Possible to take control via mechanic's lien on pre-foreclosure?

Question

Hi
 guys. House worth about 1.7m is being foreclosed on in Fulton County,  
Georgia. City of Atlanta. Lender balance about 1m. Contractor has a  
mechanic's has a lien on the property for @200k. I believe the mechanic's lien was
  filed properly by a big law firm but is well aware that his lien will be extinguished if the first completes foreclosure. From what I can tell the contractor 
 did the work and the house looks great.  Strategy to take control? Any 
 leverage value to buying the mechanic's lien for a discount? Doesn't  
that lien have right of first refusal to buy out the underlying debt at 
 balance owed or something like that?

Dion DePaoli · Answer

The lien is a junior lien and does carry rights to foreclose. Whether the lien will grant possession or not depends on bids at foreclosure sale or redemption. It could go either way but title would be taken subject to the senior lien post action.

The lien gives you an interest in the real property which protects the value of the lien and gives you a right of redemption just like any other interested party like the owner. The right of redemption is not a right of first refusal. You have a right to redeem not a right to be the first redeemer.

A mechanics lien does carry some rights once filed which allow the lien holder to protect their interest but not quite to the level of a mortgagee and varies by jurisdiction. So you may not be able to make advances and claim those advances against the property and owner. Check with your local counsel on those ideas like advancing to pay taxes.

Could it be a good investment? It could be. It won't guarantee you gain possession of the property as the lien holder is only due amounts due under the lien. Another bidder could buy it at auction and you are done. Obviously, the owner could simply redeem the lien by selling or simply paying for it. Both of those mean you get paid though.

Account Closed · Answer

Just to clarify:  you are talking about a mechanic's lien only?  Not a judgement in favor of the contractor, correct?

If so, what are the timelines in your state to perfect a mechanic's lien?  Like Wayne said, a mechanic's lien is only an accusation. Only a court can turn it into a judgment.  There is a required time line to do so. Sometimes mechanic's liens are used to make the property appear falsely encumbered.

When was this mechanic's lien filed and what's the timeline in your state to perfect it?

Wayne Brooks · Answer

@Michael Garrison You're probably referring to ruling involving BK stripping of a second.

@John C. Be aware, a mechanics lien without a suit and a court judgment, while still a lien, it is just an accusation at this point.  There could be any number of procedural defects that make the lien invalid, or the lien could be exaggerated.  Until there is a judgment on the lien, it is suspect.  State laws vary of course...here, if the lien were contested and the lienor didn't file suit within 60 days, the lien is no longer valid.  You as an outsider would have no way of knowing this.  The lien also likely expires at some point if the follow up suit is not filed in a timely manner.  The point being, while it is a "lien" it's not a rock solid lien like a second mortgage.  But more directly to your question of "taking control"......no, the dog still wags the tail in this case.

Michael Garrison · Answer

Although I am not 100% ceartain, I have recently been made aware of a new Supreme Court decision concerning BoA  on second position mortgages. Might be worth investigating the opinions.

Richard Balsam · Answer

Here is another angle. Contact the foreclosing attorney's office to see how the contractor can either be added to the balance at the auction, or...go to the auction with a lot of capital and buy the 1st mortgage at the steps. If the contractor can raise the necessary funds - either he will bid for the home at the foreclosed amount and win, or in theory, if in a bid situation - (I doubt it if the mortgage amount is large) - maybe someone else can bid the value of the home greater than the first mortgage balance and he can recoup some his costs. This assumes there isn't another lien holder on the property looking to recover costs at the auction. If he wins at the auction - sell the home to recover his costs.

Scott Carder · Answer

Been there done that. I had a mechanics lien on a nice new construction for my plumbing services. I ended up with squat. The builder had borrowed from the developer to build. Developer ended up foreclosing on builder.  I would stay away from it.

Jay Hinrichs · Answer

@John C.  Very state specific.. a decent lawyer who deals with construction should be able to advise you on this in a 30 minute phone call.

In most states materialman liens are junior to anything in front of them IE construction loan.

In our great state of Orygun though a properly filed and executed Materialman lien is a super lien and takes priority over any other lien except tax's.

Having lent HML in Orygun I learned this one as a baptismal by fire and for these reasons this state is one of the best to be a GC or sub contractor.. Now most subs and contractors though don't follow the lien protocol so if they don't get paid then they have to file an action for un Just enrichment which buggers title but becomes a second position.

I have seen these go to sale ,,, they are sherrifs sales but I have never personally bid on one.

Luis Montanez · Answer

I would also make the attempt of negotiating the price with the bank prior to buying the lien. I would not want to find myself without exit options if the bank does not want to negotiate price or terms.

Luis Montanez · Answer

good question.. following. All that the best answer will be provided by local real estate attorney. Please share your final answer

Possible to take control via mechanic's lien on pre-foreclosure?

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