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Mar 13 2014 |
What do I need to know about mechanics liens? (Pt. 1)By: ValidateNow.co The unfortunate reality of doing business is, often time’s businesses find themselves being held hostage by customers who refuse to pay. What makes this problem worse is that there are very few good options open to businesses to encourage a consumer to pay. One option that is open to some businesses is a mechanics lien. These liens are sometimes not fully understood by the business in terms of what they do, and what is required of the business to make the lien effective. Let’s explore some of the basics. Mechanics liens are a way of attaching an “I owe you” of sorts to a consumers property. So essentially you are attaching your claim of debt to the consumers’ real property by filing what is known as a “lien” in the town land records. Once all the appropriate paperwork has been filed, recorded, and the consumer has been appropriately notified, the lien will become part of the public land records. If the property is sold or refinanced within the time the lien is active (one calendar year), the consumer will need to satisfy the lien before the closing of any transaction regarding the property attached to the lien. There are several problems with this however. A mechanics lien is only good for one year. Once the year has expired the lien is no longer in effect; additionally, you cannot not reissue the lien. If no action is taken within the year, for example, the consumer wants to sell the house, then no action will be taken on the lien. Moreover, if action is taken within the year the lien is in effect, say for example by the mortgage company to foreclose on the consumer, you will be in line to be paid only after the first mortgage is satisfied, and any other mortgages on the property and any lines of credit. Additionally, if you are one of say four people who have filed liens against the same real estate, you will be paid in order of who served the lien first. But, if no one begins a foreclosure process, you will have to be the one to bring foreclosure on the property in order to enforce the lien. So, it is a very real possibility that if the property was to be foreclosed, you may end up in a situation such as this: The house is sold at fair market value for $350,000. There is $300,000 remaining on the first mortgage, a line of credit for $30,000, property tax due of $5,500, utilities and insurance of $4,000 leaving a total equity of $10,500. This will go towards paying for the court and filing fees, and the lawyers. Then if there is anything left, you will be paid out in the order in which you filed your lien provided others have filed liens on the property as well. Not the panacea you were hoping for, and consider how much you have just spent in legal fees, because the only way this happens is if you, or someone else forces the foreclosure on the property, and that can only be done with the assistance of lawyers. Mechanics liens do have their place, and can be a useful tool, especially if you are talking about large sums of money, and it’s worth the cost of the legal fees. However, in situations where the dollar amount is somewhere south of $40,000, using a service like Validate (Validatenow.co) may be a quicker and more effective solution. Validate creates a platform that encourages your customer to pay without the expensive legal fees. Validate is itself a solution for payment, not a threat of legal action, so for this reason, Validate may be a better initial solution to resolving the outstanding debt, rather than threatening legal action. The reason Validate is so powerful is because it makes your consumer’s debt public to all validate members for up to seven years, putting a significant burden on those consumers who decide not to pay their bill. A lien is only public knowledge if you search the land records at town hall. Given a membership to Validate is less than what it would cost to file and serve a lien, it is also much more cost effective than any option provided by the legal system. DISCLAIMER: I am not a lawyer, nor do I represent that I am practicing law by providing this information. I am however, educated on the subject and have consulted with lawyers on the subject for the purposes of writing this article. The information within this article is intended to be generic, but understand that each state has its own laws that may differ slightly. Please consult your states laws before taking action. Add your comment (for display after moderator approval) |
