Feedback about Mechanical lien

[Manveer Atwal]

Hi everyone,

This is my first post on BP as I am looking to venture in to the real estate investing world! I've been a broker for a while now but am ready to start fixing and flipping. Here are some notes i got from a listing broker related to a property I found in WA and would like some feedback and hear what the forum's thoughts are, and which next steps would be appropriate. The house is about 75% done and just needs interior work on the flooring, kitchen, and paint.

A little history on this property - Seller purchased in 2019 with intent to flip it. He had an acquaintance who was a contractor and they had a handshake deal to do the work on the property. Contractor got started and then took off with a portion of the money in early 2020. Seller used a hard money loan to purchase the property and was not able to find someone else to complete the work, so he listed with another agent in the fall of 2020.
I was not that agent, so I don't know exactly what happened - if maybe they had trouble getting short sale approval? Not sure.
The house didn't sell and my client ended up filing bankruptcy in December 2020. The bankruptcy court did their due diligence, of course, to find any outstanding debt that would need to be managed by the court.
Speed up to October 2021 and I started working on the property. We listed it, went under contract and got both short sale approval AND bankruptcy court approval.
The day we were expecting to close, escrow sent it to the county and about an hour later, title came back and said we were not clear to close. They wanted an affidavit from that contractor stating there was no unpaid work outstanding. Clearly, that's not an option since the contractor took off and was unresponsive. (I had a lengthy conversation with the city permit department, and apparently this contractor is notorious for accepting money for work and taking off. They said he and any company he's associated with are no longer allowed to pull permits in the city).
After lots of back and forth with title, we reached a compromise:
Title will insure at closing, but for the first 90 days, any mechanic's liens that come up will not be covered by title. On day 91, that exception can be removed.
As there are no mechanic's liens currently, no signed contract between contractor and seller and no attempts made to collect any debt during the bankruptcy court's due diligence, I think it is HIGHLY unlikely that anything will come up, but that is a risk the buyer must take.


As it stands, the short sale approval and bankruptcy court approval are still good - we just need to find the right buyer.

Thank you in advance!