Tuesday, November 29, 2022

October 2006 Legal Briefs

Cleanup Changes in 2006 to Mechanic’s Lien Provisions

  1. Background
  2. Obsolete Provisions
  3. What Services Are Covered
  4. Certificate of Title Property with Liens
  5. Change in Time Period
  6. Rental-Related Changes to Section 91
  7. Revisions to Section 180
  8. "Other Property” Mechanic’s Liens
  9. Section 91A vs. Section 197
  10. Section 91A Notice Procedures
  11. Assistance in Researching Titles
  12. Property Removed without Permission; Release Obtained by Bad Check
  13. Service Provider’s Right to Repossess

Cleanup Changes in 2006 to Mechanic’s Lien Provisions

Since November 2005, revised mechanic’s lien provisions have applied to vehicles registered with either the Oklahoma Tax Commission or a federally recognized Indian tribe.  In 2006, cleanup changes fixed several glitches in the 2005 vehicle provisions, and also updated several small details in the mechanic’s lien procedures covering all other types of non-vehicle personal property.  

In the past, repair shops’ compliance with mechanic’s lien procedures has been uneven.  The 2006 legislation includes several changes that will help lenders—but only if repair shops are aware of and understand the changes.

There isn’t a regulator or trade association for repair shops in Oklahoma, so there’s no good way to “get the word out” to all service providers affected by these new mechanic’s lien provisions.  (Anyone making repairs, providing services, or providing storage or rental space for any type of personal property will be affected.)   

Lenders usually don’t get too excited about mechanic’s lien statutes.  A bank just wants good notice and fair treatment.  A majority of mechanic’s liens don’t even involve a lender.  Nevertheless, it may be helpful for a bank to alert local service providers (and attorneys) to these changes.  This will ensure that the bank gets appropriate and timely notice of mechanic’s liens (and lien foreclosure sales).  It also may help service providers to avoid potential liability for noncompliance with required procedures.

After reviewing some background, I will discuss a number of this year’s changes to the mechanic’s lien procedures in Sections 91 and 91A of Title 42.

1.  Background

Prior to 2005, mechanic’s liens for motor vehicles were subject to the same lien procedures as “all other” personal property in Oklahoma.  (Repair shops and other service providers have a possessory lien for unpaid repairs, service, or storage, and can sell the goods to satisfy unpaid charges, after taking certain steps.  Before 2005, identical procedures applied to all categories of personal property that can be stored, or taken to a repair or service shop.)  

In 2005, lenders decided that this approach was no longer working well for motor vehicles.  Some people felt that automobile repair shops were deliberately delaying in notifying lenders concerning a mechanic’s lien, to rack up large unpaid “storage” charges on a vehicle in addition to unpaid repairs.

The 2005 amendments split off vehicles under a new set of procedures (Section 91 of Title 42), while leaving unchanged the previously-existing mechanic’s lien procedures for “all other” personal property (Section 91A).  

The 2005 changes regarding vehicles (Section 91) required a repair shop to give a lender prompt notice that it was holding a vehicle, and prohibited accrual of any storage charges on vehicles before the lender is notified.  Because of hurried drafting, the new language adopted in 2005 with respect to vehicles (Section 91) resulted in conflicts and overlaps with other lien provisions (Sections 91A, 180, and 197 of Title 42) that were not adequately dealt with.  The 2005 provisions did not attempt to change the mechanic’s lien statute covering “other property” (Section 91A), although that statute had several antiquated, unworkable procedures.  

A legislative study committee in the fall of 2005 reviewed some additional proposed changes to the mechanic’s lien statues, at the request of the OBA and persons who regularly conduct lien sales of vehicles and other personal property for repair shops.  The two groups were asked to work together, and House Bill 1580 was the result.  It became effective August 24, 2006

2. Obsolete Provisions

Oklahoma’s mechanic’s lien provisions were first adopted in 1910.  Originally they were designed to help blacksmiths get paid for repair work on wagons and farm equipment.  

In 1910 the owner of an item being repaired, the repair shop, and the lender (if any) were all in the same county.  For “other property” subject to a mechanic’s lien (excluding vehicles), the statute has directed a repair shop to search for “chattel mortgages” in the county where the repair shop is located, to find out whether there is a lender with a collateral interest in the property who should be notified.  However, Oklahoma did away with chattel mortgages in 1961.  For the last 45 years, searching for them has yielded “nothing.”

