What does the board need to understand mechanic privileges?
Benjamin Tracy, Braverman Greenspun
Suppose a cooperative hires a salesperson to do facade work, who damages the building in the process. The council decides to withhold a large sum and is given a privilege of mechanic. How will this affect the building?
The lien filed becomes what is commonly referred to as a cloud over the title or chain of title of that property. And he travels with the earth. And what that means is that the lien would be transferable to any subsequent purchaser, and then the subsequent purchaser of the property would take that lien property.
Would the lien appear in the buyer’s application to a bank and is there a possibility that they will not get funding because of it?
He would arise. As for the funding, it would depend on the amount of the lien, which means that a low five-figure sum probably wouldn’t be too controversial. If it’s a million dollars or more, it can give a potential shareholder and their bank a break from signing the property lease. Often times, they will say that the problem needs to be resolved before they finalize any deal and actually take the actions.
Does having a mechanic’s privilege on your building affect insurance rates?
Again, it depends on the extent of the liability. But any sort of liability will trigger an insurance review at a minimum, which would likely impact insurance premiums if the lien amount is large.
Let’s take a step back. What exactly should a board of directors do when a seller grants a mechanic’s privilege to their building?
So obviously, because it’s a legal document, you’re going to want to consult your. Advice. I always like to say that with mechanic privilege issues, a board needs to be both proactive and reactive. When I say proactive, I mean that whenever you contract with a vendor or contractor, you’re going to want to make sure that they have a requirement for the distribution of a waiver of lien. A lien waiver is essentially an attestation from the contractor or supplier that will say, “Provided you pay for these services or supplies, no lien will be filed, as payment will be in full satisfaction for all work performed.” ”
Would a waiver apply if a contractor damaged the building and council refused to pay?
No. In your specific example of the window damage issue, the waiver of privileges wouldn’t necessarily apply because, in the end, payment is simply withheld. So this is a scenario where we can pivot to the reactive positions that a board can take. The first consideration is business-centric, meaning it’s cheaper to pay for the lien or hire a lawyer to fight it?
Another consideration is that the mechanic’s lien is a receivable, which means the creditor says the owner owes money for certain materials or services provided, and it’s in the county clerk’s file. It is deposited as collateral, which means that the debt is guaranteed by the chain of custody. The council can obtain a bond, usually at a fraction of the cost of the total lien amount, from a surety company, and post that bond with the county clerk. In this way, you replace the bond with the surety. The surety is held by the county clerk until the lien is resolved, but your chain of title is cleared. It is a much cheaper alternative to paying off the entire debt claimed.
Of course, the entrepreneur always wants to get paid, so somehow there has to be a resolution. But the obligation saves you time.
Exactly. There is a limitation period, which means that a contractor must file the lien notice within eight months from the last date the services were performed or the materials were supplied. If the contractor is late, the lien must be canceled as of right. So it is very important that the co-op and their lawyer review the lien to make sure that there are no technical flaws like this limitation period problem, because if there is, it is a way. quick and easy to cancel the privilege.
I always recommend that once you have a lien, the board require the contractor to provide a full and detailed account of what includes the amount of debt set out in the lien within five days. If the contractor fails to do so, the board can go to court and seek an order quashing the lien or ordering the presentation of a detailed statement. Without the detailed statement, you will not have a full understanding of what you are going to be facing in court.
With respect to the lien itself, once it is filed, the entrepreneur has one year to initiate foreclosure proceedings. Failure to do so would be fatal to that privilege, which means that the privilege would be canceled. The contractor can always ask for an extension, but he will have to present a valid reason to the court.
When you say lien foreclosure, what does it actually mean?
This is a procedure in which the contractor takes his lien and any supporting documents, files a petition with the court and asks a judge to find that you have carried out certain work or supplied certain materials and that you have not been paid, and that you have a legal right to recover what you are owed. Because a lien applies to real estate, a judge can technically order the property to be sold to pay off the debt. This is obviously a very rare case. The judgment is essentially on a certain amount of money, and the property owner will be obligated to pay it.
So once a board buys a bond, will it have to do some sort of negotiation to avoid foreclosure proceedings?
A lien surety bond is such an inexpensive way to erase your title, avoid insurance issues, subsequent buyer issues, and lender issues. Once done, your only responsibility is that you will have to pay the full amount if you lose in court. If you don’t have any pressure from your insurance company, a board might just say, âLook, we’re going to wait for this for a year and see if the contractor rules out. If he does not, the privilege is canceled. . “
Alternatively, if their carrier says that the premiums will increase by $ 1,000 if the lien is not resolved, the board may become aggressive and ask the contractor to pursue this foreclosure mechanism. And once that request is met, the contractor has 30 days to do so. They need to have their ducks in a row, start filing, and start legal proceedings. So that’s another pressure tactic. The only concern is that more likely than not they will start foreclosure and start litigation. The incentive, however, is that rather than having the privilege a year before filing, you can really shorten that up and just try to resolve it ASAP.
Are there other things boards of directors need to know about mechanic privileges?
They need to know whether the creditor has a clear legal right to the funds or to the debts. So, going back to the damaged windows example, if the contractor damaged property and did not repair it, he is responsible for the breach of the contract and he is not clearly entitled to the debt. And if the lien is what is called willfully overstated, that is, they are not entitled to the amount provided for in the lien, the damages are triple. So if a board has increased its premiums, lost potential buyers, and is unable to secure loans, you could sue the entrepreneur for that three-fold amount. Now whether a judge actually grants this and forces a settlement is another question. There are a lot of things in the legal process that entrepreneurs try to take advantage of.