University:
Indiana University Bloomington
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

52

Pages:

2
Author:

bratrochanter

Mechanic’s and Materialman’s Liens, Priorities, and Foreclosure 1. Mechanic’s and Materialman’s Liens: o These liens secure payment for labor or materials supplied for property improvements. To claim a lien, specific requirements vary by state but generally include filing a notice with details about the work, contractor, and property description within a limited period (often 3090 days after the last work is completed). o The lien must be foreclosed within a set time (6 months to 2 years in most cases), or it will lapse. 2. Priority of Mechanic’s Liens: o Mechanic’s liens generally have priority over subsequent liens or encumbrances, dating back to the start of the work or the supply of materials, creating a “hidden” lien period where third parties may not be aware of the lien. o In cases with multiple claimants, most statutes provide no prioritization among them, though claimants may have priority based on the earliest unsatisfied lien date. 3. Case Study - Mutual Savings Association v. Res/Com Properties, L.L.C. (2003): o This Kansas case dealt with a dispute over lien priority between Mutual Savings (the lender) and subcontractors LRM and Modern, who performed work on the Whispering Meadows development. o Peridian, an engineering firm hired before Mutual’s mortgage was filed, conducted preliminary surveying and design work, which LRM and Modern argued should grant their later liens priority by “relating back” to Peridian’s work. o Kansas law supports that a mechanic’s lien can attach as of the date of the first lienable work performed on the project. The court found that Peridian’s preliminary work qualified as lienable, establishing the lien date as prior to Mutual’s mortgage, thus granting priority to the subcontractors’ liens over the mortgage. o The decision emphasizes that preliminary work enhancing property value—like Peridian’s surveying—can trigger lien priority for later subcontractor liens. Waivers of Lien and Foreclosure Procedure 1. Waiver of Lien: o Some contracts include provisions waiving lien rights, but enforceability varies by state. In certain states, waivers are effective only against the primary contractor, not subcontractors or material suppliers. Property owners often require contractors to sign affidavits confirming all subcontractors have been paid and to provide lien releases before final payment. 2. Foreclosure of Mechanic’s Liens: o Foreclosure of a mechanic’s lien on real estate follows a process similar to that of a mortgage foreclosure. The lien typically attaches to the improved property portion only. o Some statutes specify that the lien attaches to both the building and surrounding land, while agricultural property liens may extend to a defined land area. o Key Takeaways on Priority, Notice, and Liens    The priority of mechanic’s liens is generally determined by the date of first lienable work, and unrecorded liens within statutory periods can create hidden encumbrances. Courts tend to interpret lien statutes liberally to protect labor and material contributors, ensuring they have secured rights to payment. Mechanic’s liens require precise adherence to statutory filing and foreclosure timelines to remain enforceable, reflecting a balance between securing contractor rights and providing transparency for property owners and lenders.