Since 1961, Oklahoma has used UCC-1 financing statements instead of chattel mortgages.  As of July 1, 2001, new filings of UCC-1’s covering almost any possible category of “repairable” collateral (goods, equipment, etc.) must be made in the central filing office (Oklahoma County).  A five-year transition period has now expired, and all pre-existing UCC-1’s filed in the local counties either have been transitioned to central filing or have expired.  With the possible exception of filings covering “fixtures” (which are required to be indexed in the real estate records), no UCC filing exists in the local county that could disclose a lender’s interest in collateral being repaired.  (This is not true for repair shops in Oklahoma County–the location of the central filing office.)  

The mechanic’s lien statutes (until 2006) have continued to require a pointless search in local county records (with respect to all collateral not having a certificate of title), but the required procedure cannot discover the existence of any lender or result in notice to a lender to whom repaired or stored property (other than “certificate of title” property) is pledged.  All relevant UCC-1’s are now available in the central filing office (Oklahoma County), but the mechanic’s lien provisions have not required any search of those records.  This situation has been corrected in the 2006 changes, but is just one example of how badly the mechanic’s lien procedures were out of date. 

3. What Services Are Covered

A mechanic’s lien (under Section 91 or Section 91A) covers charges that have been incurred and remain unpaid in connection with an article of personal property, either 1) for storage or rental of space [for example, keeping a boat in dry dock or an RV or antique car in storage, or renting a lot for a mobile home], or 2) for materials used in connection with that property [such as replacement parts or improvements], or 3) for labor or skill [repairs, cleaning, painting, towing, etc.].  

A mechanic’s lien cannot arise unless the service provider has obtained possession of the article of personal property in a lawful manner (for example, property was voluntarily taken to the repair shop or storage facility, or the owner allowed it to be brought there).  The provider must continuously retain control of the property while the amounts owed remain unpaid.

4. Certificate of Title Property with Liens

Two distinguishing characteristics of 2005’s new Section 91 (in contrast to pre-existing Section 91A’s procedures) are 1) the requirement to give prompt notice to lenders that a repair shop has a mechanic’s lien on a vehicle, and 2) the prohibition against accruing any storage charges until the lender has first been notified.  Understanding what categories of property are subject to Section 91 is really the same as determining when these two steps must be part of the mechanic’s lien process.

As enacted new in 2005, the mechanic’s lien provisions in Section 91 of Title 42 applied to all “vehicles required to be registered with the Oklahoma Tax Commission or with a federally recognized Indian tribe.”   This approach created some ambiguities and compliance problems.  

For example, it was impossible for a service provider with a mechanic’s lien to know whether a vehicle is “required to be registered” in Oklahoma (a conclusion of law), if that vehicle it is not actually registered in Oklahoma.  But the service provider had to know whether the car was “required to be registered in Oklahoma” in order to choose correctly between the mechanic’s lien provisions in Section 91 and Section 91A.

Section 91 was changed in 2006 to cover property that “has a certificate of title issued by the Oklahoma Tax Commission or by a federally recognized Indian tribe in Oklahoma.”  (Actual registration is the issue, not what should have been done.)  

With property categorized in this manner, the service provider can look for a tag or decal on the item of property (vehicle, trailer, boat, manufactured home, ATV, or outboard motor), and observe what jurisdiction issued it.  If the title is issued in Oklahoma, the service provider can contact the local tag agent, or Indian tribal office, to obtain ownership and lienholder information.  If a tag is missing, but the property is of a type that obviously should have a certificate of title, the VIN can be used to obtain more information.  

(If the tag agent or Indian tribal office indicates that no lender’s lien is recorded on the title, the mechanic’s lien provisions in Section 91A will apply instead of Section 91.  If the title is issued by another state, the mechanic’s lien provisions in Section 91A will apply, and the service provider will have more time, as necessary, to obtain owner and lender information.)

