Liens - suit to foreclose

By Michael L. Fortney

Contents


Where and when to file an action for foreclosure?

The foreclosure action must be filed in the county where the property subject to the lien is located.  R.C. 4113.62(D)(2).

The action must be filed within six years of the date of the filing of the lien.  R.C. 1311.13.

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What claims need to be brought?

The lien claimant should bring every cause of action it has against the owner and the contractor that the claimant contracted with in the same action.  This is the most efficient way to proceed, and the doctrine of res judicata may prohibit the re-litigation of the issues litigated in the foreclosure proceeding.

However, subcontractors and material suppliers need not seek relief against the original contractor or subcontractor under whom they were working before seeking to foreclose any mechanics’ lien they may have.  Simon v. Union Trust Co. (1933), 126 Ohio St. 346; Novotny Construction, Inc. v. Virag (Aug. 14, 1974), Cuyahoga App. No. 36493.

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What must be proven to foreclose on the lien?

In order to prevail, the lien claimant must establish (a) the validity of the underlying contract claim,  (b) that the claim is within the mechanics’ lien law, and (c) that the claimant has taken all necessary steps to perfect its lien.

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What is the remedy?

The remedy in a foreclosure action against the owner is for the court to order the sale of the property, and for the proceeds to be distributed to the lien claimant, subject to the priority of any others holding a lien or security interest in the property.

Lien claimants also have a right to attorneys fees, to be paid from the funds generated by a sale of the property.  R.C. 1311.16.

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Does an arbitration provision have any effect on a lien foreclosure claim?

Courts have refused to allow foreclosure proceedings to continue if the contract giving rise to the underlying claim requires the claim to be resolved by arbitration.  See for e.g. Slagle Plumbing & Heating Co. v. Baker (October 2, 1979), Darke App. No. 993.

Since a foreclosure requires the lien claimant to prove the validity and amount of the underlying claim, the lien claimant should be bound by a contractual provision requiring disputes to be submitted to arbitration.  Following arbitration, the successful lien claimant can proceed with an a foreclosure using all the factual findings from the arbitration and award in its favor.

Furthermore, arbitration provisions are not enforceable that apply to controversies involving title to or the possession of real estate.  R.C. 2711.01(B).

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What is the effect of bankruptcy?

Normally, the filing of a bankruptcy automatically stays all actions against a debtor upon the filing of the bankruptcy petition.  This automatic stay does not apply to the recording of mechanics’ liens, if once perfected, the lien would have an effective date predating the bankruptcy petition.  Since Ohio law provides that mechanics’ liens, once perfected, relate back to either the visible commencement of construction or the filing of the Notice of Commencement (R.C. 1311.13), a lien claimant generally will not be barred by the filing of a bankruptcy from perfecting its lien. 

The automatic stay though will stop any action to foreclose the lien and relief from the automatic stay must be obtained from the bankruptcy court to pursue or continue a foreclosure action.

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Michael Fortney
Construction Law, Employment and Labor Law, Business Law, Litigation, Arbitration

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