A common question we are asked here at Smiley Law Firm is what happens after the mechanic’s lien or bond claim is filed?
We preach and preach the value of filing a lien and preserving rights; however, we seldom discuss what happens next after the lien has been filed. This post is designed to give clarity on all possible scenarios that may happen once a contractor who deserves to be paid files a lien.
So you’ve filed a mechanics lien, now what?
What happens after a lien is filed? Technically speaking, once the lien is filed with the mortgage office, land records office, or recorder, there are a few things that are required to happen under the law and best practices.
First, the law requires that a mechanics lien be sent to certain parties. Our office errs on the side of caution, so we send the lien via certified mail to all the parties listed on the lien: many times this is the property owner, general contractor, and hiring party. There could also be a surety listed or other parties so we send the notice to everyone.
The more parties who know that your lien is filed, the better chance the contractor has to be paid for the hard work performed.
After the lien is filed and notice is sent, the waiting game starts. Read here if you want to learn how to remove a mechanic’s lien from your property.
How long is the lien good?
One of the main purposes of this article is to address the question of how long is the lien “good.” This section will highlight the three jurisdictions where I practice. There are a number of variables which could change each specific situation. These time periods are general rules in accordance with the law of that state.
Also, by “good” I am referring to how long the lien can stay in the public records on the title of the property before it expires by act of law. Once the time period is up for the lien to be good on its own, then a lawsuit to enforce the lien is required to keep the lien valid. I have seen liens preserved by a lawsuit that stay on the property during the entire suit, which can be years and sometimes over a decade.
- Louisiana: 1 year. Louisiana is probably the most cut and dry of these three states. Whether you have a public or private project, the rule and best practice is the lien is good for one year from when the lien was filed. The way to “preserve” the lien is to file a lawsuit to enforce or foreclose on the lien.
- Texas: depending on the project, 1 or 2 years. Texas likes to divide projects by either residential or non-residential. Non-residential: there is one year from when the project is completed, abandoned or terminated. However, the period can extend out to two years from the last time for the claimant to file his lien.Typically for residential, it is one year from either the lien filing date or completion, abandonment, or termination of the project.I know this is tricky. That is why lawyers are so important here to make sure you can enforce your lien in a timely manner.The reason for the difference – giving contractors the “later” of the two options – is because projects are different. In a massive project, a concrete foundation contractor may be on a project 3 years before the project is complete. Therefore, if he files a lien and it has been two years, the deadline is then “extended” because the project is not complete. The legislature is trying to design a mechanism to help liens stay valid longer and limit the amount of forced lawsuits due to a time restriction.
- California: usually 90 days, unless extended. California is significantly shorter than both Louisiana and Texas. 90 days is really quick. However, from experience, California liens tend to be paid more efficiently as well. There may be some magic in this shorter timeline. Many of the lien deadlines are shorter in California, so knowing the rules is critical to adhere to the deadline.
Between these three states, there are wildly different time mechanisms. Could you imagine being a multi-state contractor or supplier and trying to memorize all these rules? It is a lot – even for an attorney who deals with this daily.
Can I renew a lien? Can I extend a lien?
Another question I often have to answer is whether or not we can “extend” or “renew” a lien that has been filed. A lien is fairly painless to file. The lien is on the public record so it has more risk associated with it than a demand letter, for example. One such risk is filing the lien improperly which may cause damage to the title owner. However, filing a lien is far from filing a lawsuit. You can be countersued in a lawsuit!
Generally speaking, most liens cannot be renewed or extended. Louisiana and Texas do not have a way to extend a lien or renew it. The only way to preserve the lien is to file an action to enforce the lien. In other words, you have to sue to enforce the lien.
California does offer a mechanism where there can be a 90-day extension of time if you can get the homeowner to sign an extension and then it is filed in the public record. David Barnier writes in more detail on how this works in his post “Filing for a Mechanic’s Lien Extension”.
What usually happens once it’s filed?
Once the mechanic’s lien is filed, similar to a lawsuit, there are a number of fact patterns that could develop depending on how your adversary reacts to the lien filing. The adversary, in this sense, is any party listed on the lien. They may not be adversarial in real life; however, they are listed on the security device [lien]; therefore they may have an obligation to pay the debt listed on that device.
The options below are not listed in any specific order; however, the overall trend from one to nine rates from most common to least common:
1. Nothing – but you have options
A number of times, when a lien is filed, nothing happens. This is dependent on a number of factors. I say this because many liens are filed improperly or the notice is not sent out. Therefore, many times, the parties listed on the lien do not even know of the lien’s existence.
A lien filer or claimant needs to ensure that the listed parties get the lien. Even if parties get the lien, oftentimes the lien is ignored. The only parties who have an affirmative duty to respond are insurance companies.
Many times, if we feel a lien is being ignored, then we send a demand letter with the liens attached. If that does not work either, the attorney or the party who filed the lien will reach out to the adversary to let them know the lien is filed and request a response. Sometimes negotiations can ensue and end up fruitful.
If all else fails, then the claimant has to decide whether to let the lien expire or sue to enforce the lien. These options are explained in more detail below.
2. Attorney sends you a bad lien letter
In many instances, the parties listed on the lien will turn the lien notice over to their attorney or law firm. The attorney will analyze the lien. In some rare occasions, the attorney will say the lien is valid and advise the party of its rights.
However, in a large majority of instances, when the liens is given to an attorney, the attorney will pick apart the lien for all the issues which may cause the lien to be invalid. We do this all the time. Most liens we see have some technical deficiencies. Some examples include: the timeliness of the lien, missing property description, missing description of the work performed or lack of notice to the proper parties just to name a few.
