In Pioneer Construction, Inc. v. Global Investment Corp. (Dec. 21, 2011, No. B225685), Cal.App.4th [2011 WL 6382113], the Second District Court of Appeal recently affirmed a timely topic in this depressed construction market: lien claimants must protect their rights, and buyers of property out of bankruptcy must verify the validity of lingering lien claims.
In Pioneer, the Court held that the “90-day period for foreclosing on Pioneer’s mechanic’s lien under Civil Code section 3144 was tolled during the pendency of the bankruptcy proceedings pursuant to Bankruptcy Code section 108, subdivision (c). (11 U.S.C. § 108(c).)” In Pioneer, the contractor asserted over $2.5 million in pre-petition work through a mechanic’s lien against the debtor’s property. The contractor had filed one mechanic’s lien before the debtor’s bankruptcy and a second increased lien claim after the bankruptcy was filed. The contactor also filed a “Notice of Perfection of Security Interest” in the bankruptcy proceeding for the sum of the second lien claim. The debtor’s bank obtained relief from the automatic stay, and sold the property at a trustee’s sale to a third party. After the sale of the property, the contractor filed an action on both mechanic’s liens, and recorded a lis pendes against the property. The bank moved to expunge the lis pendes and demurred to the contractor’s complaint, asserting that the first lien was void, as the foreclosure action was not brought within the 90-day period by statute, and that the second lien was filed in violation of the bankruptcy stay and likewise barred. The trial court granted the demurrer and expunged the lis pendes.
The Second District Court of Appeal, addressing only the second filed lien claim on appeal, held that the recording of the second mechanic’s lien during the automatic stay was valid under 11 U.S.C. § 362(b)(3), and noted that the mechanic’s lienor must also file a notice of lien in the “bankruptcy proceedings to inform the debtor and creditors of its intention to enforce the lien. (11 U.S.C. § 546(b)(2); In re Baldwin Builders (Bankr. 9th Cir. 1999) 232 B.R. 406, 413.)” Further, “[o]nce the lien is properly perfected, it is not subject to avoidance by the trustee. (11 U.S.C. § 546(b).)” The Court then reiterated that once the bankruptcy stay ended as it related to the subject property (here, due to the property’s sale at the trustee’s sale), the contractor was required to file the foreclosure action within the 90-day period of Civil Code section 3144 to protect its mechanic’s lien rights. (Citing Sawyer Nurseries v. Galardi (1986) 181 Cal.App.3d 663, 671.)