Lawsuit to Foreclose a Mechanic’s Lien:
How-to Beginner’s Guide
Introduction:Your lien is not valid forever. Because it directly affects the owner’s title, it has a limited shelf life and must be enforced within a short period of time. That enforcement is done by filing a lawsuit to foreclose.
There is a misconception among some contractors that filing a lawsuit is merely optional. They claim a mechanic’s lien will stay on the record for years and will have its effect in preventing the owner from re-financing or selling. You can simply put off filing the lawsuit because it is not absolutely necessary. Unfortunately, this is not true: if a lawsuit to foreclose is not brought, the mechanic’s lien becomes and null and void.
Just like the time deadlines for a Pre-Lien or Mechanic’s Lien, the courts strictly construe time limits to bring the lawsuit which are called statutes of limitation. If you are literally one day late, the lien is ineffectual.
What Kind of
Forms Do We Provide?
We provide construction attorney prepared templates in Word format so you can easily customize and edit them to your unique needs. Almost everything is already built into the forms so all you do is add some brief information, including your name, project description, owner info, amount owed, etc., into the data boxes. You don’t have to research or act like an attorney-- it is all done for you.
It comes with simple instructions. We are also available by phone for unlimited help.(800) 995-9434. In fact, we highly recommend you call us immediately after purchasing the Kit so we canhelp with some of the forms. We are not attorneys and cannot practice law, but we can walk you through the standardize forms.
The Templates include:
- Lawsuit(“Complaint) with instructions.
- Assignment of cause of action. Applies only if you are in LLC or corporation. These entities cannot represent themselves because that would be similar to practicing law without a license. So what you do is transfer the right to sue to an individual(for example a co-owner, partner, shareholder, or officer). Individuals are allowed to appear in pro per or pro se.
- Answer to cross-complaint. In many cases, one or more of the defendants will cross-complain or make a counter-claim against you as a “Knee jerk” reaction.
- Application for stay pending arbitration. If you have a binding arbitration provision in your contract, you first file a lawsuit in court and then ask for a stay or holding-off of the proceedings while you conduct the arbitration.
- Notice of pending action. Also known as a lis pendens, this is a recorded notice letting the world know that you have filed a lawsuit.
- Discovery. This is where you request documents and answers to questions about the case so you will be prepared at mediation and trial. This consists of a document inspection request, interrogatories (questions with answers under oath), and requests for admissions (ask them to admit certain facts). It also includes responses in case they serve discovery upon you.
- Trial / Mediation / Arbitration Sample Brief. A fill-in-the-blanks brief where you can fashion your own statement of facts and request for relief.
Can I Do it Myself
Without an Attorney?
Absolutely. You have a constitutional right to bring a lawsuit in your individual name, without an attorney, as a “Plaintive in pro” or “Plaintiff pro se”. You don’t have to be an expert public speaker or debater, just someone who knows the facts and can argue your case. In other words, tell your story with clarity. As a matter of fact, you will always know more of what happened, as well as the industry itself, then your attorney. We have great respect for our attorney, but lawyers are certainly not required.
And we make it easy for you. Our attorney has made available hispersonal pleadings and office files. It contains the lawsuit, answer to any cross-complaint, detailed instructions, document requests, interrogatories, request for admissions (called “Discovery”), a script, and even a trial brief. These are all in Word templates which can be modified for personal use.
So, if you want to do it alone, there are two options:
- Do-it-yourself. We provide not only the templates, but unlimited consultation as to how to fill out the forms.
- Attorney as a coach. Many attorneys are too busy or don’t want to charge you “an arm and a leg”. You can do all the document preparing and leg work, and they can review it for legal sufficiency. During the proceedings, you can call either us or them for further
help. We used to say that if you can represent yourself in small
claims court, you can represent yourself in superior court with our
templates.
When: In the free law summary contained in each state’s separate page, near the end of the manual, you will see each state’s statute of limitations.
For example, take a California. Within 90 calendar days (not 3 months) of recording your mechanic’s lien, the action must be brought. As far as counting the days, you would not count the first day, but count the last day, unless it falls on a weekend or holiday, at which time you have the next business day to bring your lawsuit.
How served? Each defendant must be personally served (to acquire personal jurisdiction) by the marshal’s office or a private process server. Certified mail is not allowed.
What Does the
Lawsuit Do? In major part, the court will enforce the mechanic’s lien through foreclosure. This means it will end up in the hands of the marshal orsheriff’s office who, after posting the property, advertising in a newspaper of general circulation, and giving notice, will sell the property to the highest bidder.