Another slight problem with Section 91 (as enacted in 2005) was the definition of “vehicle.” The statute refers to the Motor Vehicle Code’s definition, which includes conveyances for transporting people, including boats, travel trailers and rental trailers.  This goes beyond the common meaning of “vehicle,” and some service providers, including shops that repair boats, commercial trailers or ATV’s, might have believed (wrongly) that they were not working on “vehicles.”  On this basis, a repair shop could follow the wrong set of mechanic’s lien notice and sale procedures (not the Section 91 procedures for vehicles), resulting in potential liability for a repair shop, as well as potential financial loss to a lender that does not receive appropriate notice of property subject to a mechanic’s lien.  

Effective August 24, 2006, Section 91 includes several categories of property for the first time—property that was not within the category of “vehicles.”  Manufactured homes (because they have certificates of title) are now brought under Section 91, both with respect to services and materials (formerly in Section 91A) and also storage and monthly “trailer space” rental charges (formerly in Section 180).  Similarly, commercial-use trailers of all kinds and outboard motors (because they have certificates of title) are brought under revised Section 91’s coverage (instead of Section 91A).

As amended this year, Section 91 applies to “every vehicle, all-terrain vehicle, manufactured home, motorcycle, boat, outboard motor, or trailer that has a certificate of title issued by the Oklahoma Tax Commission, or by a federally recognized Indian tribe in the State of Oklahoma, except as otherwise provided in subsection D of this section.”

So, based on the 2006 amendments, the “bright-line” first-level test for determining whether property is subject to Section 91’s mechanic’s lien procedures is this:  “Does it have a certificate of title?”

The listed “exceptions” in subsection D of Section 91 are like a “second line of questions” that are used to drop certain “certificate of title” property out from under Section 91’s coverage.

The first exception is “no active lien.”  In one of the significant 2006 changes to last year’s new Section 91, personal property with no active lien recorded on the certificate of title has been removed from coverage under Section 91, and instead will be covered by Section 91A.  Lenders don’t care about storage costs and early notice provisions (the main characteristics distinguishing Section 91’s procedures from Section 91A) if there is no lien recorded on the certificate of title, and therefore no secured lender to protect.
 
 (Mechanic’s lien processors requested this first exception, to simplify the procedures that they must follow. The vast majority of mechanic’s liens relating to “certificate of title” property actually have no lender’s lien recorded on the title.)   

A second exception to Section 91 is for “farm equipment.”  A separate 2005 statute exempted farm equipment from Section 91, at the request of farmers and farm implement dealers. This category has its own mechanic’s lien provisions, in Section 91.2.  (“Farm equipment” must be primarily used in connection with farming/ranching operations.)  Some vehicles with liens recorded on the title would ordinarily fit within Section 91–pickups, flat-bed trucks, or even semi-trailer trucks—but because of farm use will fall under Section 91.2 instead.  Most such vehicles have a farm tag, readily identifiable by repair shops.     

A third exception to Section 91’s coverage is property with both a certificate of title and an active lien more than fifteen years old recorded on the title.  (This exception does not apply to manufactured homes.)  If a lien on the title is more than fifteen years old, the property is covered instead by Section 91A.  Usually a fifteen-year-lien on the title indicates the borrower’s failure to file a lien release, not actual debt outstanding.  This is another exception requested by mechanic’s lien processors.

A fourth exception applies to salvage pools, and licensed wrecker operators, which are subject to Section 91A rather than Section 91.  The 2005 statute has not changed this exception.    

Some other messy categories, neither caused nor fixed by this year’s changes, result from quirks in the Motor Vehicle Code, which divides some identical types of property into 1) items that need a certificate of title, and 2) items that don’t, based on a difference in use (for small trailers), or the date of purchase or transfer (in the case of ATV’s).  Small trailers with a commercial use, and ATV’s purchased on or after July 1, 2005, are required to have a certificate of title, and are subject to the mechanic’s lien procedures in Section 91 if there is a lien recorded on the title.  Smaller trailers with a consumer use, and ATV’s that were acquired before July 1,2005 and not transferred since that date, are not required to have a certificate of title, and therefore fall under the mechanic’s lien procedures in Section 91A.  And of course, small trailers or ATV’s can sometimes be “farm equipment,” which would make them subject to mechanic’s lien procedures in Section 91.2.  

