All posts tagged 'mechanic lien'

Slander of Title: The Risk of Filing an Invalid Aircraft Mechanic's Lien

An individual recently called me and told me he wanted to file a mechanic's lien against an aircraft. When I asked him what type of work he had performed he indicated that he had performed some maintenance on the aircraft and also provided pilot services to the owner in the aircraft. Unfortunately, in this individual's state, as is the case in most other states, pilot services are not the type of work upon which an aircraft mechanic's lien may be based. When I told him that, he asked why he couldn't just file the lien for the full amount and then worry about whether he could collect for the pilot services component of the lien down the road. I answered that this was not a good idea. Here's why.

One defense an aircraft owner may assert in response to a lien claimant's attempt to enforce a mechanic's lien against an aircraft is that the lien is invalid because the lien claimant is knowingly demanding an amount in excess of what is justly due. This defense is very common in situations where the aircraft owner initially disputed the amount being charged by the lien claimant. It is also common where the lien claimant is trying to get paid for work that is not lienable work, such as the pilot services in the above-situation. Although this defense usually requires that the aircraft owner show bad faith on the part of the lien claimant or that the lien claimant knew the lien statement was overstated, that isn't necessarily hard to do when the lien is for work that is not allowed under the applicable mechanic lien statute.

And here is the risk a lien claimant may be exposed to if his or her mechanic lien is invalid: If the aircraft owner is successful in defending against the foreclosure proceeding, the aircraft owner will also probably succeed in a slander of title claim against the lien claimant. An aircraft owner asserting a slander of title claim alleges that the lien claimant improperly encumbered the aircraft with an invalid lien. A slander of title claim could have serious and expensive implications for the lien claimant if the improper lien prevented a sale of the aircraft or forced the aircraft owner to accept less in a sale than he or she would have in the absence of a lien.

The moral of the story? Perfecting and enforcing an aircraft mechanic's lien can be tricky. In addition to the federal filing requirement, each state has its own specific requirements governing aircraft mechanic's liens. Lien claimants should understand what their particular state laws allow and require in order to assert an aircraft mechanic's lien. When in doubt, contact an aviation attorney familiar with your state's aircraft mechanic's lien laws to analyze your situation and help you choose the best course of action.

Disputing An Aircraft Mechanic's Lien

What happens if someone records, or threatens to record, a mechanic or artisan lien against an aircraft and the aircraft's owner believes the lien is improper? After all, once recorded, a lien is a "cloud" on the title to the aircraft and, typically, a release or a court order is required to clear the aircraft's title.

So, how does the aircraft owner dispute the lien or have it released if it has been recorded? Fortunately, several options and strategies are available for dealing with the situation.

Resolution Through Negotiation


If the dispute is about the amount of money owed, the best way for the aircraft owner to resolve the situation is to try and reach some agreement with the lien claimant regarding the amount owed. This will certainly save both parties money in the long run. If the lien claimant refuses to settle, the lien claimant will incur significant expense if he or she has to initiate a lien foreclosure action.

Additionally, the lien claimant may also have exposure for slander of title if a court determines that the lien was improper. This could mean that the lien claimant would be required to pay not only the aircraft owner's costs and attorney's fees, but also any losses incurred by the aircraft owner if the lien prevented a sale of the aircraft or forced the aircraft owner to accept less in a sale than he or she would have in the absence of the lien.

Similarly, the aircraft owner will incur significant expense to defend against a mechanic's lien foreclosure action and, if unsuccessful, the aircraft owner could ultimately be required to pay the full amount of the lien plus the lien claimant's costs and attorney's fees. Also, in the meantime, the lien could prevent the aircraft owner from selling the aircraft.

Clearly, both parties have incentives to try and settle the lien claim to avoid the risks and expense associated with litigating the claim. However, if the parties cannot reach an agreement, litigation is available and may be required to resolve the situation.

Resolution Through Litigation


The Mechanics Lien Foreclosure Action
.  To enforce a mechanic lien against an aircraft, a lien claimant must start a lien foreclosure action. In the foreclosure action, the lien claimant asks the court to validate his or her lien and order the aircraft sold to pay the lien claimant the amount owed.

Once the foreclosure action is started, many jurisdictions allow the aircraft owner to post a bond or deposit money with the court to obtain a release of the mechanic's lien before the lawsuit is decided. The amount of the bond or deposit will vary, but is usually the amount of the lien claim plus some additional percentage of the claim (e.g. 125%-150%). The bond or deposit replaces the aircraft as security for the lien claimant's claim. When the court receives the bond or deposit, it then issues an order discharging or releasing the lien. A certified copy of the order must then be filed with the FAA Registry to clear the aircraft's title.

The aircraft owner also has the opportunity to defend against the lien claim in the foreclosure action and to assert any claims the aircraft owner may have against the lien claimant. One common defense to an aircraft mechanic's lien foreclosure action is that the lien was not properly perfected. In this situation, the aircraft owner asserts that the lien statement was not filed within the proper time period after the last day of work or that the lien claimant did not follow the proper procedures to perfect the lien. Similarly, if the foreclosure proceeding was not initiated within the time period allowed by law, the aircraft owner may also assert that defense.

