving your court papers by certified mail is one of the most common ways to do so.
Some states have additional rules, such as filing a “lis pendens” or a notice of pendency of action in the same local clerk office where the original mechanics lien was filed. California, for example, requires lien claimants to file the lis pendens in order to notify potential buyers or financiers that the property may be subject to lien foreclosure.
4. Wait for the court to schedule a hearing.
Before trial commences, your hearing must first be scheduled. Once all your court papers have been filed and everyone has been properly notified, all you can do is wait for the trial schedule to make your case in front of the judge.
The judge will then make the decision on whether your mechanics lien claim is valid or not, and they will also decide on how to set the lien priority among all other valid mechanics lien claimants.
All other details on how you will recover your payment and how much of the payment will be granted to you will be decided in court.
Do you need a lawyer to foreclose on a mechanics lien?
It is strongly recommended that you hire a legal counsel to represent you in court. If you are filing your mechanics lien on behalf of your business, most states will require that you have an attorney present your case. If you are filing as an individual, a lawyer may not be necessary, though you are still advised to have one.
Note that a foreclosure action poses significant consequences to property owners. They are bound to lose their property altogether, so they might also be doing their best to make a case against your mechanics lien claim. Legal advice from legal experts can ensure that you are following all the rules and regulations and that you are making a strong case in court.
What happens if you fail to file a foreclosure lawsuit before a mechanics lien expires?
Failing to initiate a foreclosure lawsuit before a lien expires will most likely be fatal to your chances of ever getting paid. After filing a mechanics lien, a foreclosure lawsuit is your best recourse to receive payment from a property’s foreclosure proceeds.
If you miss the foreclosure deadline and your lien has expired, your options to recover payment get significantly limited. Some states will allow you to file a second mechanics lien, but the validity of this second lien will depend on multiple factors. If your second mechanics lien falls outside the regular statutory lien deadline, for example, it may not be considered valid in court.
You are, therefore, expected to initiate a foreclosure lawsuit against a property owner before the mechanics lien expires. Be sure to keep track of the lien expiration date in your state and to prepare your foreclosure court papers in advance.