A Guide to Understanding a Mechanics Lien Foreclosure
The property owner has reneged on their payment and you have promises to keep to your company.
But will foreclosing a mechanics lien guarantee you what you are owed?
By the time you finish this guide, you’ll know the basics of mechanics lien foreclosures, how to begin a lien foreclosure lawsuit, and how to prevent one from happening in the first place.
Table of Contents
- Avoid a Lien Foreclosure Lawsuit — Streamline Your Billing Process With Flexbase
- What Is a Mechanics Lien?
- When and How Is a Mechanics Lien Typically Filed?
- What Is a Mechanics Lien Foreclosure?
- How Common Is it for Contractors to Pursue a Mechanics Lien Foreclosure Lawsuit?
- Can a Mechanics Lien Force Foreclosure?
- What Happens When You Foreclose on a Lien?
- When Should You Move Forward With a Mechanics Lien Foreclosure Action?
- How Do You Foreclose On a Lien?
- Schedule a Demo With Flexbase to Learn How Your Billing Process Can Prevent the Need to File a Mechanics Lien Foreclosure Lawsuit
Avoid a Lien Foreclosure Lawsuit — Streamline Your Billing Process With Flexbase
Flexbase is designed to streamline the cash flow of your construction business. Every general contractor on a project will have certain requirements a vendor must fulfill before they will be paid:
- Lien waivers
- AIA billing forms
- Certificates of insurance, etc.
Flexbase aims to streamline and automate the paperwork involved in the payment process to reduce human error and accelerate receipt of payment.
With our payment automation platform around both accounts receivable and accounts payable, your company now has the ability to streamline the billing process to hopefully avoid the time and expense of a mechanics lien foreclosure.
Keep reading to learn how to initiate foreclosure with a mechanic’s lien, and tips on how to avoid the process altogether.
What Is a Mechanics Lien?
A lien is a legal right that guarantees payment to the builders, contractors, and construction firms that work on a project. The property itself is the collateral. A mechanics lien helps the contractors receive payment for the materials, labor, and services that were provided to a property.
Mechanics (construction) liens only apply to private construction projects. Public projects require a different process.
To complicate matters, each state has its own laws dictating what costs can be included in a claim and how the process is carried out.
When and How Is a Mechanics Lien Typically Filed?
There are two important steps to take before you file a lien.
This informs the property owner of your participation in a project, and it lets them know that you are aware of your lien rights in case of payment issues.
- Notice of intent to lien.
This is a notice to the property owner or general contractor that you intend to lien after a payment dispute has occurred.
Different states have different requirements on how many days after recording the lien the property owner or general contractor has to be notified.
For example in Washington State, a notice needs to be sent within 14 days after the lien is filed. In Texas, you need to send notice to the property owner and the prime contractor within 5 business days after filing.
What Is a Mechanics Lien Foreclosure?
Enforcing mechanics liens happen through the legal system. If the property owner fails to produce a payment, you can enforce the mechanics lien by filing a foreclosure lawsuit.
Mechanics lien foreclosures are the last resort to getting what you are owed. The mechanics liens are often enough in themselves to get claimants paid.
How Common Is it for Contractors to Pursue a Mechanics Lien Foreclosure Lawsuit?
It’s not very common for things to reach this point. Typically filing a mechanics lien will encourage property owners to pay so they can avoid a foreclosure lawsuit.
The risk of foreclosure is often enough to get claimants paid.
If the property owner sees this notice and is able to settle their debt with you, you can remove the mechanic’s lien.
Can a Mechanics Lien Force Foreclosure?
Certain conditions must be met before a mechanics lien can force foreclosure. This doesn’t happen automatically. The contractor must pursue the enforcement of the lien and take the owner to civil court.
If the lien is found valid, the contractor may force a sale of the property to collect the debt.
What Happens When You Foreclose on a Lien?
When you foreclose on a lien, the lien goes to court and the judge will decide if the lien claim is valid. The judge will then decide how to set lien priority among the other valid mechanic’s lien claimants. Then, the lien claim will result in a judgment lien.
Keep reading to learn about the process of foreclosing on a mechanics lien.
When Should You Move Forward With a Mechanics Lien Foreclosure Action?
At this point you may be wondering: do mechanics liens survive foreclosure?
That depends on whether there is equity in the home or property, or if the owner is underwater, meaning they owe more than the property is worth.
