Deck 6: Liens

Question 1

A mechanics' lien is a statutory lien.

Answer 1

True

Question 2

A lien for federal estate taxes is a judicial lien.

Answer 2

False

Question 3

A lien for federal estate taxes is a voluntary lien.

Answer 3

False

Question 4

A tort judgment levied on real property is a judicial lien.

Question 5

A judgment can be recorded generally against all the debtor's property.

Question 6

A mortgage is a contractual or equitable lien.

Question 7

A lessee can never have a mechanics' lien validly imposed upon the lessor's property.

Question 8

Corporate property is not subject to a mechanics' lien.

Question 9

Property of the federal government is not subject to mechanics' liens.

Question 10

Consent states require proof of an express or implied contract.

Question 11

A general contractor is usually not entitled to lien property.

Question 12

A mechanics' lien applies only to the improved structure.

Question 13

A preliminary notice is, in effect, a lien.

Question 14

A lien is perfected through filing.

Question 15

Liens are filed with land records.

Question 16

Execution of a lien requires suit.

Question 17

In beginning-of-construction states, lien priority is as of the time of the lien filing.

Question 18

Construction mortgages always have priority over mechanics' liens in beginning construction states.

Question 19

Privity of contract is not required in all states for a valid mechanics' lien.

Question 20

A tenant has the authority to contract so as to give lien rights on the landlord's property.

Question 21

Judicial liens can be recorded against the real property and collected upon sale of the property.

Question 22

The failure to give notice of the right to lien can invalidate the lien.

Question 23

A time limit on a lien means that the lien holder must foreclose or the lien expires.

Question 24

Once a building is sold, mechanics' liens on the property are no longer valid.

Question 25

Most states' lien laws cover labor and materials.

Question 26

Public property is exempt from liens.

Question 27

All states allow subcontractors to collect the full amount of their lien.

Question 28

A tenant always has the right to give lien rights to a contractor who performs work on the real property.

Question 29

Common law gives priority to lien holders in the order in which they file their liens.

Question 30

Under the common law rule for lien-holder priority, the start date of work is irrelevant.

Question 31

The pro rata formula for distributing funds that are not sufficient to cover all liens means that the amount is distributed equally among the lien holders.

Question 32

Owners have no liability to lien holders when their contractor goes belly-up.

Question 33

"Beginning of construction" is defined as when the first work is done or the first equipment is placed on the property.

Question 34

A mortgage recorded after the start of construction still has first priority.

Question 35

In the majority of states, the filing of a lien by all contractors dates back to the beginning of construction.

Question 36

A purchaser is subject to liens only if the liens were recorded prior to the time of the purchase.

Question 37

Stop-notice statutes are unconstitutional.

Question 38

Stop-notice payments are given to general contractors.

Question 39

Which of the following is an example of a statutory lien?

A) Mortgage
B) Mechanics' lien
C) Judgment
D) Equitable lien

Question 40

A first to file, first in right state will:

A) Give mechanics priorities back to the time construction began.
B) Give general contractors priority over subcontractors.
C) Give mechanics priorities according to the time each individual project is begun.
D) Give mechanics priorities according to their time of lien filing.

Question 41

Which of the following does not affect the validity of a mechanics' lien?

A) Lack of license where required
B) Breach of contract
C) Lack of property interest in contracting party
D) Lack of privity with landowner

Question 42

A termination of a lien occurs in which of the following circumstances?

A) Filing of a release
B) Transfer of the property
C) Discovery of poor quality work
D) Placement of a mortgage on the property

Question 43

When there are more lien claims than funds available in an equal footing state, the lienors:

A) Will receive equal amounts of the funds.
B) Will receive pro rata shares of the funds.
C) Will receive funds in order of their completion dates.
D) Will collect any deficiencies from the landowner.

Question 44

Which of the following parties is not required to receive the preliminary notice or notice of claim be given?

A) Property owner
B) General contractor
C) Construction lender
D) Registrar of contractors - the licensing agency in the state

Question 45

A lien waiver:

A) Is given by a sub in exchange for payment.
B) Is the same thing as a preliminary notice.
C) Does not waive the sub's right to foreclosure.
D) Is not sufficient to discharge a lien.

Question 46

The constitutional challenges to lien statutes are based on:

A) The due process clause.
B) Eminent domain.
C) Equal protection.
D) Right to privacy.

Question 47

Which of the following is a voluntary lien?

A) Tax lien
B) Judgment lien
C) Mortgage
D) Property tax lien

Question 48

Privity of contract is required:

A) In consent states.
B) In contract states.
C) In all states.
D) If there is no contract or consent.

