Collections: Mechanics Lien voided by Old Work

Mechanic’s liens are strictly governed by statutory law. This fact is well illustrated in the case of Johnson v. Tadlock.  In Johnson the Fairfax County Circuit Court ruled that a mechanic's lien that included work performed before the 150-day statutory window was invalid in its entirety. Under the mechanic's lien statute, a memorandum of lien should not include any sums due for labor and materials furnished more than 150 days prior to the last day of work. However, the Court's decision in Johnson appears to be the first in which a Circuit Court has struck an entire lien based on the inclusion of stale work.

In Johnson, the Court found as fact that a workman filed a mechanic's lien for $15,500 for various work, including lot clearance, removal of trees and installation of a storm drainage system and caissons. The property owner sought to have the lien released based on its inclusion of stale work. A portion of the lien (amounting to at least $1,500) was for work clearly performed within the 150-day statutory period. The property owner asserted that all or a part of the remainder of the work was performed more than 150 days prior to the workman's last day on the job.

The Court ruled that the inclusion of a stale claim tainted the entire lien. The Court cited language in the mechanic's lien statute "no memorandum... shall include ....," to support his position. The Court pointed out that mechanic's liens are "creatures of statute" and therefore need to conform strictly to their statutory requirements. Accordingly, the court refused to remove the improper portions of the claim and rule on the proper portion of the claim - it survived or perished in its totality.

The lesson of Johnson, as the lesson is in so many cases, obtain competent legal advise and representation in pursuing mechanic's lien claims.

Foreclosure: Foreclosure Sale Deficiency Actions

Frequently there will be a deficiency balance after the sale is completed and the accounting is done. The account of sale will set forth the distribution of the sale proceeds and also establish any amounts remaining due on the indebtedness following application of the net proceeds from the foreclosure sale. This deficiency amount is usually recovered by a personal judgment against the maker of the promissory note or other obligors on the indebtedness that was secured by the deed of trust. An action to recover the deficiency balance remaining after a foreclosure sale need not be brought on the chancery side of the court and may properly be brought as an action at law.  A plaintiff’s action to recover on an assumed promissory note may be maintained as an action at law even though the plaintiff is not named in the deed of trust.

Real Estate: Using Real Estate to Secure Your Debt

Many fail to recognize the benefit of using real estate to improve their position as creditors. Properly securing debts through real estate could make the difference between collecting the funds and incurring a loss.

Securing debt with real estate can occur in several ways: deeds of trust, judgment liens, homeowner association liens, mechanic’s liens and lis pendens in litigation cases, just to name a few. In the upcoming issues of Creditor News we will explore these, as well as the ways that I can assist you.

We have experienced attorneys and staff who can examine title, do real estate losings, seek judgment and docket and enforce the same, and prepare and enforce statutory liens, such as those for litigation, homeowner’s associations and mechanic lien situations.

Bankruptcy: Preferential Transfer - Purchase Contract

In the case of Sigmon, Trustee v. Royal Cake Co. the United States District Court at Charlotte, North Carolina, reviewed a Bankruptcy Court ruling granting a trustee's objection to the return of a down payment on a purchase contract as an improper preferential transfer.

The District Court found as fact that the debtor was the seller of certain machines who returned to a buyer corporation that corporation's down payment on a contract for the purchase of machines.

The buyer corporation claimed that the down payment was collateral held in trust by the debtor on the buyer's behalf, and that, under North Carolina property law and federal bankruptcy law, the seller of the goods does not hold a property interest in such collateral.

The District Court concluded that the Bankruptcy Court made a proper finding that the debtor did have a property interest in the down payment, and that the return of the payment was made on account of an antecedent debt for the benefit of the creditor. The District Court further concluded that the buyer corporation's claim that the payment was mere collateral or a deposit was flawed because the payment was actually the first payment for the machines purchased. By sending the payment check, the buyer was fulfilling its obligation under the sales contract, not merely guaranteeing future performance of its payment obligations. Once the debtor deposited the buyer's check into its own bank account, commingling the money with its other funds, the debtor had a right to withdraw, transfer or otherwise use the payment funds in any way it wanted.  The debtor's ability to exercise complete dominion and control over the funds was sufficient to demonstrate an interest in property under the preferential transfer provision. Therefore, the Court concluded, the return of the down payment was a transfer of an interest of the debtor in the property.