You Should Understand Suit to Enforce Your Claim, Because Mechanic’s Liens Don’t Live Forever
What happens after a mechanic’s lien has been filed? The mechanic’s lien will remain in place forever, right? Does a mechanic’s lien have an expiration date? If the mechanic’s lien expires, do I have to file a release of lien, or can I just ignore it?
Often, the filing of a valid mechanic’s lien will prompt payment. In fact, when a notice and a lien are filed as part of a complete process, the claimant will be paid 99% of the time. A lien claim that has been satisfied (paid in full or settled) should always be released. But what happens to the liens on the 1% of projects that aren’t paid?
There’s a Step 3? Proceed with Suit
Generally, the first step to protecting your lien rights is to serve a preliminary notice. Step two is to file, and possibly serve, the lien. Many folks don’t realize the third step, if payment has not been received, is to file suit by the state’s prescribed deadline.
What is Suit?
A suit, or lawsuit, is an action in a court of law to enforce a claim. Is this the same as foreclosure? Foreclosure is a legal action to enforce a lien against real property with the purpose of having the property sold to satisfy the lien.
Suit may lead to foreclosure. During litigation, it may come to light that debts can only be paid if the property is sold & the proceeds are then used to square up the debts. Please understand, it has been our experience that suit does not usually result in foreclosure/sale of the property; more often, during the suit phase, settlement agreements are reached without the need for sale of the property.
When is the Suit Deadline?
The suit deadline is dictated by state statute. Yes, each state is different, but most states calculate the deadline: 1. From the date of the lien filing (this is the most common) 2. From the date of last furnishing 3. From the date the debt became due (typically defined as last furnishing) or 4. From completion of the project. In certain states, the service of a demand to commence suit/notice of contest may shorten the deadline to file suit. Also be aware, in some states, if a surety bond is obtained to take the place of a lien, the suit deadline may change.
As an example, in California, the suit deadline is within 90 days from the recording of the lien.
8460.(a) The claimant shall commence an action to enforce a lien within 90 days after recordation of the claim of lien. If the claimant does not commence an action to enforce the lien within that time, the claim of lien expires and is unenforceable. ARTICLE 6. Enforcement of Lien [8460 – 8470]
Whereas, in Illinois, claimants should file suit to enforce the lien within 2 years from last furnishing materials or services, but within 30 days from receipt of a demand to commence suit.
“Such suit shall be commenced or counterclaim filed within two years after the completion of the contract, or completion of the extra or additional work, or furnishing of extra or additional material thereunder.” – 770 ILCS 60/9, from Ch. 82, par. 9
“Upon written demand of the owner, lienor, or any person interested in the real estate… requiring suit to be commenced to enforce the lien… suit shall be commenced or answer filed within 30 days thereafter, or the lien shall be forfeited.” – 770 ILCS 60/34, from Ch. 82, par. 34
Many states provide the owners with the opportunity to serve a notice to commence suit (sometimes called a notice of contest) to force lien claimants to either take action within a short time period or to go away. This provision allows owners to more quickly weed out invalid claims or claims that will not be pursued through suits to foreclose.
If the Mechanic’s Lien Has Expired, is a Release of Lien Necessary?
As a best practice, a mechanic’s lien that has “expired” or is no longer enforceable should be released.
When a lien is filed, it becomes public record and encumbers the property. Unless a release of lien is filed, the public record will continue to reflect the lien and it will appear as an encumbrance, even if the lien is invalid, expired or unenforceable.
Can an Unreleased, Expired Lien, Be Used as Leverage?
Although I am in the camp that would recommend invalid/expired/unenforceable liens be released, there is another camp that believes the lien can still be leveraged.
I recently read an article, Didn’t Foreclose on Your Mechanic’s Lien? What Should You Do Now?, by Kelly M. Davis Esq. Davis explained that an unreleased, invalid lien was used as leverage or “bargaining power” because the title company discovered the lien in the public record & wanted the lien released.
“If you fail to foreclose, your lien is oftentimes considered “invalid.” … So, where does this leave you? Many times, it leaves you with some bargaining power down the line… I will have a title company contact me asking for a payoff amount for a lien I filed years before. In this situation, there is rarely an argument as to whether the lien is still valid just how much my client will accept to release its lien… “
Again, I’m of the camp that believes a lien, whether satisfied or invalid, should always be released. But, know the options available to you, and weigh those options carefully before proceeding.
In the End, it’s Suit or Release
Once a lien has been recorded, you will need to carefully track the suit deadline. As the deadline approaches, decide whether you want to pursue legal action. If you decide not to enforce your lien, or if you miss the deadline to enforce your lien, take steps to have the lien released. As always, before you make any decisions that could impact your right to get paid, seek guidance.