Question 49

A construction mortgagee will be second in priority:

A) If the loan is funded after construction begins.
B) If the loan is recorded after construction begins.
C) If the subcontractors have been hired.
D) If a lien is filed after construction begins.

Question 50

In a question of priority between a secured creditor and a subcontractor, the rule is:

A) First to record, first in right.
B) If the sub gives preliminary notice before the secured creditor files, the sub has priority.
C) First in time, first in right.
D) Which had an express contract with the property owner.

Question 51

Lien notice statutes:

A)Do not apply in residential construction.
B)Have been determined to be unconstitutional.
C)Require notification at the time of labor or materials prior to a lien.
D)Apply only to those furnishing materials for the project.

Question 52

Who is generally not required to give property owners notice of work performed?

A) All contractors
B) Subcontractors
C) Suppliers
D) Vendors

Question 53

What is the rule on priorities between liens and Article IX security interests?

A) The first to attach has priority
B) The first to record has priority
C) There are no priorities; both collect a proportionate amount
D) It depends on whether the Article IX holder is a PMSI creditor

Question 54

In which of the following circumstances will the authority of the contracting party be questionable (for purposes of lien attachment)?

A) Lessee
B) Landowner (fee simple)
C) Life estate holder
D) Landlord

Question 55

Which of the following properties is not exempt from a mechanic's lien?

A) State land
B) Corporate property
C) Federal land
D) Municipal housing

Question 56

In a state where the liens date back to the start of construction, what priority will the permanent lender have if liens exist when the mortgage is recorded?

A) Last priority
B) First priority if the lender is a permanent lender
C) The same priority as the construction lender
D) Priority according to date of lien filings

Question 57

If (in an equal footing state), there is $60,000 left to be distributed and A has a $40,000 claim, B has a $20,000 claim and C has a $10,000 claim, how much will C receive?

A) 1/7 of $60,000
B) Nothing - a and b will get it all
C) $10,000 if he was the first to file
D) One-half of his claim or $5,000

Question 58

Ace Framers, Inc., has completed the framing work on a subdivision of homes being constructed by Heritage Homes, Inc. Ace purchased the lumber from Arrow Building & Supply on credit.

A)Ace and Arrow generally will have the right to lien the homes.
B)Generally, Ace has the right to lien, but not Arrow.
C)Generally, Arrow has the right to lien but only if Ace does not pay.
D)Neither has the right to lien if there is an existing construction mortgage.

Question 59

Janice Freeman has been constructing a home on her acre lot. The experience has been time consuming and frustrating. Currently, there is a construction mortgage and liens from the framer, plumber and roofer on the property. Janice has found a buyer for the property. The sale of her property to a third party:

A) Extinguishes the liens.
B) Eliminates the construction mortgage.
C) Satisfies all lienholders.
D) Is not possible without payment of the contractors and the construction lenders.

Question 60

Which of the following is critical for a lien to be valid?

A)A legally sufficient description of the land
B)The nature of the work being done
C)The express permission of the landowner
D)A general contractor's license

Question 61

What is the purpose of a preliminary notice?

A)To alert the property owner of improvements and the identity of the party providing those improvements
B)This notice begins the process of lien foreclosure
C)The preliminary notice process has been declared unconstitutional
D)To serve the general contractor with notice from the subs that they have completed their work

Question 62

Construction on a building began on January 2, 2020. As between a construction mortgage recorded on January 11, 2020, and a plumber who records a lien on March 15, 2020:

A) The plumber will have priority in a dates back state.
B) The construction mortgage always has priority.
C) The plumber will have priority if it did its work prior to January 11.
D) The plumber and construction mortgage are on equal footing.

Question 63

Harbor Builders began construction on three homes in its new division. After construction had begun, the buyers of the homes closed escrow on the homes. The lender for the buyers had the buyers sign affidavits stating that construction had not begun. The buyers gave the lender mortgages on their properties. If Harbor is not paid and the buyers default, who has first rights on the proceeds from the sale of the property?

A) The lender
B) Harbor Builders
C) Neither party has priority; they take a pro rata share
D) The buyers

Question 64

In an equal footing state, property owner O owes the following:
$160,000 - Mortgage Lender, recorded January 1, 2020
$40,000 - Foundation company, began construction December 30, 2019
$50,000 - Framing company, did framing January 31, 2018
Property owner O has sold the property and there is $160,000 left to be distributed. How should this amount be distributed?

