Jan/Feb 2013

MECHANIC'S LIEN AND BANKRUPTCY

The case of Pioneer Construction, Inc. v. Global Investment gives us an exception to the timing of the Mechanic's Lien. This particular case began because of a contract between Oakridge Homes LLC ("Oakridge") and Pioneer Construction, Inc. ("Pioneer") in 2005 for construction services on 19 lots in Stevenson Ranch. Pioneer completed the work but Oakridge never paid them for the work done on the project. This caused Pioneer to seek recovery by utilizing the Mechanic's Lien process. The legalities on the timing Pioneer utilized are what is at question in this case.

Pioneer recorded a Mechanic's Lien on April 17, 2008. On June 13, 2008, Oakridge filed for Chapter 11 bankruptcy. Pioneer recorded another Mechanic's Lien for more money on January 29, 2009. A Notice of Perfection of Security Interest (a filing in bankruptcy court rather than the superior court because of the bankruptcy stay, to notify all creditors of Pioneer's claims against the property) was filed by Pioneer in the Chapter 11 proceedings with a $2.67 million lien (the same amount as the second Mechanic's Lien).

By July 2009, the subject property was purchased by Global Investment Corp ("Global") at a trustee's sale held after relief from the automatic stay was obtained. Pioneer finally filed a complaint to foreclose on the Mechanic's Lien in November of 2009 as well as recorded a Lis Pendens.  Global demurred and motion expunged the Lis Pendens on the frounds that the Mechanic;s Lien was invalid.  The trial court expunged the Lis Pendens.

Civil Code Section 3144 (which is now Civil Code section 8460) at the time stated,

"(a) No lien provided for in this chapter binds any property for a longer period of time than 90 days after the recording of the claim of lien, unless within that time an action to foreclose the lien is commenced in a proper court, except that, if credit is given and notice of the fact and terms of such credit is recorded in the office of the county recorder subsequent to the recording of such claim of lien and prior to the expiration of such 90-day period, then such lien continues in force until 90 days after the expiration of such credit  but in no case longer than one year front the time of completion of the work of improvement. (b) if the claimant fails to commence an action to foreclose the lien within the time limitation provided in this section, the lien automatically shall be null and void and of no further force and effect."

Going by Civil Code section 8460 alone the trial court was accurate in the finding because Pioneer did not file its complaint within 90 days of the first Mechanic's Lien.  However, because this dealt with a bankruptcy matter, there are additional laws that needed to be considered, such as 11 U.S.C. sections 362 and 546.  Enforcement actions are not allowed during the automatic stay but tolled.  In other words the time period wherein the automatic stay is effect will not be counted as part of the time period used to calculate deadlines, etc.

In this instance, the 90-day timeline of Civil Code section 8460 was tolled.  This is because Pioneer filed its lien January 29, 2009, and the 90-day period did not begin until after the trustee's sale on August 25, 2009 and the complaint was filed on November 12, 2009, which was 79 days after the trustee's sale, the time within which time began to run as the bankrupt entity no longer owned the property.  Thus, the say made the complaint timely.  The appellate court reversed the trial court's judgment.