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mechanical lien when foreclosure?

andviv

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I got this situation presented to me this morning...

There is a house that has a mechanical lien that is about to be recorded, but the home owner told this person not to bother recording it as the house will go in foreclosure so the lien will be wiped out.

For some reason this didn't sound right to me. Anyone here with knowledge about how this will really go?

what if the home owner was declaring bankruptcy instead of going with the foreclosure?
 

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PurEnergy

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Jan 4, 2008
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I'm not an attorney or an expert on this but I've got a little experience and the information is on my shelf.

A mechanics lien will not cause a foreclosure. The owner may decide that all is lost and stop making payments causing a foreclosure. A mechanics lien is like a judgment which is simply a lien against the property. It sits there until something happens. That something could be the owner sells the property, stops making payments, refinances, files BK, or simply does nothing at all. Like a judgment the mechanics lien has rights unto itself. There are measures of enforcement which can be taken by the creditor. It varies by state.

It sounds like the owner is making the threat of loss to the creditor by not making payments. He may already be in foreclosure and in that case I'd say it's best to record the lien. What's your interest in the property?
 

Runum

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I agree. I bought a foreclosure and it had leins on it. Some of them were on there and the selling bank didn't even know about them. I had my RE broker and the title company ensure that the leins would be paid off before ownership would transfer to me.
 

Allthingznew

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I think if varies widely depending on state. I found this in a search but couldn't get the website up to look further.

"If a mechanic’s lien is "inchoate," it is prior to most other liens. The inchoate lien survives most foreclosures and can often be filed after foreclosure. ...
www.fullertonlaw.com/genml.htm - 32k - "
 
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andviv

andviv

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The person that wants to file the mechanical lien got that answer from the home owner. The home owner told him he can't pay him nor the bank, so the bank will foreclosure on the property and the lien will then be wiped out.

the question is whether or not this is true.

I believe that the mechanical lien will NOT be wiped out by the bank foreclosing on the property, but I may be wrong.
 

phlgirl

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My knowledge in this area is shaky as well so take this with a grain of salt......

From what I have read, any second or 'junior' lien on a property will not be paid, unless the 1st lienholder (bank, in this case) receives what is due to them first. In the case of bankruptcy or foreclosure, the 1st lienholder is not fully satisfied and therefore the second lienholder gets nothing.

I have heard that one way around this is for the 2nd lienholder to perform the forecloseure themselves - in doing so, they become responsible for the 1st lien. If the asset is worth more than the first lien, this can be worthwhile. Otherwise, of course, not.

At our last REI meeting, there was a presenter who was selling information on a related topic. His scenario was that he goes around buying 2nd liens (when the 1st is in default). He (and others in the room) stated that 2nd liens can often be bought at 10-15 cents on the dollar, due to the fact that if the property forecloses, the 2nd gets nothing at all. This guy buys the second lien cheap and then, I assume, works the foreclosure himself so that he can takeover the asset (and responsibility of the 1st lien).

Hope this makes some sense. Again, my expertise in this area is next to nil.
 

tbsells

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I think....The mechanics lien will go in place in its legal order of liens against the property. If (when) the property is sold at foreclosure auction the money will be disbursed to the lien holders in the appropriate legal order. Property taxes get paid first, then first mortgage, then second mortgage and on down to whatever position the mechanics lien is in. If theres enough money to pay it, the lien holder will get paid. If not, he's out. So I guess it depends on what other liens are in front of it and what the property will sell for at foreclosure auction. But, I'm not an attorney and I could be wrong.
 

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