There are Times When Filing a Mechanic’s Lien May Not be the Best Option
As I have written before, a mechanic’s lien provides a contractor with an attachment to real property to secure the amount claimed due for work performed. However, before the mechanic’s lien can be successfully foreclosed and converted to a court judgment, the contractor has to prove the underlying contract debt. The benefits of the mechanic’s lien procedure is that it requires nothing more than the contractor’s sworn statement to be put in place. Essentially, in the case of subcontractor claims, the statutes allow a contractor to attach the property of the owner, who may not be aware of the claim, based upon nothing more than the contractor’s good word.
The trade off to the ease with which a mechanic’s lien can be put in place is that there are times where the mechanic’s lien is ineffective through no fault of the contractor. For example, an owner will have a defense to a subcontractor’s mechanic’s lien if it makes full payment to the general contractor before receiving notice of the lien. In addition, should the property not have sufficient equity to cover the amount of the debt, the court will award “strict foreclosure” and, at best, the contractor will take possession of the underwater property. Neither of those outcomes results in the contractor receiving payment.
In light of the foregoing, there are times when a contractor may want to consider filing an application for prejudgment remedy instead of (or in addition to) a mechanic’s lien. “A prejudgment remedy means any remedy or combination of remedies that enables a person by way of attachment, foreign attachment, garnishment or replevin to deprive the defendant in a civil action of, or affect the use, possession or enjoyment by such defendant of, his property prior to final judgment.” Town of Manchester v. First Connecticut Capital, LLC, 2016 WL 8669888, at *2 (Conn. Super. Ct. Nov. 14, 2016). When the prejudgment remedy is applied to real property, the effect is the same as a mechanic’s lien. The contractor has an attachment to real property that secures his contract debt pending a trial.
Prejudgment remedies are available to everyone; not only contractors that perform work. In addition, prejudgment remedies have a much broader array of assets that can be attached. In fact, as part of the process, the applicant can request that the court order the other party to disclose sufficient assets to cover the debt in order for the applicant to complete its attachment. Thus, in the case where the property upon which the work was performed is under water, the contractor can obtain an attachment to the owner’s other real and/or personal property.
The downside to obtaining a prejudgment remedy is that it requires a hearing, but that still is not a significant burden. “A prejudgment remedy is available upon a finding by the court that there is probable cause that a judgment in the amount of the prejudgment remedy sought, or in an amount greater than the amount of the prejudgment remedy sought, taking into account any defenses, counterclaims or set-offs, will be rendered in the matter in favor of the plaintiff.” Id. “Probable cause is a flexible common sense standard. It does not demand that a belief be correct or more likely true than false.” Id. It is a very low threshold, which is far less than the burden that is required to win a trial. The application also has no preclusive effect, which means that, if your application for prejudgment remedy is denied, you can still request a full trial on the merits.
Moreover, filing an application for a prejudgment remedy is not even considered the commencement of a legal action. Therefore, there can be no claim for abuse or process or vexatious litigation as a result of having filed such a claim.
In light of the foregoing, a prejudgment remedy is superior to a mechanic’s lien but comes at a much greater cost. The application for prejudgment remedy must be filed with the court and served upon the defendants so it will have similar fees as recording and serving a mechanic’s lien. The application itself is much more involved than a certificate of mechanic’s lien and requires an unsigned summons and complaint, which will result in additional time to prepare. Finally, the prejudgment remedy requires a hearing that is referred to as a “mini-trial,” and most of Connecticut’s Judicial Districts require a prehearing status conference, which results in an additional trip to court. As a result, a prejudgment remedy is not a viable alternative to a mechanic’s lien in all cases because of the additional cost involved. My recommendation would be for you to consider filing an application for prejudgment judgment remedy instead of a mechanic’s lien when:
- The property where the work was performed does not have sufficient equity to cover the amount of the lien;
- The property where the work was performed does not have to be sold or refinanced in the near future;
- The owner has already made full payment to the general contractor with regard to a subcontractor’s claim; and
- The amount of the claim is in excess of $500,000.
If you have any questions about which option may be right for you, please give me a call.