Earlier this week someone asked a question on Avvo.com about whether a mechanics lien would be effective if filed after an original owner sold the property. This is a great question that comes up pretty infrequently, but depending on the applicable state law, may be a great illustration of how effective and dangerous mechanics lien claims can be.
Most States Will Hold A New Owner Responsible For An Old Owner’s Mechanics Lien Claim
All state laws require that mechanics lien claims be filed within a defined period of time, and when a claim is filed it impacts the title to the underlying property. What happens if the property owner who commissioned the construction work sells the property to an unsuspecting third party before the mechanics lien claim is filed?
If the mechanics lien claim is timely filed, most states have little sympathy for the third party buyer. The claim is usually effective against the property, and the third party must seek his or her remedy from the original owner who sold them the property.
There are some exceptions, which fall into two categories.
Some States Restrict Liability of Third Party Buyers
Illinois is a state that directly restricts the liability of third-party buyers. There are actually two mechanics lien deadlines within the state’s legislation.
The first expires within 4 months after the claimant’s last furnishing. All liens filed within this period are effective against the property no matter what, which means that a third party buyer could be responsible for a previous owner’s unpaid work.
However, a second lien deadline expires 2 years after the claimant’s last furnishing. All liens filed after the 4 month deadline but before the 2 year deadline are enforceable against the original owner’s interest in the property only.
Unpaid Lien States Restrict Liens To Value of What Owner Still Owes
Some states restrict the value of a mechanics lien claim to the amount still withheld by the property owner. While this may not directly impact whether a lien is or is not effective against a third party owner, it has a lot of indirect implications.
One such state is New York. While a mechanics lien can be filed in New York at anytime within 8 months after last furnishing to the project, the lien is only effective as to the dollars still controlled by the property owner and yet to be paid to the general contractor.
At a practical level, a property owner selling a property to a third party usually has already paid out the entire contract amount to the prime contractor and thus insulated the property from a lien claim. If he or she has not, the third party buyer would have a very good claim against the owner because the owner would likely have made some type of misrepresentation in the documents.