Is forclosing with a mechanics lien worth it

Here’s a secret about mechanics lien claims: they very rarely result in a piece of property getting put up for auction and sold.

You can draw one of two conclusions from this statement: either foreclosure doesn’t happen because liens are successful at getting claimants paid, or the expensive and complex nature of foreclosure dis-incentivizes lien claimants from taking foreclosure action. So, which is it?

Liens work 64% of the time

We conducted a survey of mechanics lien filings from 2011 and found that more than 64% of lien claims get paid within three months, without any additional legal or collection efforts. The liens, in other words, worked by themselves to solicit payment.

100 companies are owed money and are at a collections dead-end. They all file liens. 64 of them get paid without any additional efforts. Magic.

The remaining 36% are still likely to get paid, but payment may take a little longer or require a bit more legal elbow grease.

In almost every circumstance (the 64% paid immediately and the 36% that take a little longer), the actual foreclosure of the property is a non-factor. Mechanics liens have a number of effects that are unrelated to the seizure and sale of the property. Take a look at the 17 Ways a Mechanics Lien Works to Get You Paid, and you’ll find 15 reasons that have nothing to do with foreclosure.
Accordingly, foreclosure doesn’t happen often because mechanics liens are successful at getting claimants paid that the claims never get as far as a foreclosure process. Unless, of course, they do…

Mechanics Liens Are Hard to Challenge

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When Lien Foreclosures Do Happen They Are Probably Worth It

Foreclosure with a mechanics lien may be rare, but it still happens.

So, is it worth it? Is it worth the time and money required to get to foreclosure?

This is a difficult question to answer. Generally speaking, whether it’s worth it to proceed with a legal foreclosure will depend on a number of factors, including:

1.  The Value Of The Claim

Who wants to spend $25,000.00 litigating a $750 debt? The value of your mechanics lien claim is going to have obvious importance in answering the question of whether lien foreclosure is worth it. The lower the claim amount, the more important it is to consider whether you’re able to obtain attorney’s fees and interest if you do successfully enforce your lien claim.

2. The Equity In The Property

While a lien foreclosure action may be worth it even if the property lacks equity (entirely different topic), whether the property has any unencumbered value is still very, very important. Who wants to spend $25,000 foreclosing on property only to recover nothing? If the foreclosure action is worth it after considering #1, you should move onto #2, which questions whether there’s any gold at the end of the rainbow.

Conclusion

Mechanics lien

There is, of course, more to consider than the two factors above when deciding whether or not foreclosure with a mechanics lien is worthwhile.

Nevertheless, even if you would be unlikely to foreclose, the numbers show that filing a mechanics lien may still be worth it. (Levelset’s survey indicates that 64% of lien claims are paid within three months, without the addition of any legal, collections, or foreclosure action).

Additionally, similar to the way that foreclosing with a lien is separate from filing a lien, the legal foreclosure and sale of a property is distinct from the initial action to foreclose using a lien. Reaching the point of foreclosure usually involves a fair amount of legal work (and expenses). The initial action to enforce a lien, though it usually requires a lawyer, may help you get paid without reaching the point of foreclosure (much in the same way a lien itself will). Taking that initial action will keep your claim alive and increase pressure on parties to make payment.