If you are the general contractor: The lawsuit will contain the following causes of action or claims: 1) breach of verbal or written contract, 2) common counts (for the reasonable value of labor and materials conferred), 3) foreclosure of the mechanic’s lien, 4) pre-judgment interest, 5) other damages against the owner, such as delay or impact damages, and 6) attorney’s fees if there is such a provision in the contract. Note: 5) and 6) are in the form of a personal judgment against the owner and are rarely contained in the mechanic’s lien foreclosure cause of action or eventual sale of property.
If you are the subcontractor: The lawsuit will contain the following causes of action or claims: 1) breach of verbal or written contract against the prime contractor, 2) common counts (for the reasonable value of labor and materials conferred) against the prime, 3) foreclosure of the mechanic’s lien against the owner, 4) pre-judgment interest against the owner and prime, 5) other damages against the prime, such as delay or impact damages, and 6) attorney’s fees against the prime if there is such a provision in the contract.
Can I Represent
Myself if My Company
is a Corporation or LLC?
Yes. It is improper to represent your own corporation or LLC because it is a separate entity and it is equivalent to practicing law without a license. However, all you need to do is assign the cause of action in the name of the corporation to yourself personally and then bring the action.
What if I Am Late?
If you fail to file the lawsuit within 90 days of recording the lien in the Californiaexample above, all is not lost. If the project has just recently been completed after your original lien has expired, you can record
another lien, as long as it is within the required time period. In other words, just because one lien has expired, another will not, if it is still recorded within the overall time period. The only exception is if the court has ordered a pervious lien taken off the property, there is some authority that you cannot re-record the lien and then bring the lawsuit.
Where to File:In the Superior Court of the county in which the project is located. To find more information about the court, do a Google search as follows: “Santa Clara County Superior Court, California” or “Cook County Clerk’s Office, Chicago, Illinois”. It will have information about hours, location, and fees. But remember, many court clerks will not answer what is called“legal questions”. If you have such a question with any form of complexity, the best thing to do is call us and we will help you out. We’re not attorneys, but we are entitled to give you basiclegal information about the filing.
After bringing the lawsuit, because the proceeding directly affects title to the property, you willfile what is called a “Notice of Pending Action” or Lis Pendens in the recorder’s office. This is a summary or abstract of the lawsuit and tells the world that a proceeding has been brought against the property to foreclose, putting everyone on notice.
How Often is the
Property Actually
Sold? Our lawyer tells us that after practicing for over 30 years, he has only seen three properties go all the way to foreclosure. And the ones that did, usually ended up in that position because there was little equity in the property to save. But the good news is that in almost every case, it is settled before the sale.
What Happens
at the Sale? It is just like an auction. People show up, typically with multiple denominations of cashier’s checks, primarily on the courthouse steps, and bid to get the property. The winning bidder gets the property and hopefully you get money in your pocket to satisfy the mechanic’s lien.
Example 1: You perform substantial renovation work on a property worth $300,000. You are owed$100,000. At the sale, there is fierce bidding, but the proud owner is able to buy the property for $200,000. Title is transferred to that bidder, and after costs of sale, you get $100,000 and the previous owner gets the other $100,000.
Example 2: In the same example above, the bank holding a mortgage is owed $100,000 on the first deed of trust. They start the proceedings out by credit bidding their $100,000. It goes back and forth until they are eventually the winner at $200,000. They get the property, pay you your $100,000, and then re-sell the property for a profit of $100,000.
Example 3: Same example 2. The bank starts the proceedings out by credit bidding their $100,000. It goes back and forth until they are eventually the winner at $150,000. They get the property, pay you $50,000, and then re-sell the property for a profit of $50,000.
Example 4: Same example 2. But no one bids except the bank and they take it over. They wipe outyour lien and you get nothing.
Example 5: Same example above except someone steps in and out bids the bank by purchasing the property for $200,000. The bank gets $100,000, you get $100,000, and the new buyer has a property worth $300,000.
Small Claims: This is an excellent way to collect in smaller dollar limit cases. Remember, getting a small claims judgment is just as effective as a mechanic’s lien because you can record, in the form of an abstract of judgment, in the county in which the owner hasproperty, and it will also prevents sale or refinance.
Better yet, attorneys are not required. In most states, even though attorneys can appear, they rarely do because of the cost (Exception: inCalifornia, Michigan, and Nebraska, they are barred from appearing
unless the attorney himself or herself is the plaintiff). Truly being the People’s Court, there is absolutely no reason why you cannot represent yourself. And we can help you. On our web site has a full small claims Kit which has detailed instructions as to what to do and say, how to deal with the judge, exhibits, direct and cross-examination, opening and closing statements, and scripts.
