CHAPTER 6: COLLECTIONS
The types of services and supplies that constitute a valid basis for a mechanic’s lien vary by state. In general, anyone who provided materials or labor—from the architect who designed the building to the lumberyard and hardware suppliers that provided materials, to the electricians and plumbers who installed material systems at the site—may have a lien on the property. Potential lien holders and their attorneys might consult case law as well as statutory law for guidance relative to their jurisdictions. While the contractor or sub-contractor typically doesn’t have to do anything besides his or her work to create a lien, executing the lien is a very different, and very complicated, matter. Depending on the jurisdiction, there are usually multiple steps to take in the correct order, mostly the filing of various notices, to “perfect” the lien. Perfection serves the function of notifying owners, potential buyers, and other creditors of the lien. Examples of such requirements include filing a notice of the intention to file a lien and filing an affidavit of the claim of a lien. These items must be filed in the appropriate records offices, according to jurisdictional law, within specified time periods—usually within a few months or even weeks of completion of the work on the property. If the owner and/or prime contractor do not pay up, the lien holder may file a lawsuit to foreclose. If the court agrees, it will order a levying officer, usually the local sheriff, to sell the property at auction. After the sheriff deducts the costs of conducting the sale, he pays the lien holders according to priority, typically determined by the chronological order in which the liens have been created. Many companies involved in the construction industry (contractor and/or supplier of materials) design their collection process and timeline around the mechanic’s lien filing schedule of the state(s) in which they do business. The lien filing steps are built into the process (usually at a time of the month), as are the customer or prime contractor payment dates. Collection follow-up is interspersed on the “collection calendar of events.” There are commercially available software products that automate the lien filing steps, which makes the whole process more effective and easier. Lien rights should always be invoked and filed without exception to protect the receivables asset. Judgment Lien Another type of lien that may be of interest to accounts receivable departments is the judgment lien, which can be imposed on the property of a judgment debtor—i.e., a deliquent debtor against whom a court has granted a judgment. Unlike a mechanic’s lien, a judgment lien is more general and can be applied to property on which the creditor has not labored or for which he or she has not supplied materials. There are many layers of factors pertinent to the pursuit of judgment liens, and, as with mechanic’s liens, they vary greatly by jurisdiction. The first step, however, is for the creditor to file a lawsuit and obtain a court judgment against the debtor. The technical creation of the judgment varies by jurisdiction. In some cases, it may be created as soon as the court grants the judgment or when the clerk dockets it. In other cases, the creditor must file additional paperwork. Like mechanic’s liens, judgment liens must be perfected - notices must be filed correctly. Liens are attached to real property. In some jurisdictions, they can also be attached to personal property.
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THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
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