Mechanics Liens Encumber Valuable Property
One of the best articles we’ve ever published, and one I constantly refer to, is “17 Ways a Mechanics Lien Works To Get You Paid.” Reason number one on that list is “A Mechanics Lien Encumbers the Property.” I recently came across a real-life story demonstrating the power of liens, and I wanted to share it. In this case, a recent news story described how valuable property was encumbered with a lien and thus useless as a revenue generator. While this story doesn’t directly relate to construction mechanics liens, (it is instead an aircraft repair lien) it still illustrates the value of liens in general.
What is an “Encumbered” Property?
An encumbered property is essentially a property that comes with strings attached. As we know, a property owner cannot sever a mechanics lien merely by selling or leasing the property; a mechanics lien attaches to a property and follows it no matter who owns it.
Imagine a scenario where you are buying a house: Would you rather buy one that would only cost you asking price or one that included a mechanics lien for $50,000 that you might also be liable for? The answer is clear: Probably the house without the mechanics lien. In other words, encumbering a property with a mechanics lien makes it very unattractive to potential buyers or lessors.
This is true both of real property (land and the buildings on it) and of personal/movable property. Since the concept is roughly similar across all versions of liens, this story about the encumbrance of movable property can be illustrative as to how a construction lien would cause the same types of problems for a real estate owner.
Liens Can Encumber Valuable Property
A recent news story from a South Carolina newspaper contained the following facts:
[A Pratt & Whitney airplane engine owned by Blade Engine Securitization LTD] is currently not leasable due to an outstanding mechanic’s lien in the amount of $4.6 million. The prior lessee responsible for the maintenance performed is currently in bankruptcy and thus not able to pay. The maintenance and repair organization has offered to purchase the engine in exchange for cash and the release of their mechanic’s lien.
The article stated that Blade Engine Securitization LTD (Blade) would be selling the engine for less than their target price, a credit ratings firm, Fitch, does not believe that the lien or subsequent sale would affecting Blade’s rating.
While this lien is a lien against movable (or personal) property, not a construction lien on real estate, it provides a practical example of how liens work in general. The same concept that led to the sale of the aircraft engine to pay off a lien can work to the advantage of people in the construction industry. Not only can a mechanics lien encumber real estate, it can lead the the sale of the property to pay off the lien, as well.