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.
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.
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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 a 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.
Related: How to collect on a judgment lien
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.
The court agreed with the property owner. Its analysis was simple – to determine the type of lien, the court merely looked at how the lien arose. While the contractor had properly filed a mechanics lien, they failed to enforce that lien within one year. Instead, the contractor came into court on the last day that the lien could be enforced and filed suit (which resulted in a judgment lien). Had the contractor foreclosed on the mechanics lien, they would have been in the clear.
All liens are not created equal. Through the bankruptcy process, the judgment lien was avoidable. Had the mechanics lien been properly enforced, it would have stood. Filing a mechanics lien can be tricky, and it often feels like obstacles are everywhere. But this claimant had already done the heavy lifting. The work is not done once a lien is filed, though. It’s imperative to keep an eye on the deadline to foreclose. If you forget to enforce a mechanics lien, you might be left empty handed.