A) 160/250, 40/250, and 50/250 x $160,000
B) 40/250 and 50/250 x $160,000 with mortgage company taking nothing
C) $160,000 to the mortgage lender
D) The mortgage lender takes one-half and the remainder is split pro rata

Question 65

Homeowner A closed on his property (a two-acre lot) on May 30, 2012. First Federal (FF) financed the purchase and recorded a mortgage on the lot on that same day. Unbeknownst to A and FF, Forest Excavators (FE) had removed two trees from the property and had several pieces of equipment stored on the property. A had contracted with FE for the clearing of the lot so that he could begin construction. FE filed a lien on April 15, 2013, five days after it completed its clearing work. A defaults on his mortgage on May 1, 2013. At the time of default, he owes $229,000. FE is also owed $7,500. Sale of the lot brings $200,000. How will the $200,000 be distributed?

A)The $200,000 goes to FF because its mortgage was recorded before FE's lien
B)The $200,000 goes to FF because mortgages take priority over mechanic's liens
C)$7,500 goes to FE with the remainder to FF
D)Because FE began construction before the lot transaction closed, it can collect nothing

Question 66

The City of Petaluma owns the Redwood Empire Sportsplex that it leased to a developer for the purpose of constructing a sports complex. The developer contracted with North Bay Construction Company, a licensed paving contractor, to perform grading work at the property. North Bay completed the paving work but has not been paid. North Bay recorded a mechanic's lien against the property and served a "Notice of Potential Claim" on the City advising it that, as the owner and lessor of the property, it may be responsible for the reasonable value of the material and labor provided by North Bay. North Bay brought a cause of action to foreclose on the mechanic's lien. What is the city's best defense?

A)That is was only a landlord and cannot ever be liable for the acts of a tenant
B)That paving is not an improvement for which a lien can be filed
C)That liens cannot be made against government entities without their express permission
D)That liens must be filed prior to beginning work

Question 67

In October 1981, Robert E. Hinkle leased to Raymond Arington the Dixie Plaza in Upshur County, West Virginia. The lease agreement contained the following clause:
Any improvements made to the leased premises shall, upon termination of this lease or the termination of any extension thereof, become the property of the lessor.
Arington hired Dunlap and others to do electrical and carpentry work to a building located on the premises. Arington went out of business shortly thereafter, owing Dunlap money for wages and materials.
On March 3, 1982, Dunlap filed a mechanic's lien against the property. That same day he filed a suit to enforce the lien against Arington and Hinkle. Can Arington and Hinkle be subject to a mechanic's lien and its foreclosure?

A)No, Hinkle cannot be subject to a mechanic's lien unless he was involved with or agreed to the improvements.
B)Yes, Hinkle can be subject to a mechanic's lien because the provision in the lease finds him benefiting from them.
C)Yes, Hinkle can be subject to the mechanic's lien if he did nothing to stop the work of Dunlap.
D)No, Hinkle cannot be subject to a mechanic's lien unless he signed a contract with Dunlap.

Question 68

What happens when homeowners owe more to subcontractors than the total price they were to pay the general contractor because the general contractor has not paid the subcontractors and the general contractor is no longer solvent?

A)Homeowners are always exempt from paying more than they owed the general contractor
B)The homeowners must pay the full amount due to all subcontractors
C)The homeowners cannot be liened by the subcontractors
D)Courts and states have differing standards of equity applied in resolving these issues

Question 69

Alice and Ray Cramden purchased a home from Mary and Ralph Norton for $270,000. Mary and Ralph had purchased their home from the developer for the subdivision. After closing, the title company discovered that there were two liens on the home from the landscaper for the subdivision developer for $12,000 and from the appliance wholesaler for the developer for the subdivision for $8,000. Which statement best describes the rights of Alice and Ray?

A) They took the home free and clear of the liens
B) Alice and Ray took the property subject to the liens
C) Alice and Ray can have the liens removed from their property title
D) Alice and Ray will receive clear title to the property once they have paid the lienholders

Question 70

What protection does the homestead exemption provide for homeowners who have mechanic's liens on their property?

A) There is no protection; they are subject to the liens
B) The homeowners can generally claim the exemption amount in that state to eliminate the liens from the property
C) The lienors cannot foreclose on the home to satisfy the liens
D) The liens are extinguished on residential property

Question 71

A subcontractor has signed a document with the following language:
Notice:This document waives rights unconditionally and states that you have been paid for giving up those rights.
The subcontractor signed the document in advance of receiving payment for his work. What are the subcontractor's rights on the payment?

