Didn’t foreclose on your Mechanic’s Lien? What should you do now?

Last time we talked about the step one takes to foreclose on their Mechanic’s Lien and the foreclosure deadlines.  This month I wanted talk about what happens if you fail to foreclose on your mechanic’s lien within the time provided by law.   As luck would have it, I was in the process of finishing up this post, when I get a call about one of my clients two+ year old Mechanic’s Lien.  Now hopefully they will be receiving  full payment for the money they are owed.

In order to answer this question and how it was able to work out for my client, you have to know something about the recording process in Texas.  All deeds, liens, releases, and property records are filed in the records department of the county in which your property is located.  Most counties try to cross reference all document recordings through a Grantor, Grantee, and Property index.  What this means is that the document has a filer (which is the Grantor), a person to whom the record is being filed against (which is the Grantee), and attaches to a particular property through legal description and/or address.  In the mechanic’s lien context, the person filing the lien is the Grantor and the person or company to whom the lien attaches (who owns the property) is the Grantee.

Next, it is important to know how documents that have been filed are removed.  First of all, they are never really “removed.”  You can always see what was filed throughout the history of the property.  However, there are various instruments that can be filed to “release” a lien, “waive” rights to a claim, “cancel” a deed of trust, or “order” a lien to be invalid.  So, the question remains “What happens when you file a lien on a property which is not resolved through payment or release and which was never foreclosed upon?”

Throughout time, many people have given their legal opinion on this.  Legally, you have a deadline to file for foreclosure of your lien.  If you fail to foreclose, your lien is oftentimes considered “invalid.”  But is it truly “invalid?”  What happens if a first lien holder forecloses before you?  The law says that your lien is “foreclosed” out.  But does the lien go away?

The answer is that the only way to clear the title and “remove” the lien is to file a document removing such lien.  If you fail to timely foreclose on your lien, your lien document is still on file and is still attached to that property.  If a bank forecloses its’ superior lien, your lien technically is supposed to be foreclosed out, yet it is still on file in the county records and attached to that property.

So, as you can see, this is very complicated in practice.  What the law says is not necessarily what happens in reality.  The county clerk’s office does not have someone pulling liens that are no longer considered valid or that have been foreclosed out.

So, where does this leave you?  Many times, it leaves you with some bargaining power down the line.  Often times, I will have a title company contact me asking for a payoff amount for a lien I filed years before.  In this situation, there is rarely an argument as to whether the lien is still valid just how much my client will accept to release its lien.  This was the situation for the client I mentioned earlier in the post.

Other times, a bank will call us.  They foreclosed on their lien but there is still a cloud on the title which they need to remove (i.e. my client’s lien).  At that point, we enter into negotiations on how much it will take for my client to release the lien.

There are also those times where a demand is made upon you to remove your lien because you have failed to foreclose and the statute of limitations have passed.  In those situations, the lien claimant often times removes their lien without being paid.

Every situation is different.  There are some wins and some losses.  However, by understanding the filing process it helps mechanic’s lien holders understand that there are options past foreclosure.