February 28, 2019
We are all generally familiar with liens, which are a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation. Most liens arise as a result of a written agreement between the debtor and the creditor – a mortgage in the case of real property, a security agreement for most personal property, and a notation on the title for most vehicles. In these situations, the debtor maintains possession of the property.
Unlike typical security interests, in which the debtor maintains possession of the collateral, in some cases a lien can arise when the creditor has possession of the debtor’s property. These are called possessory liens, and they can be critical to getting paid for providers of services who have a customer’s property in their possession. Significantly, most possessory liens trump security interests in the same property, even if the security interest was recorded before the possessory lienholder took possession of the property.
Here are some of the most common and important possessory liens available in Ohio and Michigan.
The rules for enforcing these possessory liens vary greatly. In some cases, the lienholder only has to be unpaid for 30 days; in other cases, such as the Michigan artisans’ lien, the lienholder must be unpaid for 9 months. In all cases, the lienholder must follow certain procedures, including notice to the property owner, to enforce the possessory lien. Once the lienholder has completed those steps, the lienholder can sell the property in its possession and retain the sales amount up to the amount owed by the property owner.
If the possessory lienholder gives up possession of the property, the possessory lien is lost. The service provider in that case will retain a claim against the property owner for payment, but that claim may not be worth much if the property owner is in financial difficulty. Accordingly, the possessory lienholder should resist the property owner’s demand for the property if the required payment for services has not been made.
RCO Law can assist service providers in determining and enforcing their possessory lien rights. For additional information, please contact Attorney W. David Arnold, at 419-249-7900, or firstname.lastname@example.org.