A)The subcontractor has given up his lien but might still be able to collect on a unsecured contract basis
B)The subcontractor has unconditionally surrendered his rights to payment
C)The document is unconstitutional because of this clause and the lack of due process
D)The document waives only the lien

Question 72

In 2015, Capital Drywall and Old Fort supplied materials to Complete Construction & Demolition, Inc. (Contractor) for the reconstruction of a hotel on U.S. Highway 31 in South Bend, Indiana. Neither Capital Drywall nor Old Fort received payment for those materials. The Contractor went bankrupt. Capital filed a lien on April 25, 2015. Old Fort filed a lien on September 11, 2015. Old Fort is owed $160,000, Capital is owed $140,000. There is $156,000 left to distribute to unpaid lienholders. How much will each receive under the common law rule for distribution of funds to lienholders?

A)Capital receives $140,000 and Old Fort receives $16,000
B)Capital receives $78,000 and Old Fort Receives $78,000
C)Capital receives $72,800 and Old Fort receives $83,200
D)Capital receives $70,000 and Old Fort receives $80,000, with the $6,000 being split between them

Question 73

On November 5, 2014, Commercial Builders, Inc., contracted with Concord to construct a steel building that would house a motocross track. This contract called for Concord to begin construction ASAP, and Concord began construction. At the time the construction began, Concord had not yet closed on buying the property, but had been given the go-ahead by the owner for construction to begin.
The real estate sale ran into difficulties and did not close. At that time, the building was 85% complete. On January 4, 2015, Concord filed a mechanic's lien against the property. In September 2015, the partially constructed building was completely destroyed by a tornado. Commercial sought to foreclose its lien on the land. The owner said he did not give his consent for the work or a lien. Which of the following is correct?

A) Commercial builders cannot file a lien on the property because Concord did not own the property
B) Commercial builders cannot file a lien because there is no work to show for the costs
C) Commercial builders cannot file a lien for steel buildings
D) Commercial builders can file a lien because the consent of the owner was implied through the contract and the agreement for the building to begin

Question 74

Frogurt, LLC wanted to open a frozen yogurt store next to a Dunkin Donuts in a small shopping center. Frogurt leased the space from Real Estate Partners. Frogurt needs to install a series of frozen yogurt machines that will be installed along one wall with significant equipment behind the wall. Frogurt hired Dairy Mist Contracting to do the installation. Frogurt signed the contract for the installation and Dairy Mist completed the work. Frogurt had a clause in the lease with Real Estate Partners that allowed it to undertake the improvements to the property. Frogurt's marketing studies were slightly off and Frogurt was forced to close after four months of operation. Dairy Mist has not been paid and has placed a lien on the shopping center.
Which of the following statements is correct?

A) Dairy Mist can properly lien the shopping center.
B) Dairy Mist can lien the property only if Real Estate Partners signed its contract.
C) Contractors are not permitted to lien the property of landlords for improvements performed for tenants.
D) Dairy Mist will need to establish that a contract relationship exists or that there was consent.

Question 75

Tom Horton is building a cabin on land that he already owns. He hired Landmark Builders as his contractors. The cabin was completed except for internal finishing work when Landmark declared bankruptcy. Horton had agreed to pay Landmark $475,000 for construction of the cabin and had paid out $400,000 to Landmark by the time Landmark declared bankruptcy. Subcontractors for the framing, roofing, staining, and grading are owed $125,000. The subcontractors have all filed (properly) liens on the property. Which of the following statements is not true?

A) Some states provide protections against requiring residential property owners to pay subcontractors left unpaid by an insolvent contractor.
B) In some states, Horton could be required to pay the subcontractors.
C) The subcontractors can pursue their claims in bankruptcy.
D) The homestead exemption would not apply to a cabin type of home.

Question 76

What can happen if a lien does not include all the statutorily required information?

A) The lien may not be valid.
B) As long as all the information can be found somewhere the lien is still valid.
C) As long as the lien is filed, it is valid.
D) There is still sufficient notice and the lien is enforceable.

Question 77

What happens to a mortgage that is recorded following the start of construction on the property?

A) The mortgage still has first priority
B) The mortgage has a lesser priority than the construction liens
C) The mortgage is invalid
D) The mortgage lender is entitled to payment under an unjust enrichment doctrine

Question 78

A prenotification procedure for filing a lien:

A) Is generally not required.
B) Is required in most states
C) Is unconstitutional.
D) Can be skipped if the property owner was aware of the lien.

Question 79

Assume the following sequence of events:
January 2, 2020 - construction mortgage recorded
January 3, 2020 - A begins work
January 10, 2020 - B begins work
February 1, 2020 - B files a lien
February 3, 2020 - A files a lien
a. Discuss the priority of the parties under all the theories of priority.
b. Reverse the actions on January 2 and 3. Suppose A began work on January 2 and the mortgage was recorded on the 3rd. What result under all theories?

Question 80

Discuss the lienor's position in doing work for lessees, trustees and executors.