What happens if someone records, or threatens to record, a mechanic’s 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/or 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 Mechanic’s Lien Foreclosure Action. To enforce a mechanic’s 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.
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’s lien laws to analyze your situation and help you choose the best course of action.
The information contained in this web-site is intended for the education and benefit of those visiting the Aero Legal Services site. The information should not be relied upon as advice to help you with your specific issue. Each case is unique and must be analyzed by an attorney licensed to practice in your area with respect to the particular facts and applicable current law before any advice can be given. Sending an e-mail to Aero Legal Services or Gregory J. Reigel does not create an attorney-client relationship. Advice will not be given by e-mail until an attorney-client relationship has been established.