Difference between revisions of "File a Lien"

A lien gives you a right in or over property as security for a debt someone owes you<ref name="rf1">http://thelawdictionary.org/lien/</ref> While there are several different types of liens, as an individual you probably are filing either a mechanic's lien or a judgement lien. Mechanic's liens enable contractors to collect money they earned doing work by encumbering the property they worked on until the debt is satisfied. A judgment lien allows you to secure the collection of a court-awarded judgment at the completion of a lawsuit.<ref name="rf2">http://www.bizfilings.com/toolkit/sbg/run-a-business/assets/different-lien-types-change-creditors-rights.aspx</ref>

#*Be clear from the beginning of a job that you'll file a lien if debts remain unpaid. Some states such as Washington have forms you can use to notify property owners of your right to file a lien if you aren't paid.<ref name="rf3">http://www.lni.wa.gov/formpub/Detail.asp?DocID=1884</ref> You also can advise a property owner of your right to file a lien in your contract for the work.

#*You also might consider using alternative dispute resolution. With ADR, you and your client share the cost of hiring a neutral mediator who helps you work out a mutually agreeable outcome. The process often is less adversarial, more efficient and less expensive than filing a lien.<ref name="rf4">https://www.law.cornell.edu/wex/alternative_dispute_resolution</ref> Your local courthouse or your state court's website may have a list of ADR resources available in your area.

#*Hiring a debt collection agency is anther way to avoid the time and expense of engaging in formal legal processes by filing a mechanic's lien. Debt collections agencies specialize in recovering debts and can put the pressure on your client without you having to take legal action. If you decide to go this route, research and find a collection agency that has a good reputation and specializes in working with people who do the same kind of work you do.<ref name="rf5">http://www.rocketlawyer.com/article/five-tips-for-hiring-a-debt-recovery-or-debt-collection-agency.rl</ref>

#Make sure you've given preliminary notice. Most states require you to notify the debtor that you will file a lien if he doesn't pay you. Typically you would give this notice within the first few weeks of work, before payment even becomes a problem. If you fail to give preliminary notice, you may lose your right to file a lien if your client doesn't pay.<ref name="rf6">http://www.zlien.com/articles/mechanics-lien-deadline-chart/#</ref>

#*In most states, preliminary notice must be given within 10 to 20 days of the date you began work.<ref name="rf7">http://www.zlien.com/wp-content/uploads/Mechanics-Lien-Deadline-Chart.pdf</ref>

#Check your state's deadlines for filing a lien. You only have a brief period of time after you've completed the work to file for a lien, and in some states this period is as short as 60 days.<ref name="rf7" />

#*Depending on where you live, you may not have time to exhaust all other options before you file a lien if you want to preserve this option. For example, in Louisiana you only have 60 days from the day you finish the work to file a lien for non-payment. This doesn't give you much time to pursue alternative methods of collection. However, in neighboring Mississippi, you have a whole year from the date the debt became due. That gives you plenty of time to explore other payment options with your client.<ref name="rf7" />

#Research the property. To file a lien on property, you must conduct a title search on the property to ensure your client owns it and get the full legal description from the deed. This process could cost several hundred dollars to complete.<ref name="rf8">http://contractormag.com/columns/mcgreevy/cm_column_574</ref>

#*In some states such as Illinois, general contractors who file a lien before the deadline have priority over any other encumbrances on the property, even if another mortgage or a competing lien came first.<ref name="rf9">http://www.mha-law.com/construction-mechanics-liens.html</ref>

#*If there are other creditors who have liens on the property, you should consider consulting an attorney to advise you on how those loans are prioritized legally and whether you should pursue alternative means of collection.<ref name="rf8" />

#*Other liens on property that would take priority over yours could mean that even if you filed suit and had the property sold, you wouldn't recover any money and the debt would remain unpaid.<ref name="rf8" />

#*For example, California requires a Claim of Lien form as well as a notice and an affidavit.<ref name="rf10">http://www.courts.ca.gov/documents/ej001.pdf</ref> You can learn your state's requirements by contacting your local clerk of court.

#*Check the formatting requirements of the county where you're filing the lien, because many counties have strict rules governing the paper size, margins, and font of the text. If you don't follow these rules, the office will reject your lien.<ref name="rf11">http://www.zlien.com/articles/how-to-file-a-mechanics-lien-a-comprehensive-overview-that-applies-to-any-state/</ref>

#*The type of information required on the lien also varies from state to state, but typically includes your name and address, the name and address of your client, the amount of money you are owed, a description of the type of work or services you performed, and the location of the property. <ref name="rf12">http://www.remodeling.hw.net/business/regulations/lien-times-how-and-when-to-file-a-lien</ref>

#*Make sure you've included all necessary information or your lien won't be any good. For example, if you're placing a lien on real property, most states require a legal property description such as the one on the deed, not just a street address.<ref name="rf11" />

#*If you're claiming a lien on real property, it must be filed in the recorder's office of the county where the property is located.<ref name="rf9" />

