The construction industry has always had a problem with cash flow. Even before the outbreak of the coronavirus, many contractors faced problems with getting paid on time. This caused serious cash flow issues for many contractors and the subcontractors or suppliers that depended upon them for payment. This problem was further compounded by the project delays and shelter-in-place orders that resulted from the COVID-19 pandemic and the subsequent material shortages, supply chain disruptions, and labor shortages that followed. In this difficult environment, filing a mechanics lien can be the best tool to protect an unpaid contractor/subcontractor’s rights and help them get paid.
MBM’s construction attorneys are experienced in mechanic’s lien law and want to assist you in getting paid for your construction project.
Benefits of a Mechanic’s Lien
There are a couple of good reasons for filing a mechanics’ lien. The primary reason is that a mechanic’s lien allows an unpaid contractor to obtain a lien against the improvement (property) much quicker than through an ordinary lawsuit. This is particularly important in the current legal environment that is still dealing with the impacts of the coronavirus pandemic.
Indeed, in an effort to deal with the COVID-19 threat, federal and state courts halted trials and closed their doors to most civil proceedings or significantly reduced operations for extended periods of time. This considerably delayed the progression of most cases to trial. It also dramatically increased the already significant backlog of cases in some state and federal courts. This means that in many, if not most cases, it will be quite some time before a contractor’s or subcontractor’s case comes to trial and they can obtain a corresponding judgment in connection with their case/claim. This is important because if a contractor has no lien, they have no protection until they obtain a judgment after trial.
In contrast, a mechanics’ lien allows a contractor to obtain a lien against the owner’s property immediately upon filing. Such a lien can allow a contractor to be paid if the property is sold and/or create leverage with the owner to force payment as liens typically place the owner in default in connection with its financing.
How does Bankruptcy Affect Mechanic’s Lien Rights?
The ability to obtain a lien is also important as it offers protection in the event of a bankruptcy filing. As the impacts on our economy and escalating costs from the pandemic, supply chain shortages, government policies and tumultuous world events continue to expand, it is expected that some construction projects and contractors who work in the industry will fail or become insolvent.
When or if this occurs, look for developers, owners, and/or contractors to file for bankruptcy. If a general contractor or property owner/developer files for bankruptcy it will halt or stay any pending litigation that is brought by unpaid contractors or subcontractors. If that occurs, the unpaid contractors/subcontractors will be forced to pursue those claims with all other filed and unfiled claims in the bankruptcy proceeding. Those claims will be considered “unsecured claims,” because they are not protected by any collateral. This is important, because “unsecured claims” in a bankruptcy proceeding become part of the bankruptcy estate. This means that they are only paid if there is money left over from the liquidation of the bankruptcy estate and the payment of all claims that are “secured” or protected by some type of collateral.
Often, there is little, if anything, left over after the payment of secured claims. This means that unpaid contractors’ or subcontractors’ ability to collect any portion of their debt during the bankruptcy proceedings most often depends on whether their debt is “secured.” A mechanics lien is considered a “secured debt,” because it is a lien against or provides a security interest in the real property. This makes the ability to obtain a mechanic’s lien important as it may mean the difference between being paid or not.
If you are a contractor, subcontractor, or material supplier and are wondering how to file a mechanic’s lien in Pennsylvania then contact MBM Law to answer your legal construction questions.
How to File a Mechanic’s Lien in Pennsylvania?
The process of filing a mechanic’s lien involves several steps in which you need to strictly adhere to statutory requirements. The Construction Law Team at MBM has successfully guided clients through the strict, multi-step process of PA mechanic’s lien law.
Contact MBM Law if you need help filing a PA mechanic’s lien.