Loves Furniture, Taking Mechanic’s Liens to the Mattresses
In January 2021, Loves Furniture, Inc. (Loves) filed for Chapter 11 bankruptcy protection. The bankruptcy petition indicates Loves has between 100-199 creditors, estimated assets between $10,000,001-$50M, estimated liabilities between $10,000,001-$50M, and it believes funds will be available for distribution to unsecured creditors once secured creditors and administrative expenses are paid.
Loves cited warehousing and delivery issues as a major factor in its financial demise. One report indicated the business was “under financial pressure since almost the day it opened.” According to court documents, in April of 2020, without stores, offices, phones, or equipment, not to mention it was the onset of a pandemic shutdown, “Loves was created at the kitchen table of its first employees.”
You may recall, Loves was a successor-of-sorts for Art Van Furniture (Art) which had filed bankruptcy in early 2020. To clarify, I use the term “successor” loosely – the Loves entity was not formed as a result of the Art bankruptcy, rather Loves stepped into the retail holes Art left behind. When Art filed for bankruptcy, it liquidated and vacated its stores, leaving millions in inventory.
In May 2020, Loves entered into an Asset Purchase Agreement for the inventory Art had left behind, which Loves sold for about $7M. Loves moved into many of the vacated Art stores. Unfortunately, several of the vacated stores were dated and required significant work to comply with building code and occupancy regulations.
Contractors, subcontractors, and material suppliers were hired to refurbish these stores. Refurbishments and renovations included everything from repair to buildings where fixtures had been torn out to the tear down and replacement of external store signage. The court document states the total cost of renovation and repair was $4,084,780, some of which remained unpaid at the time of Loves bankruptcy filing.
The Mechanic’s Liens & Getting Paid
Nearly a dozen mechanic’s liens were filed against Loves’ properties in Michigan in December 2020, according to LienFinder™, with claims in excess of $500,000. The top lien claimant was SFV LLGC LLC, a construction management firm. Now that Loves has filed for bankruptcy, how will the claimants recover the funds due to them?
Like many retailers, Loves is involved in tenant or lessee situations. When contracting with the fee simple owner of the real property, the mechanic’s lien attaches to the property itself. When a lessee/tenant contracts for an improvement on real property, the mechanic’s lien may be available against the property, the leasehold interest of the lessee/tenant, or both.
The debtor, Loves, has filed for bankruptcy protection, which means automatic stay orders are in place. The automatic stay prevents creditors, such as the lien claimants, from calling in debts owed.
If the bankrupt party is the tenant, like Loves frequently is, then, where allowed, suit can still be pursued against the fee simple aka the actual property owner. If the bankrupt party is the fee simple owner, not a tenant or lessee, then claimants may not be able to enforce the lien on the real property unless the automatic stay is lifted.
Michigan Mechanic’s Lien Rights
Generally, to secure mechanic’s lien rights on a Michigan private project, a Notice of Furnishing should be served upon the owner, lessee, designee, and prime contractor within 20 days from first furnishing. A late notice may be served, but the lien, when later filed, will be limited to the unpaid portion of the contract at the time the notice is served.
In the event you aren’t paid, you should file your lien with 90 days from last furnishing, then if necessary, and where allowed, proceed with suit to enforce the lien within 1 year from filing the lien.
If you have furnished to an improvement and haven’t been paid, don’t wait – file your mechanic’s lien as soon as possible.