Another defense an aircraft owner may assert is that the lien is invalid because the lien claimant is knowingly demanding an amount in excess of what is justly due. This defense is very common in situations where the aircraft owner initially disputed the amount being charged by the lien claimant. However, this defense usually requires that the aircraft owner show bad faith on the part of the lien claimant or that the lien claimant knew the lien statement was overstated.

If the aircraft owner is successful in defending against the foreclosure proceeding, the aircraft owner will also probably succeed in a slander of title claim against the lien claimant. An aircraft owner asserting a slander of title claim alleges that the lien claimant improperly encumbered the aircraft with an invalid lien. A slander of title claim could have serious and expensive implications for the lien claimant if the improper lien prevented a sale of the aircraft or forced the aircraft owner to accept less in a sale than he or she would have in the absence of a lien.

As a practical matter, a lien claimant does not foreclose on its lien as often as you might think. Oftentimes, the aircraft has a mortgage that takes priority over the lien claimant's claim. As a result, even if the lien claimant succeeded in his or her foreclosure action, the lien claimant would still have to deal with or pay off the lender who holds the mortgage.

In most cases, this doesn't make financial sense for the lien claimant and the lien claimant does not intend to foreclose on its lien. Rather, the lien claimant records the lien with the hope that the aircraft will be sold in the future and the lien claimant will receive some payment in exchange for a release of its mechanic's lien.

The Declaratory Judgment Action
.  In situations where the lien claimant does not initiate a foreclosure action, an aircraft owner may file a declaratory judgment action to ask the court to determine the validity of the lien. The aircraft owner would raise the same defenses to the lien as in a foreclosure action and would be able to assert any additional claims the aircraft owner may have against the lien claimant (e.g. slander of title). The opportunity for the aircraft owner to post a bond or deposit with the court in order to obtain a discharge or release is also available in a declaratory judgment action. The only real difference from the foreclosure action is that the aircraft owner is initiating the lawsuit rather than the lien claimant.

Conclusion


Once a lien is asserted against an aircraft, an aircraft owner isn't without options. Unfortunately, each of the options available to an aircraft owner has a cost, both in time and money. If you find yourself in this situation, I recommend that you contact an aviation attorney familiar with your state's aircraft mechanic lien laws to analyze your situation and help you choose the best course of action.

How Long Does An Aircraft Mechanic's Lien Last?

I was recently asked the question "what happens to an aircraft mechanic's lien that isn't foreclosed upon within a certain period of time?" This person had been researching aircraft records at the FAA Registry and found several aircraft with liens that were recorded against the aircraft over 15 years ago. Not surprisingly, this made him wonder how long an aircraft mechanic's lien lasts.

Since aircraft mechanic's liens (also known as "artisan liens") are creatures of state statutes, the applicable state statute will govern the validity of and rights associated with an aircraft mechanic's lien. All but 7 states have aircraft mechanic's lien statutes. Although federal law requires that an aircraft mechanic lien be recorded with the Registry in order to be effective against a third party, state laws dictate the requirements for "perfecting" a mechanic's lien against an aircraft, and, once perfected, for enforcing the lien against the aircraft.

As long as the lien claim or lien statement contains the required information (e.g. name, address, description of work performed, last date of work and amount) and was filed within the time period allowed by the applicable state statute, the FAA Registry will record the lien and the recorded lien will be an encumbrance against the aircraft. At that point, the lien claim is "perfected." Unfortunately, neither the FAA Registry nor any aircraft title company will take a position regarding the validity/enforceability of an aircraft mechanic's lien once that lien is perfected.

Once perfected, the lien claimant will have to file a lawsuit to foreclose upon the lien within the time allowed by the applicable state statute. If that does not happen, the lien claimant will no longer be able to enforce the lien against the aircraft. The lien claimant may still have a claim against the aircraft owner, but the lien claimant would not be able to enforce that claim against the aircraft unless the lien claimant obtained a judgment against the aircraft owner for the amount owed and then recorded that judgment with the FAA Registry.

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However, simply because a lien claim is no longer enforceable against the aircraft under the applicable state law, that does not mean that the lien recorded at the FAA Registry is removed. The aircraft will only be released from the recorded lien at the FAA Registry in one of two ways: (1) if the lien claimant signs a release of the lien and the release is recorded with the FAA Registry; or (2) if a court order is obtained declaring the lien as either invalid or unenforceable and that order is then recorded with the FAA Registry. Thus, once recorded, a lien claim, whether enforceable under state law or not, remains an encumbrance against the aircraft until the lien is released, either voluntarily or by judicial order.

So, the short, and not particularly precise, answer is: an aircraft mechanic's lien could be a problem for an aircraft for a very long time.


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