What happens next is the attorney will draft a letter to the party who filed the lien or his authorized representative such as an attorney. 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.
3. Contact from adversary to you or your attorney
Often, a party or representative from your main adversary will reach out to you or your attorney. This is usually the party that will be “on the hook” to pay the lien if you are successful.
The reasoning behind this is multi-fold; nonetheless, the main reason is due to how the construction contract obligations line up between the other parties. Many times, one party, usually down the chain, will have to indemnify or pay back many of the other parties.
I like to think of this as getting pressure from below – your lien – and above. You are the party applying the pressure from “below” with the lien. The parties who will be indemnified as a result of the contracts are the parties applying the pressure from “above” to the party who will ultimately owe the debt.
If attorneys are involved, the process tends to slow down and take a more litigious route to resolution. If the parties communicate without attorneys, then I predict more success.
Yes, this talks me out of a job. But I’m only successful at my job if my clients are successful.
One big caveat here is to make sure any deal agreed upon by any party is blessed by the attorneys. We need to make sure everyone is getting what they bargained for with the deal. Make sure to have the final deal reviewed by your attorney.
4. The lien is paid in full
My favorite and my client’s favorite is when the lien is simply paid in full. This is rare but it happens. If I had to make an educated guess, I would say 10%-20% of all liens filed are paid in full or very close to full.
Paid in full happens when there is one or few minor issues and the parties work them out. Furthermore, there are times when money is late. The lien has to be filed due to the time restrictions but the money is due and undisputed by the hiring party.
I say this is my favorite because I want my clients to all be paid in full. Sure, that is less work for me and my firm, but it makes for a happy client. We love happy clients!
5. The lien is bonded off
There are certain situations when a lien can be “bonded off.” This means that you can either go and pay into the registry of the court a certain statutory amount of money, or get a bonding company to do the same to have the lien legally terminated.
In Louisiana, for example, you can pay 125% the amount of the lien into the registry of the court to bond around the lien. Many big projects use this method so they can keep the financing cash flow steady and uninterrupted due to a lien filing.
The lien is technically cancelled at this point. Nevertheless, the money is with the court so there is a special proceeding which can be filed to claim that money.
6. A concursus proceeding is filed
In Louisiana, a concurus proceeding is used to get the money from the court when a lien is bonded off. We discuss in more detail on our blog regarding a concursus proceeding.
This procedural device is a lawsuit but it is a summary proceeding, which means it goes faster than a normal suit.
Basically, a concursus is a proceeding where two or more parties have competing interests over the same amount of money. The party paying the money puts the money with the court and then names all possible parties who may have a claim as parties to the action. The parties are then served and can come to a hearing to state why each are entitled to the money being held.
This action can be a useful tool, but it can also work against you if the evidence is not in your favor at the time of the hearing. See La CCP Art. 4651 et seq. for more.
7. The lien is negotiated
The step-child of the paid in full is when the lien is negotiated. I carve this out as a separate item because negotiation is usually way more complicated than just paying in full or close to full.
The parties here usually get together whether formally through mediation or informally through phone calls or meetings. Once they hash out all the issues, the parties will then agree to settle the lien based on the terms of the negotiation. Oftentimes, this is a reduction in the lien amount due to faulty work or more work that needs to be done in order to complete the scope of work contemplated by the lien.
This is an effective method to resolve disputes, especially when there is more work to be done on the project or if the parties wish to do work together in the future.
8. Adversary files suit against you
This is more rare, but I see it happen in practice from time to time. Usually, the letter drafted by the lawyer is the first step before a lawsuit, but in some instances, an adversary will just file suit.
Typically, this is not what we are looking to accomplish by filing a lien. Timing on something like this is usually longer. The lien has been on the property for a few months and there is no communication, then – out of the blue – the adversary sues the lien filing claimant.
The only advantages here are: you have the ability to countersue asserting your lien claims back against the adversary. Further, it’s possible to tender the suit to your insurance to have them defend you in the suit.
9. You file suit against the adversary
Finally, the last straw. If nothing else works, then the only way to preserve the rights provided by the lien is to file a lawsuit to enforce the lien. Most of the time this suit needs to be filed in the district court where the property is located.
The action can solely be for the foreclosure of the lien, but it can also include other causes of action against the parties. I recommend that you include any legal avenues that are available so that you can get paid faster by putting pressure on the opposing parties.
Most lawyers like to go here and file suit first. I do not like that practice because filing suit slows down the process and makes the parties even more adversarial than they were before. The only people who make money during lawsuits are attorneys.
Nevertheless, there are times when filing a complaint is absolutely necessary. At Smiley Law Firm, we are litigators. However, we understand that avoiding litigation is often best for our clients so we try to exercise every possible alternative first, then resort to the courts.
I wanted to write on this topic of what happens after a lien is filed due to the number of questions our current clients have been asking on this subject. I know this is a detailed explanation, but I am only scratching the surface.
I could have gone into a much deeper analysis of case law and statutes, which would make many non-attorneys; in fact, even most attorneys’ eyes will roll back in their heads out of boredom. I fear that may have still happened in this post regardless.
If you have read to this point of the article, please leave a comment below to let me know what you think or ask any questions you may have regarding liens, construction law, or any other legal topic you may be curious about after reading this blog.
Here at Smiley Law Firm, we help contractors and construction industry professionals daily to achieve their goals in getting paid for all their hard work. Click below if you want to learn more about how to help your business become more successful in the construction industry.