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Discussion Starter · #1 ·
Thread inspired by another thread with a 1.5 million dollar mechanics lien.

Although there is much I do not know, I am interested in discussing the subject of foreclosing on mechanics liens in more detail.

The full face value of a mechanics lien will be recovered with interest and costs when the property is sold, sometimes when refinanced or when foreclosed upon.

Foreclosure can be commenced after the state law defined waiting period to force payment or transfer of title. Without looking it up, I think in my state the foreclosure process is about a year and half.

Strategies

1. SELL YOUR LIEN - Mechanics liens have a value that can be sold to investors (at a very substantial discount) much like tax liens to recover some of your money.

2. FORECLOSE ON YOUR LIEN - You can foreclose on mechanics liens, take title to the house and sell it to satisfy the lien in full with interest and costs. State law dictates the procedures and limitations so it will vary across the country. Very often the debtor pays up if they can to stop the foreclosure. They can be required to pay all costs as well.

3. PARTNER WITH INVESTOR AND FORECLOSE - I have done this with my attorney before. His time, my lien.

Whether foreclosing on a mechanics lien is worthwhile depends on the equity in the home once all other liens senior to the mechanics lien, if any, are satisfied.

4. PURCHASE OTHER LIENS AT A DISCOUNT TO CREATE MORE EQUITY - In my experience as a real estate investor years ago, senior lien holders will often sell out at a decent discount of 15 to 50% to cash out of a problem debtor.

Junior lien holders during a foreclosure process will usually take a very substantial discount of 75% or more for their lien if it is junior to your own because they are facing getting wiped out by your foreclosure. There are few reason to buy out junior liens but I found a few over the years like taking title thru negotiation prior to foreclosure from a now willing debtor.

Those discounts create substantial equity that you do NOT have to give back to your debtor because you own the original FACE VALUE of any liens you paid for at a discount and they must pay face value to you.

I mention this because some established contractors dabble in both real estate investing, flipping homes and other financial investments.

I look forward to a detailed discussion. Hopefully no one will yawn and pass by :laughing:

I repeat, there is much I do not know but I think the discussion will have relevance for some members that dabble in real estate or want to force the debtor to pay.
 

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Accidental Painter
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Very interested in this topic. I know nothing. I have a lien, but also a lawyer. So I am in the dark.

We filed the lien in january, go to small claims next monthish... (all they owe me now is $100 it was $6k)

So your saying after we get our judgement what next?
 

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Discussion Starter · #3 · (Edited)
Answer based on NY state laws

I had a collector that collected my rental property judgments from dead beat tenants. He was a former IRS employee that collected for them. He had repossessed their vehicles. That got their attention and they paid up. :eek:

Your judgment is very small. For a hundred bucks I wouldn't even leave my house. In the time it takes to collect a hundred bucks you could easily go sell a new customer and fugedabowdit. :no:

If it was six grand I would be all over it researching their equity to see if it is worth foreclosing on their real estate. If they have substantial equity in their home then you may be able to get to it thru foreclosure and take title or motivate them to pay up so they don't lose their equity. It is a matter of motivating them to pay you or else lose much more than your lien in a foreclosure. I think it costs a few grand these days to foreclose and takes about a year. Specialist can do it for less.

The big profits are in investigating the other liens and then buying them out for substantial discounts. That is a way to create equity that is yours to keep. You are entitled to the face value of those liens even though you can usually invest in them for much less than face value.

If they have other assets like vehicles or an RV and it is part of their non-exempt personal property it can be repossessed thru the local sheriff to satisfy your judgment.

The process is tedious but pays off in the end when they come out and see their vehicle being towed away. That is very motivating :laughing:

Once the paperwork is processed and the sheriff goes to their house and says do you have the money to pay this judgment. If the answer is no then they tow the vehicle and auction it off. Their vehicle does not bring much and that is all the better because they still owe the deficiency and got hosed on the auction value of their vehicle.

That gets them motivated to pay up. You can also garnish wages. If they don't pay then their employer gets a notice and is required to remit 10% of their net pay each pay period until the judgment is satisfied.

