Contractor’s or materialman’s liens

If you are a contractor who has provided services for the improvement of real property, or if you have supplied materials or products that have been used in the improvement of real property, Washington law entitles you to place a lien on that property to secure payment of the services or supplies. In most cases, the lien relates back to the time when the services or products were first performed, so long as there has been an actual improvement that is visible on the site. The lien must be recorded within 90 days after the end of the service or supplying of products to the project. In general, a lawsuit must be commenced within eight months of recording the leading, otherwise the lien rights are lost (there are exceptions in the statute).

If the owner of a project has gone bankrupt, the contractor faces a problem: the bankruptcy automatic stay prohibits any legal action to collect on a debt until the bankruptcy process is completed. However, the bankruptcy code allows contractors and suppliers to perfect their liens even while the bankruptcy is going on. This means that the contractor should be careful to record the lien as required by the Washington statute within the time period. During the bankruptcy proceedings, the one-year statute of limitations is tolled, which means that the time period is not counted. However, it is very important to follow the proceedings in the bankruptcy case, because when the bankruptcy is either dismissed were completed, the time period begins running again.

It is also possible for the contractor to bring a relief from stay motion. One potential problem here is that the project owner may dispute the amount of the claim. Should that happen, the contractor that would be required to bring what is called an adversary proceedings in the bankruptcy case.

An adversary proceedings is simply a lawsuit within the bankruptcy court. The contractor would have the burden of proving the amount owed and overcoming any defense the project owner may bring.

The advantage of an adversary proceedings may be that the contractor will resolve the disputed claim and obtain a judgment in a relatively quick fashion. He would then be allowed to execute on the judgment before the bankruptcy is completed. The disadvantage is that it is more costly.

If you are a contractor or a supplier who is not being paid by a project owner in bankruptcy, or a general contractor in bankruptcy, please contact me to discuss your options.

RCW 60.04 covers contractor’s and materialmen’s liens in Washington State.