A Step-by-Step Guide to Get Paid After You Record a Lien - Webinar

What Is a Florida Mechanic’s Lien? 

First let us talk about what a lien is.  

a. Encumbrance on the real property 

A lien is an encumbrance on real property. It attaches to real property as a legal right that you have as a contractor based on the fact that when you provide permanent improvements to the property, Florida law gives you a right to sell that property in order to satisfy the debt.  

b. Creates a cloud on the title and can prevent sale or refinancing  

It creates what is called a cloud on the title and it can prevent the sale of the property, the refinancing or mortgaging of the property when your lien is there.  

c. Usually is a technical default under most mortgages

Under most mortgages or loan documents having a lien on your property, even if that lien is recorded after the mortgage is recorded, it typically constitutes a default. That is usually a technical default under most mortgages. What does that mean?  

That means that if the lender were to find out about the lien they would probably start by sending a letter to the owner saying that you have this lien, it constitutes a default, and that you need to take care of it.  

At the discretion of the lender, they may decide to be a little more insistent on the resolution of the lien.  

d. May be a default under a prime construction contract  

During the course of construction, it typically constitutes a default under the prime construction contract, and it will prevent the lender, owner or general contractor from funding. For example, if you are an electrician and your electrical supply house records a lien on the project, that lien during construction will likely prevent the owner or lender from funding the contractor.  

This would thereby prevent the contractor from funding you, the electrician, because that lien is there. So it creates a whole bunch of problems for the project as it is ongoing.  

So what happens after you record the lien?  

What Happens After the Lien is Recorded?  

What happens after the lien is recorded, in short, is nothing.  

The first misconception that is heard on a regular basis is that the clerk is going to check my lien to make sure it is accurate. That is not true. The lien is a document that is prepared by the lienor, a service like SunRay, or a construction attorney, and the clerk does not review it.

As long as it is a document that meets the minimum requirements and has a notarization, meaning that it is sworn to. The clerk will record it and you could record it right now if you wanted to prepare a lien and record it on any project. You may have never been there or never done any work on the project, that does not stop you from recording it. It will not prevent the clerk from taking that lien and recording it in the public records. Now you will have to deal with it.  

So just know that there is no gatekeeper at the clerk’s office to prevent liens from being recorded. If you are a contractor and one of your subcontractors or one of their material suppliers records a lien and they never had a right to do it, maybe they never sent a Notice to Owner, or maybe they did not deliver the product that they were supposed to, no one is going to check that to prevent the lien from being recorded.

a. Unless the lien bothers the owner or contractor enough to pay you, you may not be paid  

Unless the lien bothers the owner or the general contractor enough to pay you, it is not going to cause you to be paid. The lien is not a self-executing document, it is another misconception. You may think that you recorded a lien document so you have to be paid. Technically you do not.  

The other side could just let the lien sit in the public records until it expires. It expires one year from the recording date of the claim of lien. There are ways for it to be shortened but if it does not bother the property owner, nothing happens.  

A classic example is, let us say you are a roofer, and you do work on a residential homeowner’s house. There is no mortgage on the property. They do not pay you $10,000 so you record a lien. You think that because you have recorded the lien, the owners have to pay you. The owner could just let the lien sit there and do nothing.  

And in a year, that lien will expire automatically. It cannot be renewed and there is no such thing as recording a new lien after the first lien expires. So just know that it is up to you to enforce your rights with respect to this lien.  

How Do I Get Paid?

So that leads to the question: how do I get paid? What are the steps you need to follow in order to get paid once you record your lien?  

a. The lien only starts the process  

As mentioned before, the lien only starts the process. It creates a legal right that you have in the property to sell that property at a foreclosure sale in order to get paid. But it is only the beginning.

b. You need to enforce your lien rights through a civil court action known as a ‘foreclosure’  

Now we will talk about this foreclosure process. The foreclosure process is just a legal action. It is no different than any other civil court case that needs to be filed. Substantively it is not any different than a real estate transaction that went bad, a divorce or a slip and fall. A lawyer needs to file a lawsuit in the court system asking the property to be sold at public auction. That is what a foreclosure action is.  

c. It is similar to any other court action in cost and time  

It is also similar to any other count action in its cost and time.  

d. Unless shortened, you have one year from the recording date to file suit to foreclose  

Most court cases take between 12 to 24 months to move through the court system to their completion at a trial. But that being said, most cases settle anywhere from three to nine months after the case is brought. And the settlement occurs when the parties come together and decide that they are willing to make a deal in order to resolve the disputes, stop paying legal fees, and move on.  