Hopefully they are not at the height of their career at Burger King or working under the table at a whore house.
 

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Accidental Painter
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ok shoulda clarified: not residential work.

Apartment complexes.

Yeah, I aint sweating the hundred bucks, just glad i got my $6k. But it sure would be nice to own an apartment complex haha.

So after the small claims judgement, what is your next step? I'm sure my lawyer will do whatevers next, but they don't answer questions. Kinda like keeping the process a secret i guess.

Can't really complain too much, they got results.
 

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Discussion Starter · #5 · (Edited)
So after the small claims judgement, what is your next step?
Transcript of judgment you get from the court if you ask or sometimes automatically or at a later date by mail. (depends on the court and judges personal habits)

Transcript gets taken by you or attorney to the county clerks office where it gets recorded and becomes a lien against the property. At this point you have the legal right to begin collection actions against real and personal property thru the sheriff's office civil division to collect,

Once these are started the debtors will usually pay because it is less of a hassle than ignoring it and have the costs ratchet up. If not keep the hammer down and take it all. :laughing: That could be funny and it couldn't happen to a nicer bunch of deadbeats.

The approach needs to be fullest extent of the law since that is the only way to get the attention of a lazy debtor with a sense of entitlement.
 

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Answer based on NY state laws

I had a collector that collected my rental property judgments from dead beat tenants. He was a former IRS employee that collected for them. He had repossessed their vehicles. That got their attention and they paid up. :eek:

Your judgment is very small. For a hundred bucks I wouldn't even leave my house. In the time it takes to collect a hundred bucks you could easily go sell a new customer and fugedabowdit. :no:

If it was six grand I would be all over it researching their equity to see if it is worth foreclosing on their real estate. If they have substantial equity in their home then you may be able to get to it thru foreclosure and take title or motivate them to pay up so they don't lose their equity. It is a matter of motivating them to pay you or else lose much more than your lien in a foreclosure. I think it costs a few grand these days to foreclose and takes about a year. Specialist can do it for less.

The big profits are in investigating the other liens and then buying them out for substantial discounts. That is a way to create equity that is yours to keep. You are entitled to the face value of those liens even though you can usually invest in them for much less than face value.

If they have other assets like vehicles or an RV and it is part of their non-exempt personal property it can be repossessed thru the local sheriff to satisfy your judgment.

The process is tedious but pays off in the end when they come out and see their vehicle being towed away. That is very motivating :laughing:

Once the paperwork is processed and the sheriff goes to their house and says do you have the money to pay this judgment. If the answer is no then they tow the vehicle and auction it off. Their vehicle does not bring much and that is all the better because they still owe the deficiency and got hosed on the auction value of their vehicle.

That gets them motivated to pay up. You can also garnish wages. If they don't pay then their employer gets a notice and is required to remit 10% of their net pay each pay period until the judgment is satisfied.

Hopefully they are not at the height of their career at Burger King or working under the table at a whore house.
And that is why there are so many check cashing places...for the hundreds of thousands of people who have judgements. Even the dumbest can hide from judgements these days.
 

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Accidental Painter
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Polebarn: awesome thread! I always just hand it over to lawyers, but never researched the whole process.

Been browsing google over the last few minutes, & your right. I could seriously have some fun with this!

Wouldn't that be hilarious to foreclose on an apartment complex?

Here in indiana we file the lien & small claim suit simultaneously. Then goto court. After that we have a year to foreclose.

I should instruct my attorney to foreclose immediately for that last $100 out of fun.
 

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Discussion Starter · #8 · (Edited)
:thumbup:

You can purchase liens from other lien holders on any property you want and foreclose. It is called an assignment where you inherit the same rights the original lien holder has.

First thing you should do if you find real estate you want to invest in is to see if there is a senior lien on it in a position with lots of equity. Buy it and foreclose wiping out all liens in a position junior to yours.

The joys of learning.

Keep in mind collecting a money judgment thru the sheriff and foreclosing on real estate are very different processes but both can be amusing if you like to make settling scores expensive for an unreasonable opponent for the sport of it.
 

