How to Remove a Mechanic’s Lien – Part 2

Last month we started talking about how to remove a mechanic’s lien if it fell into either the category of a valid lien or an invalid/fraudulent lien. This month I would like to cover a third category of liens which are liens that were once considered to be valid but are now past the Texas Property Code’s foreclosure time-frame.

Generally, this situation occurs when an Owner, builder or General Contractor had financial problems and multiple subcontractors have filed liens on the property. Most of these situations involve an Owner / General Contractor or Builder being substantially the same person, i.e. they are owned by the same person or entity but might have different corporate names. In situations where the financial conditions were so dire that multiple liens were placed on property, the property often is foreclosed on by the financial lender. At the foreclosure sale, the Lender will attempt to auction the property and generally opens the bidding at the current value of the existing loan on the property plus interest, penalties and attorney’s fees. At the foreclosure sale, the purchaser takes the property subject to any liens which are not considered “inferior” to the Lender (which by the way is the subject of heated debate). The second alternative is that no one successfully bids at the Foreclosure Sale, the Lender purchases its own loan and then the Lender later sells the property to a subsequent purchaser.

If you purchase the property at a foreclosure sale, you will definitely end up having to figure out how to obtain “clear title” to the property. If you purchase it from the Lender directly and not through a foreclosure sale, you could possibly have trouble obtaining a loan to purchase the property thus requiring you or the lender to obtain “clear title” to the property.

These situation can be messy and not for the faint of heart. The best way I have seen to clean all these up is to notify all of the lien holders that the home was purchased at the foreclosure sale by the Lender or a new owner. The bank / owner would want to demand that the lien holder release its lien. If the bank / owner has some cash and some room to play with it is always good to offer some sort of settlement (for instance .10-.25 cents on the dollar) for a sworn affidavit releasing the lien. The bank / owner would need to threaten the lien holder that failure to come to an agreement or remove the lien would necessitate the filing of a lawsuit against them for improper cloud of title. The only way this would truly work would be if the statute of limitations had run and the lien holder was truly not able to foreclose their lien out. This can get complicated because industrious attorneys can always try to find ways to say that their lien was not truly “inferior.” If it was another lien holder that foreclosed the lien instead of the bank, the question of whether or not the other lien holders’ liens were “inferior” to the foreclosing lien holder can get even more complicated.

Generally, you should know that the limitations are as follows:

• Non-Residential – 2 years after last day claimant could have filed lien affidavit or 1 year after completion / abandonment / termination of original contract, whichever comes last.

• Residential – 1 year after last day claimant could have filed lien affidavit or 1 year after completion / abandonment / termination of original contract, whichever comes last.

• Bond on Lien – 1 year from notice of the bond filed.

In conclusion, buying foreclosed properties, whether they be lender or other lien holder foreclosures, can be a messy and complicated process. There are generally methods of trying to obtain clear title. However, they can only be successful if your purchase truly wiped out their lien pursuant to the Texas Property Code and subsequent case law. Additionally, these methods can be time consuming and costly. If there are liens on the property you purchased, you are probably going to have a hard time getting a title policy on the property without having the liens removed or released. The only way to do this would be to (1) come to an agreement for the release by the lien holder; or (2) obtain an order from a Court declaring the liens to be invalid and entering an order removing them from the county deed records. For instance, if there are 25 mechanic’s liens, you might be able to find 15 of them and convince them to release their liens. However, that still leaves the other 10 lien claimants that you will eventually have to sue to try and obtain an Order removing them from the property.

Remember, it is best not to go into these transactions blind. Have a title report pulled prior to purchasing the property and consult with your banking, title and legal advisors to make sure that you would be able to obtain clear title on the property if you in fact purchased it.

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