The Lien Writer® Newsletter Since 1991
Tuesday, December 18th, 2019
BANKRUPTCIES AND CONSTRUCTION JOBS
A client recently wrote to us asking about what to do about jobs where one of the parties to the job files for bankruptcy. Well, that depends, but the Mechanic’s Lien laws do give you some option besides simply declaring your bill on your job as uncollectable. It also depends on who is filing for bankruptcy, and the nature of your debt.
If you have delivered products or services to a property location, you hold a secured debt against the real property of an owner. This improves your position for collection in the bankruptcy over the unsecured creditors– you have made improvements to the property, and this puts you higher on the list of the bankruptcy creditors.
Remember that filing a Mechanic’s Lien for your secured debt services is a lien against the real property you improved, not solely a claim against the bankrupt party for damages. For the debtor, it is akin to owing money for his mortgage, and generally must be paid back because of your improvements. This places you very near the top of the list of parties to get paid in the bankruptcy, assuming there are assets to pay the debts ay the end of the bankruptcy process. Of course, the mortgage must be repaid first before any property liens, and the Mechanic’s Liens are paid in the order they were put on the property. Time may be of the essence here because paying lien claims on a property depends on when the claim was filed. If you have a number of other secured creditors filing their claims before your claim you can still end up “out of luck’.
This also means if the property has no equity in it above the mortgage, or if there are other lien claimants before your claim, leaving no value in the property, there may be nothing left to pay your claim. But, if the debtor wishes to retain his property, bankruptcy does not relieve a debtor of the obligation to pay his secured debt. Placing a mechanic’s lien on the property after a bankruptcy filing puts you in the best position to get paid if funds are available. Let’s look a little deeper.
Customers, General or Direct Contractors
A bankruptcy filing by either of these parties does not affect your lien claim on an owner’s property at all. Contact the owner about your claim.
Lenders and Sureties
Again, these are not owners of the property, although a bankruptcy by either of these parties may estop you from making a claim on these parties in court for other solutions. Still, your interest in the real property is not affected.
The owner filing bankruptcy need not affect your secured claim against the real property, although it must be pursued under the bankruptcy court. To protect your rights, do the following:
- File your Mechanic’s Lien against the real property – The automatic stay against contacting the owner of the property does not affect you from filing a lien against the property after receiving notice of the owner’s bankruptcy. Nor does it affect the timelines to file your claim, either, so you must file your lien within the required time to protect your rights;
- You must notice both the parties to the job and the bankruptcy court of your lien filing – As with any normal mechanic’s lien filing, this tells the parties that you will seek to enforce your secured claim against the owner’s real property. This notice must also be filed with the Bankruptcy Court and served on the debtor prior to the deadline for commencing an action to enforce your lien rights in the State where the work was performed. Filing this notice correctly stops the lien deadlines from running until 30 days after the ‘automatic stay’ is lifted by the court;
- You must seek to enforce the lien claim with the Bankruptcy Court or after the Bankruptcy is terminated – Unlike a normal lien filing you will have to appear at the Bankruptcy Court to make your claim to enforce the lien. If the stay granted by the court is lifted, you must move the case forward immediately to force the lien to get paid.
A bankruptcy confuses the mix of the already complex lien procedures. We do encourage, especially on large amount claims, that you include your attorney in your action, or have your attorney recommend a good practicing bankruptcy attorney. Still, the point is that your claim is secured and has a better chance of being paid by filing a mechanic’s lien against the real property.
KEEPING UP TO DATE WITH LIEN WRITER®
The current version on the street is our 10.1.1.1 version.
It is easy to update Lien Writer®:
- If you are using a Lien Writer®version 22.214.171.124 or before, first run Lien Writer®, then go to Help / About Lien Writer and write down your version number and expiration date for verification;
- Open your Internet or Google Explorer;
- Go to our website at http://www.fwmsoftware.com/fwm-software-downloads/;
- Click on Lien_Program_Installer v10.1.1.1;
- The site will ask where you want the program to download. Put it in a directory location you want, or just download to the Desktop. Normally, it should take less than 5 minutes;
- Once the program is downloaded, go to the directory site, or the Desktop, and double click on the Lien_Program_Installer v10.1.1.1. The program will begin installing and updating your data files;
- If the former program was of the 10.x.x.xseries, it will simply update. If your version is of the 126.96.36.199series or less, it will install but you will need to get a update code. Call (530) 622-1344,or write us at firstname.lastname@example.org to receive your new code;
- A WARNING ON USING LIEN WRITER® VERSIONS PRIOR TO 10.x.x.x. THESE PROGRAMS ARE OUTMODED AND IN SOME CASES HAVE ILLEGAL AND OUTDATED FORMS. PLEASE UPDATE IMMEDIATELY;
- Once you update, just use the program as you have always used it
You can contact someone to discuss any newsletter subject:
Address: FWM Software
705 Pleasant Valley Road
Diamond Springs, CA 95619
On-Line Help: https://www.lienwriterhelp.com