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Wouldn't that be hilarious to foreclose on an apartment complex?
Recently filed suit to foreclose on a mechanics lien on an apartment building, 1 of 3 right now. If it goes to trial we will include the other 2 buildings. Total of about $13,000

Do you guys feel that they ( unit owners ) will be able to get a loan for improvements on their units?
Sad part about this, is my beef is with the Condo Association and management company ( also defendants in the suit). The unit owners are stuck in the middle.
 

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John the Builder
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Recently filed suit to foreclose on a mechanics lien on an apartment building, 1 of 3 right now. If it goes to trial we will include the other 2 buildings. Total of about $13,000
Been there, done that.

Do you guys feel that they ( unit owners ) will be able to get a loan for improvements on their units?
Yup.

Sad part about this, is my beef is with the Condo Association and management company ( also defendants in the suit). The unit owners are stuck in the middle.
Oh hail no! Those poor innocent unit owners - they voted for the bastiches whut got them into the mess.

Associations and the corrupted management companies find each other - ALWAYS.

By now grasshopper, you should know to put enough onto the bottom line to make up for the interest your non-payment isn't giving you.

Either that, or jump in with both feet and become part of the mob family.

As both a condo builder and as a condo owner - I've seen things that made my hair AND my teeth curl. These peeps must have a fraternity someplace- they must!

Ride it out and stay busy doing other stuff - it'll just ruin your health otherwise.
 

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Discussion Starter · #11 ·
It is worth exploring in your state if you can go down two legal collection forks or choose one over the other that is best because there are two.

1. Place and prefect a lien and foreclose on real estate
2. Get a money judgment and collect thru seizing personal assets and wage garnishment
3. Both

Check to see if your lien can be placed against personal property, In NY non-exempt personal property can be seized to satisfy money judgments. I am curios if a mechanics lien against real estate can be perfected and end up as a money judgment against personal assets.

In NY you are entitled to 10% of each paycheck. Consider what your customers paychecks are averaging. If both spouses are on the contract and the judgment is against both of them then you should be able to collect against both of them at the same time.

To be clear, you can not collect more than what is due even if you are using multiple avenues so don't get too excited.

Creating stress employing multiple forks of collection might motivate a debtor to pay up because it is easier than all the hassles like having their vehicle towed away by the sheriff to auction off. I can tell you from experience with deadbeat tenants that towing their car away gets their attention real fast.

Also in NY the debtor has 30 days to pay without an employer involvement. IF the debtor does not pay you place a retraining order against the employer and they are required by law to send you 10% each pay period.

Also you can send an information subpoena and restraining order to the debtors bank and seize their checking, savings and investment accounts from their bank.

It's worth noting the bank, address and account number of the first check you receive in case you need to execute collections in the future. Also note multiple accounts every time you get a check since many customers are transferring funds from other accounts or using more than one account.

Having the account number, bank, employer and other handy information needed to collect swiftly is smart so pay attention and jot these notes down as your customers are volunteering facts in case they stiff you later you will have it all to use for collections.

There are also ways to prompt information sharing thru conversation. Think about what you need and get it up front while the relationship is cordial and enthusiasm high.
 

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Thom
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You make it sound easy, I've been through the entire process twice. It is slow, expensive, and stressful.

There is an order to liens, generally the order in which they were filed. Most properties already have a mortgage, many a second. Perfecting a lien is a lawsuit against the owner, the lien is merely notice of a claim.


So, you sue to collect on your lien and win. Assuming the property is then auctioned, the first mortgage holder will bid their lien, the second mortgage holder might bid their amount plus the amount of the first. In order to actually get the building you will need to bid (and pay) enough to pay off all liens that are senior to yours.

Property taxes are always senior even if they are from a time after you file. There may be additional senior claims. You will need to do a title search after filing your lien.

Of course you will be paying your lawyer all along the way while hoping the owner doesn't damage the property over the two years or so it takes to complete the process.
 

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Discussion Starter · #13 · (Edited)
I have never found foreclosures "hard" because I know what to expect. I learned how to do it, know how long it takes and what it costs.