When that happens the mortgage holder will likely recover the full value, and a lienholder left with nothing. Who gets paid depends on who has lien priority.
It is important to note that the likelihood of the lien holder not getting paid at all is very low. Some claimants just take a little longer to get paid with a heftier push from the legal system.
Below are some key things to consider before moving forward with mechanics lien foreclosure action.
If All Available Avenues for Requesting Payment Have Been Exhausted
It’s important to exhaust all other avenues of receiving payment before foreclosing on a lien.
The reasons why property owners are unable to pay you could be vast. They could have come upon hard times or there could have been an emergency that makes it difficult to have the liquid cash needed to pay their debts.
A property owner reneging on their payment is not always caused by malicious intent or even hard times. Most of these problems are caused by a lack of communication from those at the top of the payment chain.
- Payment notifications have been sent
- The property owner has been sent a Notice of Intent to Lien
- The deadlines for a response are approaching
…it may be time to consider foreclosing on the mechanics lien in order to do what is best for your company.
If the Value of Your Claim is Worth the Cost of a Lien Foreclosure Lawsuit
It doesn’t make sense to spend thousands of dollars litigating the claim if the value of your claim is not significantly higher than your expenses will be.
Who wants to spend tens of thousands of dollars in legal fees for an $800 debt?
Be sure to weigh the costs of attorneys fees and interest before beginning the foreclosure process.
If the Property Owner Encourages the Process
Bringing the process to the courts allows the property owner to formally contest the claim. This is often done when the property owner believes there is a fraudulent lien claim.
How Do You Foreclose On a Lien?
Timing matters. Because this is a legal process, following the district guidelines for lien foreclosures is important. You need to make sure all parties are notified properly and paperwork is prepared in order for the process to go smoothly.
Getting paid in construction can be difficult. Mistakes when filing a mechanics lien can derail the foreclosure process before it even starts.
Understand the Timing — Mechanics Liens Expire
If you fail to file a lien foreclosure lawsuit before the mechanics lien expires, the lien gets redacted from the property’s records. And you won’t receive payment for the services rendered.
Some states get really technical about the timelines for a mechanics lien foreclosure. Depending on your state, mechanics liens can expire anywhere from three months to two years after the lien has been recorded.
Keeping track of when the mechanics lien will expire is important not just for filing the lien foreclosure lawsuit, but you may need time to prepare your court documents.
Expediency is key.
File Your Lien Foreclosure Lawsuit With the Courts
Now it’s time to file your lien foreclosure lawsuit with the courts.
Step 1. Serve a notice of intent to foreclose on a lien.
It’s not always mandatory, but it is best practice. This may also have the dual purpose of acting as an extra nudge to the property owners to pay you what you’re owed.
Step 2. Prepare your case and file with the court.
Now is the time to gather all the appropriate paperwork to show that you have a valid mechanics lien claim against the property. You’ll have time to gather this evidence. Be sure to bring at least two copies of your legal case to court.
You also need to pay the filing fees.
Serve the Property Owners
The next step is to serve the property owners with the court papers. This notifies the other party that a suit has been filed against them.
Different jurisdictions have different rules about serving court papers. Always check state requirements first before beginning this process.
Schedule a Hearing and Go to Trial
Now that everyone has been notified and your court papers have been filed, you wait for the trial to be scheduled.
At this hearing, you’ll present your case to the court, and the judge will make the decision if your mechanics lien claim is valid or not.
The judge then decides how to set lien priority and how much of the payment you will be granted.
Schedule a Demo With Flexbase to Learn How Your Billing Process Can Prevent the Need to File a Mechanics Lien Foreclosure Lawsuit
In this guide, we’ve talked about the basics of filing a lien foreclosure lawsuit. But sometimes the best action is prevention. Filing a lien foreclosure lawsuit is the last resort to getting paid.
How can Flexbase help?
One potential barrier to getting paid on time: notifications. This seems simple, but it’s time-consuming to contact every subcontractor or customer with itemized invoices.
Flexbase quickly generates easy-to-read invoices and automatically submits paperwork to your customer’s AP process.
You can communicate with customers right from Flexbase with comments on change orders. Flexbase will also help automate paperwork and compliance. You can generate payment apps in:
- AIA forms
- Schedule of values
- Lean waivers
- Prevailing wage
- Insurance documents
- And more
… in as little as 2 minutes.
Schedule a demo today to find out how Flexbase can help streamline your payment processes.