Whether Section 91 applies to “certificate of title” property also varies with the state of registration.  Any “certificate of title” property registered out-of-state will drop out of Section 91 and be subject instead to Section 91A.  It’s fairly quick and easy for a service provider to obtain owner and lender information through the local tag agent for “certificate of title” property registered in Oklahoma, but it’s more time-consuming to get that information from another state.  (If “certificate of title” property is registered out-of-state, Section 91A will still require the service provider to notify a lender whose lien is recorded on the certificate of title; but the service provider will not need to comply with any deadline in giving notice.)

5. Change in Time Period.

As adopted in 2005, Section 91 required a service provider claiming a mechanic’s lien on a vehicle to mail a notice to all interested parties (including lenders) no later than thirty days after first services are rendered with respect to the vehicle.  In 2006 this time period was changed to sixty days.

Although “thirty days after first services are rendered” sounds reasonable for notifying a lender of a mechanic’s lien, under the wrong circumstances thirty days can be too short.   

Sometimes a vehicle is in the shop for several weeks.  With a bad wreck, a car needs both mechanical and body work, and all of the problems may not be known immediately. Or maybe a repair shop starts work on a vehicle immediately (“first services”), but gets hung up on completing the remaining work because a necessary part has to be specifically ordered.  A notice deadline thirty days after “first services” are performed may not actually leave many days after “last services” are completed.  

In other cases, an owner has a used-car warranty or an unexpired manufacturer’s warranty.  When major repairs become necessary, everyone assumes that the warranty provides full coverage.  If the repair shop and the warranty provider get into a lengthy debate over whether particular work is covered, or what is the appropriate amount of charges, it can take some time before the repair shop knows where it stands, and whether it will have to look to the vehicle’s owner for payment, possibly asserting a mechanic’s lien.  

Although the Section 91 time period for notice to interested parties (including lenders) was changed in 2006 to sixty days after the first services are rendered, the change should not affect lenders very much.  In a few cases, a lender will have to wait longer than thirty days before learning where “certificate of title” collateral is located; but if this delay is caused by a warranty dispute or slowness in obtaining parts, these matters need to be resolved anyway before a lender can evaluate its position.   

Even with the change to sixty days, repair shops will be unable to accrue storage charges before a lender is notified.  A service provider will have every incentive to give notice as promptly as it can (in most cases, still within thirty days), in order to get the repair bill paid quickly and get the vehicle or other property off the lot. 

6. Rental-Related Changes to Section 91

Until now, Section 180 of Title 42 has provided for a separate possessory lien procedure with respect to manufactured homes, covering accrued charges for 1) storage of a manufactured home, or 2) rental of a space, such as in a mobile home park.  In 2006 these provisions were folded into Section 91 (for manufactured homes with a recorded lien on the certificate of title), to give lenders better notice of the existence of the “rental” lien or a proposed sale to satisfy the lien, under the same procedures that apply to repairs.

Lenders’ complaints in the past about excessive storage charges have generally not been directed at regular charges arising under a contract for storage or rental of space.  An arrangement primarily for rent, entered into by the owner of personal property, tends to be at a reasonable price.   

New subsection A(5) of Section 91 allows a lienholder to collect up to sixty days’ unpaid contractual storage or rental charges that have accrued before notice to the lender, provided that the “overall transaction is primarily for the purpose of storage or rental.”  Typically, a rental provider doesn’t start thinking about asserting a possessory lien and contacting the lender until rent or storage charges are about a month past due.  Section 91 will require a rental provider to notify the lender within sixty days of the first day for which rental or storage charges remain unpaid.  For example, if rent has been paid only through August 31, the rental provider must notify the lender not later than October 30.  

This sixty-day deadline for giving notice to the lender is realistic in light of the type of transaction, but also limits the amount of storage or rental charges that can accrue (sixty days’ worth).  The statute states that “charges subject to the special lien . . . shall accrue only at the regular periodic rate for storage or rental as provided in the contract, adjusted for partial periods.”  On this basis, amounts provided in the contract for “late charges” apparently cannot be included in the amount that must be paid before the rental provider surrenders possession—but the property’s owner may still be personally liable for such charges. Similarly, a lien amount cannot include a “default” rental rate that is higher than the regular rental rate, although the property’s owner might still be liable for the difference.