Carrying three bundles of shingles is hard. Changing a transmission is hard. Not staring at a nice rack is hard.

Foreclosures are not hard if you understood the time-frames, capital requirements and options. Hell I went looking for bad debt liens to purchase because there is good money in the equity generation.

I think it takes the right attitude. Anger cant be part of it. Neither can a lack of patience. I have an investment attitude about it. I would rather end up with a real estate investment with some nice equity than get paid in full. The profits are higher. A customer that doesn't pay you in full and has equity in the property might be doing you a favor helping you put kids thru college.

It's less fun when they have no equity but you just improved it with your project by tens of thousands and many customers have a more established equity when improving their properties.

My attorney said to me a long time ago when I was just getting started navigating investment in non-performing liens and foreclosing and was complaining about the tedium. time-length and expense of the process (like almost everyone does at first) ...

"If you follow the procedure you are entitled to relief. If you do not follow the procedure you are not entitled to relief. If you want relief, this is the process."

It is easy if you have the

1. Well understood specific knowledge of the process
2. Well understood specific knowledge of your options
3. Capital budget or investor(s) to invest in the costs
4. Capital budget or investors(s) to buy out other liens at a discount
5. Equity in the target property
6. An attorney that is reasonable and competent
7. Level-headed pragmatic patience and peace of mind during the process
8. Interest in owing real estate if necessary

It is hard of you don't

A. know what has to happen or which way to go with your options
B. have cash, credit or partners to invest in the costs and discounted lien buyouts
C. have equity in the target property that can be generated
D. have a competent reasonable attorney
E. have patience to see the process thru to the end

I have been clear it costs a few grand, can take roughly up to a year and half, there are several options and an evaluation of the equity and motivation of other lien holders must be made to determine if there is equity to be acquired from taking title to the property. If that sounds hard or irritating then write off your loss and move on.

With all due respect to the poster that mentioned back taxes, that is technically correct but most customers do not fix up real estate that they are losing to back taxes. Although that is more of a concern when an old lien is purchased for a foreclosure investment that isn't usually coming up on a property you just improved.

It is also true you have to clear the senior liens to get paid but I have done it many times. For example, I have purchased non-performing mortgages from banks, paid the back taxes, offered the title holder a few grand to sign over title and ended up with tens of thousands in equity because the owner wanted to move out of sate and knew I could and would foreclose. It took THREE WEEKS to put it all together..

Don't knock it until you learn it and be creative about solving problems.
 

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Discussion Starter · #15 · (Edited)
I gave an example of a deal at the end of the last post.

1. Locate distressed real estate (liens including your own mechanics liens or others, back taxes, overgrown grass, foreclosure notice, real estate agent specializing in distressed or under performing real estate, etc)

2. Examine equity (is there equity or can it be generated with discount buyouts of liens and improvements)

3. Examine options (What is the least expensive and most time advantageous way to secure title at a locked in profit)

4. Choose options
5. Execute plan
6. Do a little dance to the bank

Brain surgery it is not. Learn the laws, options, and proper mindset and get your mind to that place where it is just a matter of follow thru to the end of the rainbow to the pot of gold.

Too many contractors get all pissed off and stressed out when they could be sitting on a real estate opportunity that is a better opportunity than full payment. I don't get that. Play the hand you are dealt the best you can or fold but investing energy in whining wont accomplish anything.

What is the first thing I would check if I was stiffed on a payment? The balance of other liens if any, the feasibility of buying them at a substantial discount if they are senior to mine and the equity left in the property after I execute on the options I choose.

If there is no equity then Plan B is money judgment collections options against personal assets when possible. Etc.
 

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Sluggin away
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Interesting!

Got 2 myself that we are Executing the lien. Costing $1000's in atty fees, my check is sitting at mortgage company. Stinks but in for the long haul....unless you wanna buy :)
 

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Thread inspired by another thread with a 1.5 million dollar mechanics lien.

Although there is much I do not know, I am interested in discussing the subject of foreclosing on mechanics liens in more detail.

The full face value of a mechanics lien will be recovered with interest and costs when the property is sold, sometimes when refinanced or when foreclosed upon.

