Creditors and lawyers frequently speak in terms of “liens”, “lien holders” and “lien priority.” Generally, a creditor who holds a lien (called a lienholder) has the right to take the defaulting debtor”s liened property and either keep it or sell it in satisfaction of the debt. Additionally, it means that if the liened property is sold, the lienholder gets paid out of the sale proceeds. Either way, the lien can be a powerful protection against the debtor and against other creditors of the debtor.
Usually, as in the case of the mortgage, the lien arises as a result of a specific voluntary agreement entered into by the debtor and reduced to writing. However, historically, some creditors were considered so important (and so otherwise unprotected) that they received lien rights without any specific grant of those rights by the customer/debtor. Many of these lien rights survive today.
Mechanics’ Liens. A mechanics’ lien potentially protects any contractor or subcontractor who works on a property. The lien covers the value of the contractor’s or subcontractor’s work in the improved real estate. Lien protection starts with the architect who draws up plans for the improvement and ends with the last contractor or sub who contributes to the job. These liens and the legal actions that arise from them can become complex – the contractor asserting the lien has to file lien documents with the clerk of courts of the county where the land is located and, in making that filing, he or she must meet timing, notice and other technical requirements.
For a landowner, these liens become problems when the landowner sells or refinances the property. However, the lienholder also has the ability to sue on the lien, obtain a judgment and execute on the property. For these reasons, we advise residential landowners to obtain lien waivers and have them filed with their county’s clerk of courts before the work starts. If done properly, this will prevent a lien from attaching to the property. Fortunately for the landowner, the contractor only has two years to sue on the lien; if the landowner can wait it out two years and the contractor does not act, the landowner is home free.
Repairmen’s Lien; Garagemen’s Liens. Although its origins are shrouded in the mists of time, as late as 2006, the Pennsylvania Superior Court recognized the existence of a garagemen’s lien. In a slightly older case, a boat repair shop where a wrecked boat was repaired and stored was found to have a repairman’s lien in the boat. In the latter case, the Pennsylvania Supreme Court even found that the marina’s lien was “prior” to the bank loan secured by the boat; while the bank could repossess the boat when it was in the hands of the owner, it had no right to repossess the boat when it was in the hands of a repair shop that was owed money. The last point is an important one for lenders.
As an aside, most people who call in and ask about “mechanics’ liens” (see above) are usually asking, in fact, about “repairmen’s liens.” This confusion in terminology is understandable because everyone takes his or her car to a mechanic, but no one hires a mechanic to work on his or her house.
Warehouse Liens; Carrier’s Lien. Article 7 of the Uniform Commercial Code provides that a person “involved in storing goods for hire” is entitled to a warehouse lien. This is a possessory lien that covers, among other things, storage fees. Generally, the warehouse lien attaches to specific goods put in a warehouse and arises upon the customer entering into a warehouse agreement or receiving a warehouse receipt. Associated with the warehouse lien and also covered by Article 7 is the “carrier’s lien” which arises in favor of any transporter of goods who issues a bill of lading. Generally, the carrier’s lien protects the carrier’s transport fees in the event that the customer (a/k/a the “shipper”) defaults. Article 7 gives very detailed requirements for how and when the warehouse or carrier can take, keep and/or sell the customer’s property.
Article 7 and the liens it provides were re-adopted by the Pennsylvania legislature in 2008. Given the number and size of transport and storage transactions that occur everyday, it is easy to see how important these liens can be. Finally, lenders should take note that the warehouse’s lien rights may often take priority over the lien rights of a prior perfected security interest.
Commercial Real Estate Brokers Liens. Commercial real estate brokers generally have “a lien in the amount of the compensation agreed upon by and between the broker and its client.” While, contracts between real estate brokers and consumers of their services must be in writing in order to support a commission, the lien that secures that commission, like the other liens discussed in this article, does not have to be the subject of a written agreement.
A seller’s agent must file its notice of lien with the prothonotary between the time that the broker procures a ready, willing and able buyer and the date of the actual conveyance. A broker who has a contract with a buyer must file its lien on or before the date ninety days after the date of the conveyance. In either case, separate written notice of the intent to lien the property must be given to the buyer and owner of the property prior to closing.
The broker’s lien has two notable limitations. It can only be used in connection with commercial real estate and, like the holder of a mechanics’ lien, the holder of a broker’s lien has two years from the date of the lien to bring a lawsuit on the lien.Attorneys’ Liens. Attorneys are entitled to a “retaining lien”, which allows them to hold a client’s files unless it “embarrasses” the client.
The cynical reader might conclude that it was inevitable that the law gives attorneys the benefit of such liens. However, the reality is not so clear. Many lawyers will not hold a client’s files because, what is “embarrassing” to a client can be unclear and many lawyers will not risk the visit to the Disciplinary Board that might arise as a consequence of holding the files of a slow or non-paying client.
There are yet other liens: homeowner’s associations, innkeepers and local governments exercising real estate taxing power all have automatic lienholder status. The list could go on. The lesson is that even though you may not have a mortgage against a debtor or a written security agreement with a customer, you may have more protection than a typical unsecured creditor; however, in most of these cases the lienholder must proceed with alacrity to preserve his or her rights.
— Rod Fluck