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 can help 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 his
personal 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:

1. Do-it-yourself. We provide not only the templates, but unlimited

consultation as to how to fill out the forms.
 2. 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 or
sheriff’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
California example 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 basic legal information about the filing.

After bringing the lawsuit, because the proceeding directly affects title to
the property, you will file 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 out your 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 has property, 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: in
California, 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, attaching
property, 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.

If the bankruptcy is completed and the owner gets a final discharge of

debts, you are pretty much out of luck. But, if the owner decides to drop
or voluntarily dismiss the bankruptcy on their own accord, you will then
be able to start or complete your foreclosure proceedings. You do not
have to worry about the time limits in bringing a foreclosure action
because it is “tolled” or frozen during the pendency of the bankruptcy.
So, if you had two months left on the time to file a lawsuit when the
bankruptcy was commenced, after dropping the bankruptcy, your time
will start where it left off under that two-month period. You can also start
your foreclosure action if the bankruptcy court or trustee dismisses the
bankruptcy proceedings against the owner. In many cases, this applies
if the owner has acted in bad faith, abused the bankruptcy process, or
filed false statement in his or her bankruptcy schedules.

Even with the owner’s bankruptcy, you can immediately sue the general
contractor (or the subcontractor if you have a contract with that person)
for breach of contract in state court. Since the general contractor has
not filed bankruptcy, nothing prevents you from doing this, even though
the owner’s bankruptcy is pending. You have two years on an oral and
four years on a written contract to sue the general contractor or
subcontractor.

B. General Contractor’s Bankruptcy. If the general contractor files

bankruptcy (or a subcontractor if you have a contract with that person),
you are precluded from bringing a lawsuit for breach of contract and can
only file a proof of claim and hope to get some monies in the proceeding.
The general rule is that you would be free to sue the owner in state court
on the foreclosure of a mechanic’s lien. But, unfortunately, there are
some exceptions. Some federal circuits state you cannot foreclose the
lien against the owner’s property while the bankruptcy with the general
contractor is pending. This is based on the theory that the mechanic’s
lien depends on how much is actually owed from the general contractor,
and that will not be determined until the bankruptcy is concluded. Not all
courts uphold this view, but be careful of this exception. You will
definitely need competent bankruptcy counsel to help you. Go ahead
and sue the owner to foreclose the lien and wait for them to bring up this
defense.

C. Special Problems if the Tenant Files Bankruptcy. There are even

more complications if your contract is with a tenant. Assume you
perform major remodeling services to the kitchen of a hospital. Your
contract is with the long-term tenant and not the owner. The tenant fails
 to pay you and then files bankruptcy. You submit your Proof of Claim in
the bankruptcy proceeding, but also start a state court action to foreclose
the mechanic’s lien against the owner. The owner goes to state court
and requests the judge to hold off until the bankruptcy is determined.
Unfortunately, there is some law to this effect and you should also be
careful in this area of the law. Again, seek competent bankruptcy
counsel and go ahead and file your foreclosure action and wait for them
to bring up this defense.

If I Don’t File My Lien

Or Lawsuit on Time,
Can’t My Lawyer
Argue the Equities
or Come Up with
Some Kind of
Technicality? Nice try! Mechanics’ lien laws are very picky – you are either in the box
or not. They are strictly construed by the courts and they show no
forgiveness. We are all aware of equitable principles of fairness that
apply throughout the law. And, how could we forget the numerous
technicalities that an inventive lawyer could come up with. It won’t work
in these cases. A subcontractor attempting to go against an owner after
an invalid lien under esoteric theories of common counts, quantum merit,
unjust enrichment, promissory estoppel, constructive trust, and equitable
liens have, for the most part, fallen on deaf ears.