Foreclosure can be commenced after the state law defined waiting period to force payment or transfer of title. Without looking it up, I think in my state the foreclosure process is about a year and half.

Strategies

1. SELL YOUR LIEN - Mechanics liens have a value that can be sold to investors (at a very substantial discount) much like tax liens to recover some of your money.

2. FORECLOSE ON YOUR LIEN - You can foreclose on mechanics liens, take title to the house and sell it to satisfy the lien in full with interest and costs. State law dictates the procedures and limitations so it will vary across the country. Very often the debtor pays up if they can to stop the foreclosure. They can be required to pay all costs as well.

3. PARTNER WITH INVESTOR AND FORECLOSE - I have done this with my attorney before. His time, my lien.

Whether foreclosing on a mechanics lien is worthwhile depends on the equity in the home once all other liens senior to the mechanics lien, if any, are satisfied.

4. PURCHASE OTHER LIENS AT A DISCOUNT TO CREATE MORE EQUITY - In my experience as a real estate investor years ago, senior lien holders will often sell out at a decent discount of 15 to 50% to cash out of a problem debtor.

Junior lien holders during a foreclosure process will usually take a very substantial discount of 75% or more for their lien if it is junior to your own because they are facing getting wiped out by your foreclosure. There are few reason to buy out junior liens but I found a few over the years like taking title thru negotiation prior to foreclosure from a now willing debtor.

Those discounts create substantial equity that you do NOT have to give back to your debtor because you own the original FACE VALUE of any liens you paid for at a discount and they must pay face value to you.

I mention this because some established contractors dabble in both real estate investing, flipping homes and other financial investments.

I look forward to a detailed discussion. Hopefully no one will yawn and pass by :laughing:

I repeat, there is much I do not know but I think the discussion will have relevance for some members that dabble in real estate or want to force the debtor to pay.
None of this is true in California nor in other states. As stated several times, most mechanics liens and $2 won't get you a coffee and a donut.

You can't foreclose on a house with a mechanics lien. First, you have to take your customer to court to get a judgment. Then, IF you win you can go after your customer's assets. In California and maybe many other states the court will not allow you to foreclose on a house to satisfy a judgment. They seem to reserve foreclosures for only banks.

I never heard of someone purchasing a mechanics lien and don't believe anyone is crazy enough. Mechanics liens are usually recorded for people who are really bad and for jobs with problems that may never be resolved. How could an investor determine a lien value for a job that is in litigation. You can be 100% right and a judge will not give you a judgment for 1 penny.
 

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Thom
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Like I said, a lien is merely evidence of a potential claim that must first be determined by the court. That requires a lawsuit. The lien represents a claim on the assets (house) recognized in the order of filing, that may be used to satisfy the lien.

Actually winning the lawsuit does not give you the house even if you are first in line. The courts will auction the house and you will be paid out of the proceeds of the sale with satisfaction in the order the liens were filed. You do not get the house!

Assuming you win your case and assuming the client still fails to pay and assuming there is equity in the house you can foreclose on the house to satisfy the judgement. You have as much right as everyone else to bid on that house at the auction. If you are the high bidder you own the house, subject to any prior liens, taxes, and possibly a few other claims. The amount you bid will be paid to the lienholders in the order determined by the courts ahead of time. That of course required a foreclosure action that involved all of the lienholders with the court determining proper order of liens.

Simple? Quick? Not even. It can work, it has for me, it took years. One time the client paid upon losing the suit, one time I had to go through the foreclosure process including getting all the liens in order then I was the high bidder at the auction. I had taxes to pay, the first mortgage, and utilities. Only the first mortgage holder got paid out of the bid money, I got what was left after the first mortgage holder was satisfied.

Buying a mechanics lien is nuts. Without winning a lawsuit it means absolutely nothing. The guy who bought the suit will then go to trial with little to no evidence to show that the amount is valid and there is no incentive for the mechanic to cooperate.
 

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John the Builder
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...and then there is always another side door - where the lien can be bonded.

"Clear Title" tends to have different meanings, depending which muni court is officiating.
 
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