There are many situations where “certificate of title” collateral with a lien on the title is stored for a fee, or occupies a rental space.  The owner of an RV, travel trailer or boat may place that item in storage on a seasonal basis, paying regular monthly rental fees.  A marina renting boat slips is in the same category.  Occasionally, a person is gone for an extended time and puts his motorcycle or car in storage, paying monthly charges.  A more common example within this category, however, is the trailer park lot or small acreage rented as a location for a manufactured home.

Provisions in the Self-Service Storage Lien Act, found at Sections 191 through 200 of Title 42, are broad enough to apply even to “certificate of title” property with a lien on the title (a car, boat, motorcycle, or ATV) that happens to be found in a “mini-storage” facility on which rent is past due.  Previously, a storage facility owner had to comply with both the self-storage facility lien procedures (Sections 196-197) and the lien foreclosure procedures for certificate of title property (Section 91), if both applied.  Unfortunately, these two sets of provisions did not fit together well.  Until now, Section 91 has required notice to the lender within 30 days, but Section 197 says no notice can be sent until rent is in default for at least 30 days.  Section 91 has stated that no rent can accrue until the lender is notified, but Section 197 allows the storage facility to collect all rent owed, beginning with the date of default.

In 2006, this conflict was resolved so that storage facilities will be able to follow only one set of procedures for any particular item:   Revised Section 91 states that if mechanic’s lien provisions in Section 91 apply (in other words, if what is found in the self-storage facility is “certificate of title” property with a lien recorded on the title), the storage lien provisions in Section 191 through 200 will not apply.

Assume, for example, that charges are unpaid for a rental of a self-storage unit containing both 1) a motorcycle with a lender’s lien recorded on the title, and 2) consumer goods.  For the motorcycle, the storage facility can follow just the mechanic’s lien notice and sale procedures included in Section 91.  The remaining contents of the storage unit (property that does not have a certificate of title and a recorded lien on the title) can be handled under the regular procedures for selling self-storage contents, in Section 197.

7. Revisions to Section 180

Almost all of Section 180 of Title 42 has been repealed. This section provided a possessory lien on manufactured homes for unpaid rental changes on real estate.  This subject is now covered instead by Sections 91 and 91A.  

One important paragraph remains in Section 180, making it unlawful for the owner of real property to refuse to allow a secured creditor to repossess and move a manufactured home.  If the real estate owner has a possessory lien under Section 91 or Section 91A for rent owed, and the creditor pays the amount of the possessory lien that has priority over the creditor, the real estate owner must allow repossession.  If the property owner refuses, that owner is liable in damages to the secured creditor, equal to 1/30 the regular monthly rental charged to the manufactured home’s owner, per day, plus reasonable attorney’s fees and costs.

8.  “Other Property” Mechanic’s Liens

Section 91A (unlike Section 91) preserves much of the mechanic’s lien process that existed prior to 2005.  Section 91A’s notice and sale provisions will apply to “all other” personal property, after excluding 1) “farm equipment” (covered instead by Section 91.2) and 2) property with a “certificate of title” and a lien recorded on the title (Section 91).

Section 91A applies, among other things, to “any vehicle, all-terrain vehicle, manufactured home, motorcycle, boat, outboard motor or trailer” that is not covered by Section 91.  As suggested earlier, titled personal property will be covered by Section 91A (instead of Section 91) if the property has no lien recorded on the certificate of title; if the certificate of title is issued by another state (instead of the State of Oklahoma or an Indian tribe located in Oklahoma); or if salvage pools and wrecker operators are holding the property.  Section 91A also will apply if an active lien recorded on a certificate of title is more than fifteen years old (but the property is not a manufactured home).

ATV’s and small trailers with no certificate of title will also fall under Section 91A’s provisions. In fact, all personal property without a certificate of title (except “farm equipment”) will be covered by Section 91A’s provisions.  

Other examples of Section 91A personal property (with no certificate of title) are appliances, furniture, equipment, industrial machinery, jewelry, computers, and musical instruments.  This is the “catch-all” category, and what is included is almost endless.

Manufactured-home-related charges for storage or rental will also now be covered by the mechanic’s lien procedures of Section 91A, if the manufactured home has no lien recorded on the certificate of title.

