Mechanics liens are powerful. Of course, this power arises from the fact that a lien claim can force the sale of property. However, there are other reasons why liens are such a strong remedy. Mechanics liens have high priority, and they typically survive bankruptcy. But that will only matter if lien laws are followed to a T. In a recent Kentucky case, the claimant failed to enforce a mechanics lien and lost their right to payment.
Don’t Forget to Enforce a Mechanics Lien
Here’s the full text of In re Morris.
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In Morris, the property owner hired a contractor to install a furnace. The contractor went unpaid, though. While Kentucky lien law does not require it, the contractor sent a notice of intent to lien. Still unpaid, the contractor had no choice but to file and record a mechanics lien on the property.
In Kentucky, lien claimants must initiate an action to enforce their lien within 12 months of filing. 364 days after filing, this contractor filed a separate complaint in court claiming a breach of agreement and seeking judgment for the contract price, plus interest. The property owner did not respond, and eventually default judgment was entered in favor of the contractor.
As a result of the judgment, the contractor instituted a different lien – a judgment lien. The judgment lien, much like a mechanics lien, would have secured the amount of the judgment via lien on the owner’s property. However, judgement liens do not benefit from the same protections as mechanics liens. Years later, without making payment on the lien, the owner filed for bankruptcy.
For more, check out our Kentucky lien and notice FAQ.
All Liens Are Not Created Equal
After filing for bankruptcy, the property owner filed a motion to avoid the contractor’s judgment lien. The contractor responded, stating that the lien could not be avoided because it was mechanics lien, not a judgment lien.