Can a Subcontractor File a Lien After the General Contractor Files Bankruptcy?
Full Question:
Answer:
The answer will depend on all the facts and documents involved. Some of the considerations will be whether the contractor was paid by the owner, whether a surety bond exists, and whether lien releases and/or waivers were obtained. Please see the statute, § 507-48, below on retaining payment from the contractor when subcontractors file a lien.
To create a valid lien, it is essential that the party claiming a lien should have the absolute property or ownership of the thing or, at least, a right to vest it; that the party claiming the lien should have an actual or constructive, possession, with the assent of the party against whom the claim is made; that the lien should arise upon an agreement, express or implied and not be for a limited or specific purpose that contradicts the express terms or the clear, intent of the contract. In certain circumstances, the lien holder may foreclose on the property if the debt is not paid in full. Liens can generally be removed by the payment of the amount owed. This payment can occur at any time up to and including the stage at which the closing documents for the sale of the property are signed.
There are several types of liens, all of which could cloud the title and prevent the seller from conveying marketable title to the buyer. A judgment lien is created when a court grants a creditor an interest in the debtor's property, based upon a court judgment. A judgment lien can be filed if an actual judgment in a lawsuit is obtained from a court. Such cases include failure to pay a debt, including credit cards, bank loans, or deficiency judgments on repossessed vehicles. In some circumstances, judgments can be enforced by sale of property until the amount due is satisfied. A plaintiff who obtains a monetary judgment is termed a "judgment creditor." The defendant becomes a "judgment debtor."
A judgment lien is created when a plaintiff gets a judgment for money damages against a defendant and records that judgment in the county where land of the defendant is located. After the judgment creditor places a lien upon the attached property, the next step in the collection process is to conduct a sale of the attached property to satisfy the judgment debt. If a lien were placed on a vehicle, the judgment creditor would then seek to sell the vehicle, in the same way a mortgage holder such as a bank would foreclose if it were not paid.
A mechanics lien is a lien that attaches to property for unpaid work done to improve the property. Generally, if a general contractor files bankruptcy, a subcontractor may still file its mechanic’s lien. To get a mechanic’s lien, you first must make application to the court and have a hearing before a judge. Two documents are filed: 1) Application for Mechanic’s and Materialman’s Lien (referred to as “lien application”); and 2) Notice of Mechanic’s and Materialman’s Lien and Demand (“notice and demand”). Before filing the lien application and the notice and demand, a demand to be paid must be made to the owner and/or general contractor. This should be in written form, such as a demand letter. There is no deadline for the demand except that the demand has to be made before the lien application as well as the notice and demand. The lien application as well as the notice and demand must be filed within 45 days of the filing and publication of a Notice of Completion and Affidavit of Publication, both of which are filed by the owner or general contractor.
For further discussion, please see:
http://www.awci.org/cd/pdfs/9202_d.pdf
http://www.aepronet.org/pn/vol14-no1.html
Please see the following HI statutes:
§ 507-42. When allowed; lessees, etc.
Any person or association of persons furnishing labor or material in
the improvement of real property shall have a lien upon the improvement
as well as upon the interest of the owner of the improvement in the real
property upon which the same is situated, or for the benefit of which the
same was constructed, for the price agreed to be paid (if the price does
not exceed the value of the labor and materials), or if the price exceeds
the value thereof or if no price is agreed upon by the contracting
parties, for the fair and reasonable value of all labor and materials
covered by their contract, express or implied.
Where the terms of a lease, contract of sale, or instrument creating a
life tenancy require the improvement of the real property, the interest
of the lessor, vendor, or remainderman in the improvement and the land
upon which the same is situated shall likewise be subject to the lien, and
any provision for forfeiture or other penalty against the lessee,
vendee, or life tenant in case of the filing of a mechanic's or material
man's lien or actions to enforce the same, shall not affect the rights of
lienors.
§ 507-43. Filing notice, contents.
(a) Requirements. Any person claiming a lien shall apply therefor to
the circuit court of the circuit where the property is situated. Such
"Application For A Lien" shall be accompanied by a written "Notice Of
Lien" setting forth the alleged facts by virtue of which the person
claims a lien. A copy of the Application and Notice shall be served in
the manner prescribed by law for service of summons upon the owner of the
property and any person with an interest therein and upon the party or
parties who contracted for the improvements if other than the owner of the
property or any person with an interest therein. If any person entitled to
notice cannot be served as herein provided, notice may be given the
person by posting the same on the improvement. The Application shall set
forth the amount of the claim, the labor or material furnished, a
description of the property sufficient to identify the same, and any
other matter necessary to a clear understanding of the claim. If the
claim has been assigned, the name of the assignor shall be stated. The
Application shall specify the names of the parties who contracted for the
improvement, the name of the general contractor and the names of the
owners of the property and any person with an interest therein. The
Application may (but need not) specify the names of the mortgagees or
other encumbrances of the property, if any, and the name of the surety of
the general contractor, if any.
