A Mechanic’s Lien Can Prompt Payment
A building material supplier’s customer started delaying payments. The building supplier called me.
After reviewing the files, I determined that documents forming the basis of a written contract existed. This allowed my client to proceed with a Mechanic’s Lien. I promptly prepared and recorded a Notice of Contract and Statement of Account, two elements of a mechanic’s lien.
As the 90 day window in which my client had to bring suit approached, my client wanted to know its options. The building materials supplier wanted to retain its customer, so I presented three options: (1) Do nothing and allow the Mechanic’s Lien to dissolve; (2) File suit to perfect and enforce the Mechanic’s Lien; and (3) Substitute a mortgage for the Mechanic’s Lien.
In order to maintain its business relationship, I recommended that the building materials supplier approach its customer and ask for a mortgage on the customer’s property. However, as a security instrument (mortgage) without a debt instrument (a document establishing the obligation to pay) is meaningless, the customer would need to voluntarily sign a Promissory Note and a Mortgage.
After some communication between the building material supplier and its customer, the customer’s attorney called me. In our conversation I presented their two options: (1) defend a lawsuit; or (2) sign a Note and Mortgage. The Customer’s attorney chose to Note and Mortgage which I promptly prepared.
When a debtor agrees to convert a Mechanic’s Lien (an involuntary security instrument) into a Promissory Note and Mortgage (voluntary security instrument), the creditor benefits.
Unlike the Mechanic’s Lien which is a statutory lien, a Mortgage is a consensual lien. In the context of a bankruptcy, the law favors consensual liens such as Mortgages over statutory or judicial liens. Unlike statutory or judicial liens, a mortgage allows the creditor to require that the debtor subordinate its homestead rights.
A homestead subordination provides up to $500,000.00 of potential equity to the creditor. Simply stated, if a property is worth $700,000.00 and the debtor has filed a homestead ($500,000.00) and has a first mortgage of $200,000.00, no equity exists for either a judicial lien or statutory lien. However, when a Mechanic’s Lien is converted into a mortgage with a subordination clause, now the creditor has a $500,000.00 equity cushion.
The customer did not initially offer a Mortgage to secure the building supplier. Only after I recorded a Mechanic’s Lien and convincingly offered the choice of litigation or a Mortgage, the customer agreed to a Promissory Note and Mortgage to secure not only the principal and interest due on the debt, but payment of my client’s attorney fees and costs.
When it comes to mechanic’s liens, whether you are enforcing or opposing mechanic’s liens, an experienced and knowledgeable attorney is essential to protecting your rights. There is a reason that other attorneys refer their clients to enforce or dissolve Massachusetts mechanic’s liens to me, an attorney with almost 30 years of construction litigation experience.
Take the first step to protect yourself and call Alan M. Cohen at 508 620-6900 or email email@example.com.