Home>Levelset Community>Legal Help>A QUESTION NO ATTORNEY HAS BEEN ABLE TO ANSWER IN 5 YEARS - STATE OF OHIO: Scenario: A contractor offers payment plans for customers in house. The contractor does not perform credit checks, and simply allows the customer to enter into a mutually agreed upon payment plan (installment contract). There is 0 interest being charged and 0 fees being charged. Typical payment plans are spread out over 60 months, which allow for low and convenient payments. Here is the question: CAN THE CONTRACTOR FILE A MECHANICS LIEN ON THE PROPERTY TO SECURE THEIR INTEREST, IF IT WAS MUTUALLY AGREED UPON PRIOR TO WORK BEGINNING. (Can this be looked upon as "SELLING A MORTGAGE" since an interest was taken in "real property" to secure repayment of a debt.) Additionally, can this mechanic's lien be filed when the work is finished, even though payments haven't began and there is no "breach of contract for non payment" at this stage in the agreement. (Can one argue that the mechanic's lien is not valid because there was no default in payments since there was a payment plan agreement in place). Assuming no other violations of other consumer rights' law have occurred, such as CONSUMER SALES PRACTICE ACT, TRUTH IN LENDING ACT, AND FAIR DEBT COLLECTION ACT, is a contractor allowed to use the mechanic's lien statue to protect against potential defaults in payment?

A QUESTION NO ATTORNEY HAS BEEN ABLE TO ANSWER IN 5 YEARS - STATE OF OHIO: Scenario: A contractor offers payment plans for customers in house. The contractor does not perform credit checks, and simply allows the customer to enter into a mutually agreed upon payment plan (installment contract). There is 0 interest being charged and 0 fees being charged. Typical payment plans are spread out over 60 months, which allow for low and convenient payments. Here is the question: CAN THE CONTRACTOR FILE A MECHANICS LIEN ON THE PROPERTY TO SECURE THEIR INTEREST, IF IT WAS MUTUALLY AGREED UPON PRIOR TO WORK BEGINNING. (Can this be looked upon as "SELLING A MORTGAGE" since an interest was taken in "real property" to secure repayment of a debt.) Additionally, can this mechanic's lien be filed when the work is finished, even though payments haven't began and there is no "breach of contract for non payment" at this stage in the agreement. (Can one argue that the mechanic's lien is not valid because there was no default in payments since there was a payment plan agreement in place). Assuming no other violations of other consumer rights' law have occurred, such as CONSUMER SALES PRACTICE ACT, TRUTH IN LENDING ACT, AND FAIR DEBT COLLECTION ACT, is a contractor allowed to use the mechanic's lien statue to protect against potential defaults in payment?

We allow our customers to pay over time to help them bring much needed projects at affordable pricing terms, even though their credit situation may not allow for traditional lending. Are we allowed to utilize the OHIO MECHANIC'S LIEN law to protect our investment into the customer's home.

1 reply

Jul 10, 2019

That's a very interesting question with plenty of moving parts. Before getting too far along - I should mention that I'm not able to provide legal advice for you or your business, and for advice or legal review, it'd be wise to hire or consult a local construction attorney. Further, it's worth mentioning that manipulating mechanics lien laws to work in ways that they aren't intended to be used can quickly get questionable. Even if something may seem doable on its face, it can lead to headaches and even legal liability down the line. Plus, as mentioned in your question, it's important to consider what other regulations may apply, beyond simply what's permissible under mechanics lien regulations. With the above in mind, let's take a look at Ohio's mechanics lien laws.

With that being said, by the letter of the Ohio Revised Code, filing a mechanics lien based on a deferred contract where payment hasn't even begun doesn't seem to be specifically barred. In Ohio, every person who performs work and/or provides material to an improvement will have a lien to secure the work done on the improvement. That is, as long as they remain unpaid for their work.

Ohio's regulations on home construction contracts make things a little more complicated for residential jobs - but, ultimately, it doesn't appear that postponing payment on the contract price would technically affect the ability to lien because the lien relates to the whether the contract price is paid, not necessarily when the payments are scheduled to be made. So, if work is unpaid, a mechanics lien could likely be filed against the property even where the payment terms are deferred quite a bit.

As far as whether or not it'd be considered a "mortgage" - a mechanics lien is an involuntary security interest, so, because an owner is (usually) not agreeing to allow their property to be encumbered in exchange for some value, mechanics liens are generally not considered a mortgage product. But, in a situation where an owner actually agrees to having their contractor file a mechanics lien in exchange for delayed payment terms - that could get a little bit dicier. It wouldn't be surprising, if the issue made it to court, to see such a contract struck down. After all, planning an encumbrance on the property from the get-go is quite different than a normal mechanics lien scenario.

So, in sum: Using deferred payment terms and planning to secure payment with a mechanics lien in order to facilitate that payment might technically not run afoul of the Ohio Revised Code's provisions around mechanics liens. However, in a situation where mechanics lien laws are being manipulated for some other purpose, it would certainly be foreseeable - if not even expected - that a lien claimant using their mechanics lien rights for a non-traditional purpose would run into problems.

As a final note - keep in mind that there are certainly other ways available to secure payment for work in a situation where the contractor wants to take security in exchange for extended payment terms. Levelset has written about some options outside of the mechanics lien process that can be used to ensure payment here: Don’t Want to File a Mechanics Lien? Here Are 5 Other Options.

If you'd like to take a closer look at Ohio's lien requirements, as well as the Ohio Revised Code provisions relating to mechanics liens, this is a great resource: Ohio Mechanics Lien Overview and Statutes.

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