The Application and Notice shall be returnable not less than three nor
more than ten days after service. On the return day, a hearing shall be
held by the court to determine whether probable cause exists to permit
the lien to attach to the property. Any person to whom notice is required
to be given shall be permitted to offer testimony and documentary
evidence on the issue of whether probable cause exists to permit the lien
to attach. If the person who contracted for the improvement from which
the requested lien arises claims a set-off against the lienor or if any
person to whom notice is required to be given otherwise disputes the
amount of the requested lien, the court shall hear and receive all
admissible evidence offered and shall only permit the attachment of a
lien in the net amount which the court determines is the reasonable
probable outcome of any such dispute. The return day hearing may be
continued at the order of the court so that the entire controversy need
not be determined on the originally scheduled return day. The lien shall
not attach to the property until the court finds probable cause exists
and so orders. No such order shall be entered before the Application and
Notice have been served on the party contracting for the improvement, the
general contractor and the owner of the property, and they were given an
opportunity to appear at the hearing.
(b) Time for filing. The Application and Notice shall be filed not
later than forty-five days after the date of completion of the
improvement against which it is filed. Where title to the property
involved, or any portion thereof, is registered in the land court and the
lien is not claimed solely against the lessees' interest in one or more
leasehold time share interests as described in section 501-20, it shall
be incumbent upon the lienor to file a certified copy of the Order
Directing Lien To Attach in the office of the assistant registrar of the
land court within seven days after the entry thereof in order to preserve
the lienor's rights against subsequent encumbrances and purchasers of the
property.
(c) Joint owner. If the fee title to the land involved is held in joint
or common ownership or as an estate by the entirety, service upon one of
the owners of the Application and Notice in accordance with this
section shall be deemed service upon all of the owners. Likewise, if the parties
who contracted for the improvement, if other than the owner of fee
title to the property involved, hold their interest in the premises in joint or
common ownership, or as an estate by the entirety, service upon one of
the parties of the Application and Notice in accordance with this
section shall be deemed service upon all of the parties.
(d) Owner acting through attorney-in-fact. In cases where materials
have been furnished or labor was performed at the request, or upon the
order, of a person acting under a duly executed and acknowledged power of
attorney from the owner and (1) the power of attorney has not been
revoked, or (2) the power of attorney has been revoked subsequent to the
furnishing of materials and labor upon request or order and the owner
cannot be found within the State, service of the Application and Notice
upon the person acting under the power of attorney shall be deemed service
upon the owner.
(e) Duration of lien. The lien shall expire three months after the
entry of the Order Directing Lien to Attach unless proceedings are
commenced within that time to collect the amount due thereon by enforcing
the same.
(f) Date of completion, notice of. The term "date of completion" as
used in this section means the time when the owner or the general
contractor for the improvement completes the publication of a notice that
the improvement has been completed or has been abandoned and an affidavit
of the publication, together with a copy of the notice has been filed in
the office of the clerk of the circuit court where the property involved
is situated; provided that notice of completion shall not be effective
for any purpose unless prior to the notice there has been substantial
completion of the improvement or the improvement has been actually
abandoned; and provided further that the notice shall not be published by
the contractor until after the contractor has first made written demand
upon the owner to publish the notice and the owner has failed to publish
the notice within five days from the date of the demand. The publication
of the notice by the contractor or the owner shall not be construed as an
admission by either that the improvement has been satisfactorily
completed. The notice required herein shall be published twice, seven
days apart, in a newspaper of general circulation, printed and published
in the county in which the property involved is situated, and the
publishing newspaper shall promptly file the affidavit of publication
above mentioned in the office of the clerk.
(g) Failure to file or publish notice. If a valid notice of completion
is not published and filed within one year after the actual completion or
abandonment of the improvement the "date of completion" shall be deemed
to be one year after actual completion or abandonment.
§ 507-48. Owner may retain amount due.
Whenever the work or material for which a lien is filed is furnished to
any contractor for use as set forth in section 507-42, the owner may
retain from the amount payable to the contractor sufficient to cover the
amount due or to become due to the person or persons who filed the lien.