9.  Section 91A vs. Section 197

Most of the goods stored in a self-storage facility are not “certificate of title” property, and therefore could be subject to Section 91A’s mechanic’s lien provisions for unpaid storage costs if those same goods were stored anywhere other than in a self-storage facility.  However, the 2006 amendments make clear that if property seems to be covered by both Section 91A and the procedures in Sections 191 through 200 (the Self-Service Storage Lien Act), the self-storage facility lien procedures should be followed and Section 91A will not apply.

From a lender’s standpoint, the Section 197 self-storage lien provisions are less than perfect.  These procedures require notice to a lienholder only if the mini-storage facility has actual knowledge of that lender’s existence. A self-storage facility’s owner has no duty under Section 197 to determine whether any lender might have a security interest in a property (if it has no certificate of title) that is covered by the storage facility’s lien and upcoming sale.  But property left in a self-storage unit is mostly “consumer goods,” for which UCC-1 filings are not required; so even if the storage owner had a duty to search for filings, the search would usually disclose nothing.

10. Section 91A Notice Procedures

For personal property covered by Section 91A, there is no deadline for  notifying the property’s owner and the creditor (if any) concerning the existence of a mechanic’s lien, and no prohibition (or limit) on storage fees accruing before notice is given.  This is the same approach that has existed for almost a century.  

Several provisions were added in 2006 to tighten up Section 91A’s procedures, without changing the basic characteristics.  The most important change takes the service provider through a required process of searching for the existence of a lender who may have a security interest in the property subject to the mechanic’s lien.

This process for discovering the lender’s existence and identity falls into two categories. First, as amended in 2006, if the personal property has no certificate of title and is not required to be titled under Oklahoma law, the service provider must give notice of a lien sale to three categories of persons: 1) all owners of the property; 2) “any secured party who has an active financing statement on file with the county clerk of Oklahoma County listing one or more owners of the property by legal name as debtors and indicating a collateral description that would include the property”; and 3) “any person having any interest in the personal property, of whom the claimant has actual notice.”

Previously, the statute required the service provider to search for chattel mortgages in the local county (a pointless exercise).  Now, for property without a certificate of title, the service provider 1) will have to know who are the owners of the property (by “legal name”), 2) will be required to search for UCC-1’s in Oklahoma County (online, for free) under each owner’s “legal name,” and 3) will have to understand UCC collateral categories, so that if a UCC-1 is located, the service provider can identify whether the property subject to the mechanic’s lien fits that category.  (Or, without interpreting the categories, the service provider with a mechanic’s lien could send a notice to any lender who has filed a UCC-1 listing the owner of the repaired property as debtor.)

Another problem is that it’s impossible to search UCC-1 filings under an owner’s “legal name” unless the service provider knows the legal name.  Instead of writing up a service order for Billy Bob Smith or Junior Smith, the repair shop will have to determine the person’s real name–William Robert Smith, Jr.  

Second, for personal property “for which a certificate of title has been issued by any jurisdiction” (falling out of Section 91 by one of the exceptions), Section 91A provides that the notice of sale must be given to 1) all owners of the personal property as indicated by the certificate of title; 2) lien debtors, if any, other than the owners (for example, when the property owner’s collateral is pledged on someone else’s debt); 3) “any lienholder whose lien is noted on the face of the certificate of title”; and 4) “any other person having an interest in the article of personal property, of whom the claimant has actual notice.

When a certificate of title is issued by another state, the property falls within this provision.  The service provider must contact that jurisdiction to learn both 1) who the owners are, and 2) who the lienholders are, as reflected on the certificate of title.  (The service provider is not subject to any deadline for giving notice, such as Section 91 requires—because it’s an out-of-state title. More time may be required to learn the owner’s and lienholder’s names.)

11. Assistance in Researching Titles

New subsection A(4)(d) of Section 91A entitles a service provider to request assistance from the Oklahoma Tax Commission in determining the jurisdiction of titling for “certificate of title” property, including a vehicle or manufactured home, if the service provider cannot learn this information by ordinary means.  Within fourteen days after receiving a written request, the OTC must provide information concerning the jurisdiction of titling.  If the OTC is unable to provide the information, it must give notice that the record is not available.

