File A Lien Or Go To Small Claims Court?

File A Lien Or Go To Small Claims Court?

Scouring the Internet one night I came across this article from Remodeling magazine published in 2010: Lien Times: Use Liens Sparingly and Carefully.  Warning that “the lien conversation throws the relationship into chaos,” the author advises contractors to think long and hard before filing a mechanics lien, and then recommends a small claims court suit instead:

A small claims court case may be a more efficient and cost-effective method of collection than the lien process for some contractors.

I couldn’t disagree with the author more.

Small Claims Court Is No More Friendly Than A Lien

It’s funny how the author talks about a mechanics lien as “throw[ing] the relationship into chaos” but then recommends filing a small claims court action as if the two are so different in terms of preserving a relationship.

The logic is missing here. If you’re in a small claims suit with your customer, your customer is going to be just as upset at you as they would be in a lien action. The only difference is that in a lien action you’ll have security to get paid, and in a small claims action you won’t.

The First Rule of Small Claims Court Is That There Are No Rules

Small claims court is great because its cheap, its quick, and it usually doesn’t require lawyers. Here is something you may be overlooking, however: there usually aren’t any rules.

The lack of rules is good to a degree, as it enables the process to be quick, cheap and easy. The problem is if you’re on the losing side of the case, because you’ll be unable to appeal the decision and the decision may be based on the judge’s feelings as opposed to the hard facts.

Everyone who walks in small claims court thinks they are right. I can’t tell you the number of times I’ve seen a contractor or suppliers real, provable debt get tossed in small claims court because the property owner had a better sob story.

Fact Is That Mechanics Lien Usually Offers Fast Payment of Debt

There are certainly scenarios when a mechanics lien does not get you paid immediately and you’re stuck having to proceed to have the lien enforced. That happens. It’s much more likely, however, that your mechanics lien claim will prompt one of the other project participants or the property owner to arrange for your payment, and to do it quickly.

When this happens, you get paid quicker and with less effort than you would with a small claims court action.  When this doesn’t happen, you at least have security you can enforce.  And that’s almost always better than a small claims court judgment.

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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+.

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  • Christopher G. Hill

    Scott, great post and I agree that a memorandum of lien is no better from a chaos perspective than is a lien. However, should the need arise to enforce a smaller claimed amount that was liened, it is possible to outstrip the amount to be collected with the attorney fees necessary for the lien enforcement battle. This is something that must be taken into account in my mind.

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  • Eleanor Funk

    What if we filed a mechanics lien, can we then take them to small claims court? We were on a time crunch and filed the lien to help protect us.

    • Scott Wolfe Jr

      Eleanor, thank you for visiting the blog and for your comment. The answer to this question is a bit complicated and it depends – among other things – on the state where you filed the lien. However, many states prohibit liens from being foreclosed upon in small claims court. The reason is that small claims courts have a jurisdictional limit (often $5k – $10k), and while your claim may be under this amount, the total value of the case requires the foreclosure of a property which is valued at more than this amount. Therefore, small claims courts stay away from these cases. This is certainly the case in California, for example, as you can read about in this article: Can A California Mechanics Lien Be Foreclosed Upon in Small Claims Court?

      Good luck.