In this blog, presented by SunRay Construction Solutions and Ted Laperouse, Firm’s Managing Shareholder, Laperouse, APLC, you can find out in detail about what contractors, subcontractors, and suppliers in Louisiana should do once they file their mechanics lien and what steps they should take to ensure that they get paid successfully.
What is a Lien?
Most people know that a lien is something that you file which helps in getting you paid. But what is a lien exactly? A lien which is also known as a ‘claim of privilege’ in Louisiana, can be defined as a claim to an interest in immovable property or money in the hands of someone else for work performed.
a. Typically, when you file a lien in the mortgage records of the Parish where the construction work was performed, a lien serves as a notice to the world about your claim.
b. Once the lien is filed, clear title to the property cannot be transferred unless the lien is cancelled or extinguished.
c. As you can see, the lien is a valuable tool because it allows someone to make a claim to security even though they may not have a contractual relationship with the party who owns that property.
d. This is why you must follow all the guidelines diligently which is provided in the Louisiana Private Works Act (La. R.S. 9:4801 et seq.) to secure the lien.
I Filed My Lien, Now What?
Now that you have filed your lien, what should you do next? Well, as mentioned earlier, your lien is just a claim. To perfect your lien, you need to keep the below points in mind:
a. You must seek adjudication or foreclosure of the claim within one year of filing the lien.
b. If the lawsuit to foreclose the lien is not filed within one year, then the lien becomes extinguished.
c. If you are filing a lien, then you must provide a notice of the lien to the owner by certified mail within the lien period.
d. General contractors must file the lien and serve the notice on the owner within 60 days of substantial completion or Notice of Termination.
e. For subcontractors, if a Notice of Contract is filed, then they must serve the notice of lien to the owner within 30 days of substantial completion. If in case the Notice of Contract is not filed, then they must serve it within 60 days of substantial completion.
f. The 2nd tier and lower tier subs or suppliers also must follow the same timeframe mentioned in the previous point.
So, make sure that if you have filed a lien, then you also must file a suit to foreclose on the lien in the court of the Parish where the property is located and follow the deadlines related to serving the notice of lien on the owner.
If you are a company, then you will need an attorney to file your lawsuit.
Suit to Foreclose Line
When your attorney files a suit to foreclose the lien, it is typically brought along with a lawsuit for breach of contract. The breach of contract is what gives rise to the claim of the lien.
a. Remember that the lien only gives ‘security’ in the form of immovable and/or construction funds.
b. The second step in this entire process is filing the suit to foreclose on the lien.
c. You will be seeking a declaration by the Court that the lien is valid, and it should be foreclosed upon. So, you must be able to prove your claim for breach of contract and lien foreclosure.
d. If the Court rules in your favor, then it will order the Sheriff to seize the property and sell it at a judicial sale. All the proceeds from that sale will be used to pay off the debt that is owed to you.
Most of the cases are settled much before reaching the judgment of selling the property. This is why the lien is considered as a ‘security’ for the debt that is owed to you for your work.
Know more: New Lien Law Changes You Don’t Want to Miss in Louisiana
Pitfalls on the Way to Foreclosure
When dealing with liens, you also must consider some potential pitfalls and obstacles, such as:
a. The owner or the contractor may contest that you have not used the right form for your lien, or you have not complied with some of the requirements of the Private Works Act in providing the content of your lien.
They may also attack the timeliness of your lien claim if you are late in filing. Another obstacle they may put up is that there is no claim because the claim has been extinguished by payment, or it was defective work, etc.
b. If they attack you based on form or timeliness, they will do it through summary proceeding which is a very quick procedure used in cases where the deadline is missed, content does not comply with the statute requirements, etc.
c. In some cases, the owner or the contractor may ‘bond around’ your lien which does not necessarily mean a terrible thing.
i. When the lien is bonded, the claim becomes secured by the bond which is issued by a surety.
ii. But you still must prove the validity of the lien claim because if you are successful in proving it, then you will have a bond that will be able to pay off your debt.
iii. It is just that the owner’s property is no longer burdened by the lien.
d. Finally, you must be wary if the owner is a tenant. In such cases, your lien is not attached to the actual property itself, but rather to the interest of the owner in that property which is going to be the leasehold interest. You are only entitled to accept the continuation of the lease.
This is not an effective strategy to get paid because although the owner who is a tenant will not want to be evicted and will not want you to take over their lease, there is no hard asset for you to seize and sell to clear your debt.
So, these are the basic steps and processes that you should be aware of once you have filed your lien to ensure that your lien actually helps you to get paid.