This provision applies to vehicles, all-terrain vehicles, motorcycles, boats, outboard motors or trailers if they are not more than five model years old.  It also applies to manufactured homes that are not more than fifteen years old.

When all reasonable efforts have been exhausted (the jurisdiction of titling of property is unknown and cannot be obtained by the OTC, and the owner is also unknown), subsection A(4)(d) of Section 91A allows the property to be sold by publishing legal notice for three consecutive weeks. But there are very few cases where this approach will need to be used for “certificate of title” property.

12. Property Removed without Permission; Release Obtained by Bad Check

In 2005 a subsection B(2)(a) was added to both Section 91 and Section 91A, to cover situations where personal property on which there is a mechanic’s lien is removed from the service provider’s possession without permission.

If personal property held to satisfy a mechanic’s lien is removed from the service provider’s possession without consent, subsection B(a)(b) of Sections 91 and 91A gives the service provider a “special lien,” protected by filing a sworn statement in the local county clerk’s office (where the property is located) within five days after unauthorized removal of the property. This statement must set out the relevant facts, describe the removed property, and state the amount owed to the service provider (or an approximate amount, to be amended within thirty days).  The lien then must be enforced within sixty days after filing.   

This “special lien” returns the service provider to a position that is superior to both the owner of the property and a lender with a security interest in the property.     

A similar provision, subsection B(1)(a) of both Section 91 and Section 91A, covers a service provider’s release of possession of property (terminating the mechanic’s lien) based on payment by check (or “other written order for immediate payment of money”) on which payment is declined.

(A check returned for any reason would fit this scenario–insufficient funds, unavailable balance, closed account, stop payment, “refer to maker,” forged signature, etc.  Also in this category are money orders on which payment is stopped, and declined or reversed credit card or debit card payments.)   

In the “bad check” situation, a service provider really does not intend to release possession of the repaired property, except in exchange for payment.  It’s only a mistaken belief that good payment has been received that induces the service provider to give up possession of the property.  Here, too, the statutes grant a special lien, putting the service provider back into a position superior to the owner of the property and superior to a secured creditor.

To claim this special lien, the service provider must file a sworn statement, not later than 30 days after the “written order for payment” is dishonored, in the county clerk’s office of the county where the personal property is then located.  The service provider must attach a copy of the bad check (or other written order for payment), stating that it was not paid, and that it was used to induce the service provider to release possession of the personal property on which a mechanic’s lien otherwise would have continued.  

The thirty-day period for filing the statement allows the service provider to attempt to collect on a bad check (particularly an NSF item).  The special lien mentioned in this subsection must be enforced within sixty days.

Unfortunately, until now the subsection B(1)(a) and subsection B(2)(a) special lien procedures have not provided an easy way for the service provider to regain control of the personal property that has been removed without permission or by payment with a bad check.  

13. Service Provider’s Right to Repossess

A new subsection C was added to Sections 91 and 91A in 2006.  It allows a service provider to regain possession of personal property on which it has a special lien, in circumstances where the property was removed from the service provider’s possession either without permission or by means of “bad” payment.

A service provider can repossess property if the person obligated under the contract for services (the owner of the property) has signed “an acknowledgment of receipt of a notice that the article may be subject to repossession.”  

There are two ways this acknowledgment of receipt of notice can be provided:  1) in writing and separate from the written contract for services; or 2) if printed on the written contract for services, “in bold-faced, capitalized and underlined type, or . . . separated from surrounding written material so as to be conspicuous with a separate signature line.”   

If the service provider asks customers to sign a “service order” in advance, which typically has an estimate of costs and the customer’s promise to pay, it wouldn’t be difficult to modify the form to provide a separate, conspicuous paragraph giving the acknowledgment mentioned above, with a separate signature line for that paragraph.  

Alternatively, a service provider may want to provide a completely separate “acknowledgment of receipt of notice” form for customers to sign when they make payment and receive possession of their repaired property.  This procedure can alleviate a service provider’s concerns about whether a check will be good–particularly on expensive repairs.  If the payment fails, the special lien procedure outlined earlier will apply, and repossession is available.

After repossession, property must be taken back to the place where the services were provided. Subsection C of Sections 91 and 91A entitles the service provider to add the fair cost of the repossession to the amount already owing.