1. January 2008 00:00
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When someone provides storage, repair, maintenance or other services to aircraft, he or she typically has the ability to assert a lien on that aircraft and retain possession until he or she has been paid for the services provided to the aircraft. This is commonly referred to as a mechanic's lien or artisan's lien.
A party asserting a mechanic's lien against an aircraft, the lien claimant, usually resorts to a mechanic's lien when the lien claimant has not been paid for the services he or she provided to an aircraft. In order to understand under what circumstances a mechanic's lien may be asserted against an aircraft, aircraft owners and lien claimants need to be familiar with both the federal and state laws that may affect how to "perfect" and enforce an aircraft mechanic's lien.
Perfecting The Lien
An aircraft mechanic's lien must be "perfected" against the aircraft. A lien claimant "perfects" his or her lien by taking the actions required under the law to record or register the aircraft mechanic's lien. Federal law requires that an aircraft mechanic's lien statement or claim be filed with the FAA registry. This means that for all but a few states who do not have aircraft lien recording or notice statutes, the lien statement must be filed with the FAA registry in order for the lien to be perfected.
For those states without such aircraft notice or recording statutes such as Wisconsin, North Carolina, Alabama, Colorado, Delaware and Hawaii, you will need to review the general lien statues and case law for the state to determine the appropriate method of perfecting the lien. Additionally, some states also require a lien claimant to maintain possession of the aircraft in addition to filing with the FAA registry.
The lien statement must be filed within the amount of time established by state law. Depending upon the state, this time period can range anywhere from 30 days up to 180 days from the last date the lien claimant performed work on the aircraft. The lien statement must include the following information: (1) identification of the aircraft by N-number and/or serial number; (2) make and model of the aircraft; (3) the registered owner of the aircraft; (4) the type of work performed; (5) the last day of work; and (6) the amount of the lien claim.
Once perfected, the lien claimant's claim (the amount which the lien claimant believes he or she is owed) is secured by the aircraft and is established against all others who may claim an interest in the aircraft. The lien claimant's interest is similar to the security interest that a lender holds when it finances the purchase of an aircraft.
Keep in mind that the FAA registry merely records aircraft lien statements or claims submitted by lien claimants. As long as the statement or claim is in the appropriate form (includes items 1-6 above, is from a state with a recording or notice statute and is recorded within the appropriate time period), the FAA registry will accept and record the lien statement or claim. However, the FAA registry will not take any position regarding the validity or enforceability of the lien statement or claim, nor does it get involved with any dispute between the aircraft owner and lien claimant.
Enforcing The Lien
Once perfected, the aircraft mechanic's lien encumbers the aircraft and usually, although not always, prevents the aircraft owner from selling the aircraft without first obtaining a release from the lien claimant. After all, in the vast majority of aircraft transactions, the aircraft owner agrees to sell the aircraft with "clear title" (meaning no liens etc.). Thus, if an aircraft purchaser who desires "clear title" performs a title search and discovers the lien, he or she is not likely to purchase the aircraft without assurance that the lien has been satisfied and no longer encumbers the aircraft. If the purchaser buys the aircraft without receiving a release of the lien, the purchaser will not acquire clear title because the aircraft will still be subject to the lien.
However, rather than waiting until an aircraft sells in order to be paid, the lien claimant can initiate a foreclosure proceeding to foreclose on the aircraft. Depending upon the state, the time period within which a lien claimant can initiate a foreclosure proceeding against the aircraft can range anywhere from 90 days to 18 months from the last day of work. The action must be started within that period of time, otherwise the lien will no longer be enforceable against the aircraft. Once that time period has lapsed, although the lien claimant may still be owed money for the services provided to the aircraft, the amount owed will no longer be secured by the aircraft.
If the lien claimant is successful in the foreclosure action, the court will order the aircraft sold at a sale or auction. This is typically performed by the local sheriff's office. The aircraft is sold to the highest bidder at the sale. If no one bids at the sale, the aircraft is sold to the lien claimant for the amount of the lien. If the aircraft is sold to a bidder for more than the amount of the lien, part of the proceeds of the sale will be disbursed to the lien claimant to pay the lien claim and any excess money will then be paid to the aircraft owner.
Defenses Against The Lien
A common defense to an aircraft mechanic's lien foreclosure action is that the lien was not properly perfected. Usually this claim is 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, this may also be asserted as a 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. This claim is often asserted by the aircraft owner alleging 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.
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. Both aircraft owners and lien claimants should understand how aircraft mechanic's liens are perfected and enforced under their particular state laws in order to assert or defend against 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 choose the best course of action.