Liens III

VII. FORECLOSING THE MECHANICS' LIEN.

1. You must start a lawsuit to foreclose the lien within one (1) year of the date of your last work as shown on the Mechanics' Lien Statement.
• The lien expires and can be ignored by a title examiner if you fail to start or join a lawsuit to foreclose the lien within the one-year period.
• Central Builders properly files and serves its Mechanic's Lien Statement. 13 months later, Central's owner drives by the home and sees a new family living there. Central's owner calls his lawyer to find out how that can happen. The lawyer tells Central that because Central's owner did not file a lawsuit to foreclose its lien within one year of its last day of work, that the lien has expired.
• Same example except Central's owner understands it must start the lawsuit within one year. The homeowner calls Central 11 months after the last item of work and asks for an additional 60 days to refinance the home to pay off Central. Central goes so far as to have the homeowners to sign a "Extension" of the one year. To no ones great surprise, the homeowners financing falls through and Central attempts to foreclose its Mechanic's Lien by starting its foreclosure lawsuit 13 months after its last item of work. Central learns the hard fact that even with the homeowner's consent, the Court is "without jurisdiction" to hear to the Mechanic's Lien lawsuit. Even if the Court does not figure out that the one year is past, Central can be assured that the existing mortgage company and anyone else with a claim in the property will figure it out.
2. Foreclosure Process: Start the lawsuit, file a Notice of Lis Pendens, trial, sheriff's sale of property, six (6) month redemption.

VIII. MECHANICS' LIEN WAIVER - CLOSING.

1. Do not sign a Lien Waiver unless you get paid.
2. A facsimile or copy of a signed Lien Waiver is as valid as an original. (Do not believe the myth that faxing or giving a copy of a Lien Waiver to a closing company and then sending the original after you have actually been paid preserves your rights. Anyone can rely on a copy or facsimile of a Lien Waiver as proof that you have been paid and you are waiving your lien rights. See Exhibit D as one way to preserve your rights if you sign a copy.)
3. Use only the attached form of Lien Waiver which includes protection against NSF and stop payment checks. (Exhibit D)
4. Be careful about accepting a personal check from the owner or builder when the owner or builder demands that you immediately give him a lien waiver. Never hold a check for payment until after the closing.
5. If the bank or title company will not accept your Lien Waiver, you should sign their Lien Waiver only if you get a check from them written on their account.
6. Read all lien waivers and contracts, statements, etc., given to you by the owner/builder or the bank to insure that the documents do not contain "hidden language" which could waive future lien rights or subordinate your lien to a mortgage or another lien.
7. The Lien Waiver can also be a receipt. Do not give a "payment in full" lien waiver for partial payment. Cross out and initial all references to "payment in full."
8. Never accept partial payment at a closing!
9. Do not take an unsecured Promissory Note or Note and Mortgage at closing and give up your Lien Rights if the owner/builder cannot pay you in full at closing. You lose a tremendous amount of leverage, you lose the priority of your lien and you will end up fighting with the owner/builder for each payment.
10. General contractors and owners should always specify the account and job to which the payment should be credited. Otherwise, a supplier may apply it to the oldest account where there are no lien rights.

IX. BANKRUPTCY.

1. If your contract is with a general contractor or owner who files for bankruptcy, you can file a Mechanics' Lien, even after a bankruptcy has been filed.
2. Starting a lawsuit against the bankrupt estate or debtor to foreclose the lien is forbidden without the Court's prior permission.
3. Generally, if you do not have a valid Mechanics' Lien and the owner/builder files bankruptcy, you will not get paid. If you have a valid Mechanics' Lien, the property can be sold to pay some, if not all, of the money you are due.