But you cannot enforce your mechanic’s lien in small claims court. It is considered an inequitable device which is outside its subject matter jurisdiction. But who cares? If your dollar amount is within that jurisdiction, getting a judgment is just as good as enforcing a mechanic’s lien. You can garnish wages, pick-up and sell property through a writ of execution, and unpaid civil judgments reduce one’s credit score through Experian, TransUnion, and Equifax. Even if the judgment is paid off, it may remain on the credit report, although marked paid, for up to ten years.
And, start to finish, you can usually do all this within two months.
How much can you get? Here is a summary:
Alabama
$3,000
Alaska
$10,000
Arizona
$2,500
Arkansas
$5,000
California
$10,000 (Except that a plaintiff may not file a claim over $2,500 more than twice a year).
Colorado
$7,500
Connecticut
$5,000
Delaware
$15,000
District of Columbia
$5,000
Florida
$5,000
Georgia
$15,000
Hawaii
$5,000
Idaho
$5,000
Illinois
$10,000
Indiana
$6,000
Iowa
$5,000
Kansas
$4,000
Kentucky
$2,500
Louisiana
$3,000
Maine
$6,000
Maryland
$5,000
Massachusetts
$7,000
Michigan
$3,000
Minnesota
$7,500
Mississippi
$3,500
Missouri
$5,000
Montana
$7,000
Nebraska
$3,500
Nevada
$7,500
New Hampshire
$7,500
New Jersey
$3,000
New Mexico
$10,000
New York
$5,000
North Carolina
$5,000
North Dakota
$10,000
Ohio
$3,000
Oklahoma
$6,000
Oregon
$7,500
Pennsylvania
$12,000
Rhode Island
$2,500
South Carolina
$7,500
South Dakota
$12,000
Tennessee
$25,000
Texas
$10,000
Utah
$10,000
Vermont
$5,000
Virginia
$5,000
Washington
$5,000
West Virginia
$5,000
Wisconsin
$10,000
Wyoming
$6,000
Arbitration:Many construction contracts state that all disputes will be decided by binding arbitration, as opposed to a court proceeding by judge or jury. In fact, it has long been a tradition to do so in the construction industry.
Arbitration it is usually quicker and less costly, especially because it cuts down on expensive discovery. The decision is final and binding, with no right to appeal. You lose your right for a jury trial, but few contractors want that in the first place. You usually pick an experienced construction attorney or retired judge to hear the case in their conference room. It is just like a court proceeding with the same general rules of evidence, but more informal.
On the other hand, you can only foreclose your lien through a court proceeding, not arbitration. So, how do you keep arbitration rights and at the same time preserve your lien rights? Simple. Bring a lawsuit to protect the lien and then immediately request the court to stay the court proceedings. When arbitration is done, you go back to court and turn the arbitration award into a judgment.
Breach of
Contract:If you have failed to perfect your mechanic’s lien, you can always sue the party with whom you have a contract personally. This means the general can sue the owner personally and the subcontractor can do the same against a general contractor. When a judgment is entered, this will be a lien against their property which is similar to a mechanic’s lien, so all is not lost. So, the general has a cause of action for breach of contract personally against the owner as well as the owner’s property in the foreclosure of a mechanic’s lien. A subcontractor has a personal action against the general, but only a right to foreclose on the property against the owner and can never hold the owner personally liable.
Won’t Prior Mortgages
Simply Wipe out the
Mechanic’s Lien?
They certainly can, but only in limited circumstances. In almost all cases, bringing the lawsuit will engender settlement with the contractor being paid some substantial monies. Of course, if the mortgage is not being paid, the lender can foreclose.
The question is one of priorities. Between the holder of a mortgage and mechanic’s lien, who wins? This depends when the mortgage is recorded in relation to the first work on the property. Under the rule of relation back, the very first day anyone does work on a project becomes the date of priority for a mechanic’s lien. And, all contractors, suppliers, and subcontractors thereafter, get that same priority date.
If the mortgage is recorded after that first day on the job, It will be second in priority. But if it is recorded, as is the case typically, before the work has begun, that mortgage would have priority.
What if I Hear or
Receive Notice of
Bankruptcy? A. Owner’s Bankruptcy. If you are a general or sub/supplier, and either hear or receive notice of the filing of a bankruptcy by the owner, what should you do? Section 362 of the Bankruptcy Code places an automatic stay at the commencement of filing as to any collection actions, especially lawsuits. This also means you cannot take any steps to collect, including hiring an attorney, writing demand letters, attachingproperty, or the like. However, you are allowed to record a mechanic’s lien to protect your time limits. But, you cannot bring a lawsuit to foreclose the lien in state court. If you have recorded your lien, you will
be considered a secured creditor and have preference over unsecured creditors when it comes for distribution. But do not get your hopes up because there is rarely any money paid in bankruptcy to a lien claimant. You will receive a blank Proof of Claim from the bankruptcy court, and you should fill this out and send it in to the bankruptcy clerk.