Thanks to a reader who requested a blog article about the assignability of mechanics lien rights in Louisiana, as it inspired this post. You can post a question to us by clicking the “Ask Us” banner floating on the left-hand side of the blog.
Assignment: A term used in the law of contracts and the law of real estate. In both instances, it encompasses the transfer of rights held by one party – the assignor – to another party – the assignee. (Definition via Wikipedia).
Assignment is a simple concept that we’ve discussed on two previous occasions here on the Construction Payment Blog; once related to New York law and once related to Utah law. In both cases, the right to assign a mechanics lien claim was allowed by statute. The same is true in Louisiana, and most of the country.
In Louisiana And Most Everywhere Else Lien Rights Are Generally Assignable
Mechanics lien statutes may or may not specifically mention the assignment of a lien claim. In Washington, for example, assignment rights to mechanics lien claims are specifically mentioned in the statutes, and it’s actually required to indicate on the lien claim itself whether the rights were or were not assigned to the claimant.
Nevertheless, whether assignment is specifically mentioned within a state’s lien statute isn’t too important unless it is mentioned to specifically prohibit the practice. That’s because each state has general statutes or case law (or civil codes, in the case of Louisiana) that governs assignment rights in general. They are a lot like the rule in Louisiana, which states the following in Civil Code Article 2642:
All rights may be assigned, with the exception of those pertaining to obligations that are strictly personal. The assignee is subrogated to the rights of the assignor against the debtor.
The general rule, therefore, is that all rights are assignable. This would include a party’s lien rights.
Warning 1: Be Careful Buying Lien Rights If Litigation Already Commenced
Louisiana Civil Code Article 2652 contains a special rule that could impact the assignment of a mechanics lien claim. The article concerns the “sale of litigious rights:”
When a litigous right is assigned, the debtor may extinguish his obligation by paying to the assignee the price the assignee paid for the assignment, with interest from the time of the assignment.
A right is litigious, for that purpose, when it is contested in a suit already filed.
Nevertheless, the debtor may not thus extinguish his obligation when the assignment has been made to a co-owner of the assigned right, or to a possessor of the thing subject to the litigious right.
A mechanics lien claim prior to the initiation of a foreclosure suit would not likely be covered by this article. However, if a lawsuit on the lien has been initiated, beware of buying the lien rights. That’s because you may be limited to recover only the amount you paid for the claim, and not the underlying value of the claim. Obviously, this could make the point of buying the claim pointless.
Interestingly, however, this article probably doesn’t apply if the lien right is sold before the filing of the foreclosure suit.
Warning 2: Be Careful Buying Lien Rights Because Of Practical Challenges
Selling the “right” to proceed against a party to recover something is always more challenging then selling a iron-clad debt.
A promissory note, for example, is very easily assignable. It’s very clear that there is a debtor for a specific amount of money, and the assignee (the party who buys the note) can recover against the debtor without needing any additional proof of the debt. All the assignee needs is the note. This is why mortgages are so frequently bought and sold in the mortgage marketplace.
Such is not the case with mechanics lien claims.
Lien claims have an effect against the property that is attached, but it is a temporary right held by the claimant until the claimant proves that the debt is owed in court, after a full-fledged trial of fact. Things are frequently in dispute on construction projects, and so the lien claimant usually has to prove that the work was performed, there are no workmanship disputes, all delay issues are resolved, etc. etc.
There are practical challenges for the buyer of a mechanics lien claim, as they need the original claimant’s records and testimony to stick around so that the claim can be proven. This is not to mention the risk that the lien claim isn’t well supported or documented, or simply isn’t viable.