Some cases continue for years, there are cases in offices that are five years old, and they have been actively litigated those entire five years. So just be aware that a foreclosure action is no different and nothing special. What is different about it is that the result is the sale of the property.  

As mentioned above, you have one year from the recording date to file that lawsuit to foreclose on the lien. If you do not file that lawsuit within that one-year period, the lien automatically expires. You cannot re-record the lien. The only way to keep your lien alive, when you get close to that one year, is to file the lawsuit to foreclose but you do not have to wait for one year in order to start the process.  

e. Practice the 60/60 rule 

This is why you should practice the 60/60 rule.  

f. No later than 60 days from last work to record the lien

No later than 60 days from your last work, you need to start the process to record the lien. You have 90 days (calendar days) from last work to record the lien. Do not wait until Day 84, 85 or 88 to start the process. It takes time, effort, and coordination. The lien is a somewhat complicated document. It has many fields that need to be completed.  

Maybe you need to get that information from other folks on your team. Maybe they are not available on the day you need them. The clerk’s office is getting better but there have been times especially during the recent past, when for example, the Miami-Dade County clerk was taking seven full days to record a document.  

So you do not want to be submitting your lien on the 88th day and have it sit in the queue for seven days in the clerk’s office. Most clerks now are open to in-person recording. That will usually speed things up. Usually, if you are willing to wait in line, you can get a document recorded the same day.  

SunRay uses an electronic filing system, so they can record your documents anywhere in the state electronically.

But it is not like Amazon where they get it done right away. Some clerks take several days to record that document even if it is purely electronic.  

g. For 60 days thereafter, hassle your customer and owner for payment

You have now recorded your lien and you have started that process no later than 60 days from your last work. What do you do next? It is recommended that for the next 60 days, hassle your customer and the owner for payment.  

Send emails, text messages, phone calls, go visit their office and sit there. Wait to see them to pick up your check. Do whatever it is you have to do to try to get paid over the next 60 days. Our most successful clients at collection use these 60 days aggressively.  

They make phone calls several times a week, followed up with emails visiting the customer. The squeaky wheel gets the grease. Collection is a process in which you need to be very active if you want it to work. If you ignore the debtor, they will ignore you because they are busy dealing with other problems.  

So you need to be the problem they have to deal with. You should do that for the next 60 days.  

h. Submit the claim to a construction lawyer for collection 

However, if after 60 days you have not made any meaningful progress on getting paid, then it is strongly recommended at that point that you submit the claim to a construction lawyer for collection.  

The construction lawyer will typically start with a demand letter on their letterhead to the customer, and then start that foreclosure process if the letter does not work.  

i. Except for business reasons, do not delay 

Except for some business reasons that you may have, do not delay past the 60-60 rule. Your legal case is not going to get any better because you decide to wait. People may leave your company, witnesses may take other jobs in other jurisdictions, people get fired, documents get destroyed, people’s cell phones change, messages get deleted.  

All of this happens the more time passes. So you do not want to continue to wait if you cannot get paid. Now, maybe this is a customer or a client of yours who owes you $5,000 on this project. You have four other projects going on and everything is fine.  

So you decide that you are not going to let this small claim affect your relationship, you are just going to let it sit and see what happens over the next few months. That is a perfectly valid reason to wait but unless you have some articulable reason that you want to wait, you should not continue to delay your collection efforts.  

That is generally the process to get paid once you record the lien.  

What Are the Scenarios I May Run Into? 

Now let us talk about some of the speed bumps that may get thrown at you. There are three of them in particular and how to deal with them.  

a. My Lien Was ‘Bonded Off.’ Now What? 

The first is if your lien gets bonded off. What does that mean, how does it work, and what should you do? To start with, you should celebrate!  

i. Celebrate!

