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Bankruptcy Can Take A Toll On A Mechanics Lien Claim

By February 8, 2012October 24th, 2018Charles Murawski, Construction Litigation Blog

Charlie Murawski

Generally, once a mechanics lien is recorded, a lien claimant must file an action to foreclose on the lien within 90 days of the recording date.  If a claimant fails to file an action within that time period, his or her lien rights are automatically forfeited.  But what happens if a mechanics lien is recorded and the property owner files a bankruptcy petition before the filing of the foreclosure action and before the 90-day filing period has elapsed? Likewise, what if a mechanics lien is recorded during the bankruptcy proceeding?  In these situations, does the filing of the bankruptcy petition stop the clock from running on the 90-day foreclosure filing period?

Similar issues were recently addressed in the case of Pioneer Construction, Inc. v. Global Investment, Inc. et al. (2011) 202 Cal.App.4th 161.  In that case, the California Court of Appeal, Second District, held that the 90-day time limit to bring an action to foreclose on a mechanics lien was tolled (or suspended) by federal law (11 U.S.C. § 108(c)) pending the property owner’s bankruptcy case.

In reaching its decision, the Court observed that the filing of a bankruptcy petition automatically prevents the commencement of an action, including foreclosure actions, against a bankrupt debtor or its property.  After taking 11 U.S.C. § 108(c) into account, the Court held that as long as the property subject to the lien remains part of the bankruptcy estate, the 90-day period to file a mechanics lien foreclosure action is suspended.  However, it should be noted that when the bankruptcy stay is lifted, the 90-day filing period resumes running and doesn’t expire until the end of the 90 day filing period or 30 days after notice of the termination or expiration of the bankruptcy stay – whichever is later.