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Does a lien cause bank to freeze assets? Or does it not get to that point if/until a bankruptcy is filed on the property?

OhioMechanics Lien

We have a GC that is very upset with us about preserving our lien rights. He received his Notice of Furnishing and is threatening not to work with us again. In an effort to try to smooth this over, our project manager talked with another party on the job and was told that our customer is so upset because “whenever someone files a lien, all assets get frozen by the bank” – which makes it very difficult for the GC to continue operating. This did not seem quite right to me, so I started searching Zlien resources. Found the “17 Ways a Mechanics Lien Works” and downloaded that. #1 seemed to answer the question saying property in encumbered and cannot be sold, etc. without us getting paid. It does not mention bank assets frozen. However, #17 says a lien will freeze money on the project. But goes on to mention bankruptcy.

1 reply

Mar 8, 2019
There are many misunderstandings about mechanics liens and associated documents, and many times it is misunderstandings that lead to tensions in what should be standard practices.

It is a bit unclear if the GC is upset because a Notice of Furnishing was sent (b/c the party sending it has protected their rights given by law to later file a lien if needed); or if the GC is upset because of some idea that the Notice of Furnishing itself has lien-like ramifications.

Ohio statutes specifically state that "A notice of furnishing, even if served upon a mortgagee of real property to be improved, does not constitute a written notice of a lien or encumbrance under section 5301.232 or a written notice of a claim of a right to a mechanics’ lien under division (B)(5) of section 1311.011 of the Revised Code." Accordingly, there is no actual adverse effect on the property or funds arising from sending a notice of furnishing. It provides visibility to the property owner of sub-tier parties that they may not otherwise know are on the project, and it preserves a right that already existed at the start of the project. Nobody wants to end up needing to file a mechanics lien, and preserving the protections set forth in law is not some preemptive shot that a lien is going to be forthcoming.

Exchanging information - sometimes through documents like notices of furnishing - is a key component of providing visibility throughout projects and keeping projects lien free. Some construction participants have had success defusing situations in which recipients were upset at receiving such documents by opening up a dialogue about the purposes behind the document and the shared desire to avoid liens.

There is also apparently a misunderstanding with respect to the impact of an actual lien being filed. It's true that liens are very powerful, and have many ways in which they are effective to get people paid. However, they do not freeze all of a GC's assets. It may be that there was a misunderstanding in communication here, though. If a lien gets filed on a project, it may freeze funds from a construction lender related to that particular project, until the lien is resolved. This is not all assets of a GC, or the GC's funds in GC's own accounts.
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