#*Expect to pay a filing fee between $25 and $50 depending on the location where you file.<ref name="rf13">http://calconstructionlawblog.com/2013/04/22/the-mechanics-of-mechanics-liens/</ref>

#*Although you often can file your lien by mailing it to the office, you may want to deliver it in person. Many offices have a backlog on mailed filings, so this is particularly important if you're filing close to the deadline. Additionally, filing in person means if there's something wrong with your lien you can find that out and correct it immediately.<ref name="rf11" />

#Notify all necessary parties. In most states you must notify the property owner immediately after you file the lien. Some states require additional parties, such as other lien holders, to be notified as well. You can find out who must be notified when you file the lien.<ref name="rf11" />

#Enforce your lien. If the debtor still doesn't pay after you've filed the lien, you must enforce the lien by filing a foreclosure lawsuit within a certain amount of time, usually a year.<ref name="rf11" />

#*The foreclosure suit causes the property to be sold. The proceeds of the sale are used to satisfy any liens on the property.<ref name="rf13" />

#*Make sure you check your state law to see what your enforcement period is. After the enforcement period runs out your lien is expired and has no value. Some states have extremely short enforcement periods. For example, in California you have just 90 days to file a lawsuit after filing your lien.<ref name="rf7" />

#Understand whether you're eligible to file a judgment lien. You can only file a judgment lien after you've won a court judgment in a case in civil court. The judgment lien allows you to sell the real or personal property subject to the lien and use that money to satisfy the debt owed to you.<ref name="rf14">http://www.nolo.com/legal-encyclopedia/types-property-liens.html</ref>

#*A judgment lien does not ensure payment of a judgment. The lien attaches to the debtor's real or personal property, informing potential buyers that the title of the property is not clear. If you place a judgment lien on someone's property, there's a chance you won't receive your money until that person decides to sell that property.<ref name="rf15">http://cc-courthelp.org/index.cfm?pageid=4801&noheader=1</ref>

#*Generally, you can only place a lien on personal property located in the state where the judgment was obtained.<ref name="rf15" />

#*The lien is only good for a certain period of time. For example, in states such as California and Arizona, your lien is good for five years, but may be renewed if you haven't been paid within that time.<ref name="rf16">http://justicecourts.maricopa.gov/HowTo/Collect_Money_Judgment_packet.pdf</ref>

#*If the debtor sells or transfers the property while the lien is in effect, the judgment lien remains on the property until the creditor has been paid in full.<ref name="rf15" />

#*Some states have a form you can fill out. For example, if you want to file a lien in California on personal property such as a car or a boat, you would fill out a "Notice of Judgment Lien, Form JL-1" and file it with the California secretary of state.<ref name="rf17">http://www.sos.ca.gov/business-programs/ucc/judgment-lien/</ref> If you wanted to place a lien on real property, on the other hand, you would fill out and record an "Abstract of Judgment for Civil and Small Claims" form at the county recorder's office.<ref name="rf16" />

#*In some states, such as Arizona, your lien must be accompanied by a certified copy of your court judgment. You can get a certified copy for a fee from the clerk's office in the court where you were awarded the judgment.<ref name="rf16" />

#File your documents. Where you file your documents depends on where the property is located and whether you're attaching your lien to real or personal property. Each state has different filing rules, and the same state may have separate offices and procedures for real and personal property.<ref name="rf16" />

#*Typically you can mail your documents to the correct office along with the fee to file them, but as with the mechanic's lien it may be in your best interest to file them in person so you know the lien is recorded and you can correct any defects in your forms immediately.<ref name="rf16" />

#Wait for the debtor to satisfy the judgment. A judgement lien does not guarantee payment of the debt. Rather, you have to wait until the debtor sells the property. If the buyer wants a clear title, she will insist the debtor satisfy the judgment before she completes her purchase.<ref name="rf15" />

#*While there's no law that requires liens to be cleared before property is sold, in most cases potential buyers want a clear title, not a property that's encumbered with someone else's debts.<ref name="rf18">http://www.nolo.com/legal-encyclopedia/collect-court-judgment-with-real-30038.html</ref>

#*In some states such as California, if the debtor pays the judgment, you must remove the lien by filing a form with the court that acknowledges satisfaction of the judgment.<ref name="rf19">http://www.courts.ca.gov/documents/ej100.pdf</ref>

*In some states, subcontractors may not file liens without the approval of the primary contractor. Other states also only allow contractors who are properly licensed in the state to file liens in that state.<ref name="rf11" />

*In a few states, if you win a lawsuit, a judgment lien automatically is created and attaches to any property the debtor owns in the state.<ref name="rf20">http://www.nolo.com/legal-encyclopedia/what-is-judgment-lien.html</ref>

*Because you can't force a sale of property if you have a judgment lien, it may take a very long time to get your money. Additionally, if the owner files for bankruptcy, your lien might be wiped out completely.<ref name="rf18" />

*Most states provide homeowners with a homestead exemption on the equity in their primary residence if the property is sold to pay off foreclosed mortgages or other liens. This could limit your ability to get your money if you file your lien on the property owner's primary residence.<ref name="rf18" />