The reason you should celebrate is because in a foreclosure sale, you are only able to recover the equity in the property. So if you put a lien on someone’s property for $200,000 and it is worth a million dollars, but you have a million-dollar mortgage or a $900,000 mortgage.  

ii. Lien on property requires foreclosure sale and recovery is subject to sales price and prior encumbrances  

Your lien is likely going to be after the mortgage. And there is not enough equity for the other side to pay you. If you go forward with the foreclosure sale, there is not likely going to be a recovery for you. So you are under water. However, if you bond the lien off, what does that mean?

iii. Once bonded off, lien is transferred to either surety bond or cash held by clerk 

That means you have to go to the clerk’s office with either a lien transfer bond that you get from a surety, or you go to the clerk with cash. You take that lien and set it aside off the property either to the transfer bond or to the cash.  

iv. The bond amount is about 150% of the Claim of Lien  

The rough formula is not exact, but it is about 150% of the claim amount in the bond. So if your lien is for assume, $100,000, you are going to have to come up with $100,000 of a transfer bond or cash, and bring that to the clerk, that means there is now a segregated set of money sitting there protecting your lien.  

So even if there is a big mortgage or even if the property has no equity, it does not matter because your lien is now fully scrutinized and then the extra 50 is intended to cover interest and expected legal fees on the lien and the claim.  

v. Prepare for a fight  

The one thing you need to expect though when someone bonds off your lien, is that you need to be prepared to fight. The reason is no one in their right mind would go through that entire process. If they could just pick up the phone, call you and say, “can we work this out?”, if that was their intention, they would have done that before they went through the time and expense of bonding off the lien.  

In every single case that a lien is bonded off, litigation is required. So if your lien gets bonded off, you should be happy that now your lien is fully securitized. But you should immediately start the litigations. If the letter is skipped, you can start straight away with the lawsuit against the transfer bond and the customer.  

Because the reason they bonded it off is they did not want to pay so let us start the process. Now there is no sense waiting.  

b. I Received a Notice of Contest of Lien. Now What?  

The second one is when you receive a Notice of Contest of Lien.  

i. File your lawsuit to foreclose immediately 

You need to file a lawsuit to foreclose immediately on your lien.  

ii. Rule: Legal action within 1 year of recording  

This needs to be done within one year of the recording date of the Claim of Lien.  

iii. Exception: Lien shall be extinguished automatically unless the lienor institutes a suit to enforce his or her lien within 60 days

Within one year of the recording date of the Claim of Lien the exception is if you receive this document called the Notice of Contest of Lien, you only have 60 days from the day that the clerk stamps that document to record your Claim of Lien on the 61st day, your lien automatically expires unless within that time, you file your lawsuit to foreclose on the lien.  

So if you receive a Notice of Contest of Lien, what do you do? You need to hire a lawyer right away and you need to file your lawsuit to foreclose immediately.  

iv. The clerk mails the Notice of Contest to the address on the Claim of Lien  

The document is prepared by the person who wants to contest it. It is brought to the clerk, the clerk will stamp it, and it will have a stamp where the clerk says the document has been recorded and mailed on this date.  

That is when the 60 days are on. The 60 days include every calendar day, weekday and legal holiday, all the way through the 60 days. Do not wait until the end. This is a document that you will get via certified mail at the address that is listed in your Notice to Owner.  

In your Notice to Owner, if you use SunRay for example, at the bottom it will say something like “service of all documents shall be sent to this address.” Your current mailing address is the address that they need to send it to.

That is where the certified mail will go when you get it, then you have again, 60 days to file your lawsuit to foreclose and then it is automatic.  

v. The lien is discharged on the 60th day without any intervention of the court 

On the 61st day, the lien is automatically discharged. There is nothing you can do. There is no way to revive it after the 60 days.  

c. I Received a 20-Day Summons. Now what?  

Sometimes 60 days is too long and owners or contractors may employ what is called a 20-Day Summons. What happens if you receive a 20-Day Summons?  

i. File your lawsuit to foreclose immediately  

Just like the 60-Day Notice, you need to file your lawsuit to foreclose immediately.  

ii. Rule: Legal action within one year of recording  

The rule was discussed above. One year from recording is when you have to bring your foreclosure action. Now that is reduced to 20 days if you receive a 20-Day Summons.  

iii. If a response and counterclaim for foreclosure are not filed within 20 days, the lien extinguished 

How do you know that you get a 20-Day Summons unlike the 60-Day Notice which is sent to you by certified mail? The 20-Day Notice, the 20-Day Summons is actually served upon you by the sheriff or process server.  

So it will come to you like a lawsuit because it is a lawsuit. The owner or the contractor has to file a lawsuit with the court and serve it upon you. Then on the 21st day after it has been served, your lien automatically expires. So what do you have to do?  

You have to file a new action to foreclose or in that lawsuit where they sued you, you have to file a counterclaim to foreclose your lien. If you do not, your lien will automatically expire.