5 Things People Have Wrong About Mechanics Liens

5 Things People Have Wrong About Mechanics LiensLittle in the law is as misunderstood as the mechanics lien instrument. We’ve dedicated some entire sections of this blog to trying to lift this fog, such sections being devoted to analyzing Common Mistakes and Lien Errors. While each state has its own mechanics lien rules and, therefore, it’s own unique common mistakes, there are some over-arching misunderstandings people have about mechanics lien law and requirements in general.  This post reviews the top 5 misconceptions.

Error 1: A Mechanics Lien Is Forever

This is wrong. While the laws vary depending on your state and project type, there is not a single jurisdiction in the United States where the mechanics lien lasts forever. It’s a mechanics lien law rule, therefore, that these documents do not cloud title forever.  To the contrary, mechanics liens expire.

The most common expiration period is between 8 months and 1 year from the filing of your lien. However, that isn’t to say the lien period cannot be shorter or longer. In California, for example, mechanic liens expire just 90 days after they are filed, and opposite of this, the foreclosure period in Ohio is 6 years! To get your state’s mechanics lien foreclosure period in just a quick glance, check out the infographic we put together.

This doesn’t mean that a mechanics lien is only good temporarily and then of absolutely no effect.  While the mechanics lien will expire by operation of law, you can save its effectiveness by filing a mechanics lien foreclosure action.

Error 2: You Can Always File A Mechanics Lien

This misconception is rampant in the construction industry. So many small contractors, tradesman and supply companies think they can file a mechanics lien whenever they want so long as they’ve gone unpaid. They think the mechanics lien remedy, in other words, is always available to them without much exception, ready to be used at the drop of a hat.

There are three underlying problems with this belief.

First, you may be on a project that doesn’t have mechanics lien rights or even bond claim rights.  While this is rare, there are many circumstances when this is the case. Filing a mechanics lien against a New York condominium, for example, can be very difficult. Also, there may be little security protections for work performed on a private project on public land.

Second, in many states, potential mechanics lien claimants must deliver a preliminary notice to the general contractor and/or property owner at the start of all construction to be later qualified to file a mechanics lien. If you fail to deliver this notice, your mechanics lien rights could be completely destroyed.

Third, you only have so long to file a mechanics lien. You can’t keep giving your client more and more time to pay, thinking you can file the mechanics lien whenever you want. That’s simply not true. All states require mechanics liens to be filed within a certain (short) amount of time after you last furnish work or the completion of the project. A nice average is about 90 days after you last furnish materials or labor.

Error 3: A Mechanics Lien Can Include Every Cost, Penalty And Fee Under The Sun

Mechanics lien laws everywhere are strict, and each state is very specific about what can and cannot be included within the mechanics lien claim amount. You must be careful not to go outside of these boundaries, because the effect could be the absolute nullification of your claim.

There are two articles on this blog which address this issue head-on, and is a good read for anyone tempted to add additional costs, penalties, fees, accrued interest, etc. within their lien claim.  First, we have an article that talks in general about the expenses and costs that can be included in your claim. Second, we have an article about the consequences of filing an “exaggerated” lien claim.

Good rule of thumb:  File your mechanics lien for just the principle amount due, and leave the costs, interests, fees, penalties, etc. out and just part of your negotiations or lawsuit.

Error 4: A Mechanics Lien Is Useless If A Bankruptcy Is Filed

People are way too pessimistic when it comes to filing a mechanics lien.  They come up with a lot of reasons why the mechanics lien will not be effective, and one top reason is the fear that someone on the project will file bankruptcy and avoid the mechanics lien completely.

While bankruptcy is a real fear for any creditor in any situation, the mechanics lien actually matches up quite well against a bankruptcy filing. We ran a blog series here on the relationship between mechanics liens and bankruptcy, and it’s worth reading to see just why a mechanics lien is effective in a bankruptcy proceeding.

Error 5: A Mechanics Lien Isn’t Worth Doing

It’s funny that some folks will be way too pessimistic about a mechanics lien filing and others way too optimistic. The most dangerous misconception about mechanics liens, however, is that they’re just aren’t worth it. Nothing can be further from the truth.

I’ve dedicated my career to understanding the mechanics lien instrument and helping contractors, suppliers and others file these documents and use them to improve their collections process and success. I can tell you without hestitation that filing a mechanics lien is THE most effective way to get paid on a construction project, and that the chances of collecting a debt with a mechanics lien is much, much greater than collecting a debt without a lien.

If you’re unpaid, file a mechanics lien.

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Scott Wolfe Jr

About Scott Wolfe Jr

Scott Wolfe Jr. is the CEO of zlien, a company that provides software and services to help building material supply and construction companies reduce their credit risk and default receivables through the management of mechanics lien and bond claim compliance. He is also the founding author of The Lien and Credit Journal, a leading online publication about liens, security instruments and getting paid on every account. Scott is a licensed attorney in six states with extensive experience in corporate credit management and collections law, with a specific emphasis on utilizing mechanic liens, UCC filings and other security instruments to protect and manage receivables. You can connect with him via Twitter, LinkedIn and Google+.