Just because the bank accepted a deed in lieu of foreclosure does not prohibit subcontractors from filing Mechanic's Liens. They may still file a Mechanic's Lien if under State statute they are under the legal time frame - in many states this is four months from completion. If you have advanced money for items such as upgraded cabinets you may have the right to file a Mechanic's Lien yourself. (Please check with local counsel.)

The property is what it is...it doesn't matter how much money the bank has already advanced. I would take the position with the bank that, first of all, to sell a partially completed house is near impossible & their loss will be much more than $100K. If they complete the house, the house will only be worth what the market dictates & not what the bank has advanced. Their poor lending practices should not impact what you have to pay for the house. I would approach the bank, preferably with counsel, and explain that in this market if they want to get rid of their REO they can either sell it to you "as is" at a huge discount or complete the property & you will buy it at a market price, according to your specifications. Unless your builder recorded your purchase contract, the lender took the deed in lieu free & clear of all encumbrances, except Mechanic's Liens & taxes. That includes your contract....meaning they do not have to honor your contract. That is why you must check to see if you can personally file a Mechanic's Lien.

Whether there's sufficient funds left in the construction is no longer relevant. The bank owns a property that they need to sell. It's unfinished. You are the logical buyer. And, if they have any common sense, which with a bank is a big question, they will deal with you in good faith. By completing the property & selling it to you at current prices they will lose less money than if they have to either sell "as is" or complete & hope to sell to another buyer.

As per your above description, it really sounds like the bank is trying to take advantage of your emotional investment in the house. I highly advise you retain counsel (real estate attorney!). Also, don't expect the bank to act in a manner that you would consider "rational". Banks run to their own drummers & you can't alter that...

You might also have a possible legal action against the builder...unless they file bankruptcy. Again, bring this issue up with the counsel you retain.

If you like to post what state you live in I can be more specific with regards to the Mechanic's Liens.

/tricia

Hi Tricia,
Thanks for your follow up. We live in Indiana. The bank told us once they had the deed put into their name, no one else could put a lien on it. That the liens were against MBS construction (our former builder) and not against them?

This is a small town bank, so I don't if that makes them anymore rational or not LOL. You are right about them knowing our emotional investiment. Our paticular loan officer and I write back and forth daily about rates, kids, schools etc.

Our builder is filing bankruptcy, so we'd be one of many trying to get money back! We really do just want to finish our house. We are going to get an attorney to help us with the contract with the bank. Cathi

Cathi,

I'm running short on time this morning but wanted to write a short note regarding Mechanic's Liens...

Mechanic's Liens follow the PROPERTY not the BUILDER. That's the whole purpose of a Mechanic Lien...so a subcontractor or supplier has recourse if a contractor goes belly-up.

As example, let's say you hire a plumber to fix your leaky toilet. The plumber fixes the toilet, you pay him/her, they leave & you're a happy camper...until you receive notice that Acme Plumbing Supply has filed a $1.99 Mechanic's Lien against your PROPERTY (not you but your property) because the plumber never paid for the materials used in fixing your leaky toilet. It doesn't matter if two days ago you sold the property & signed a deed...Acme Plumbing Supply can & will still file that Mechanic's Lien.

Counsel is a good idea. Mixing a close personal relationship with business is not a good idea. ("Our paticular loan officer and I write back and forth daily about rates, kids, schools etc.")

/tricia

I understand what you are saying about the lien following the property. I guess what I am wanting to know is can more liens be filed since the property has changed hands? No work has been done in about 6 weeks so we are about at the 60 day mark. My fear is we will buy it from the bank and a bunch of new liens will be filed or pop up! I did consult an attorney today and he took the info and was calling our bank. Said he would get back with me after he had talked to them. Cathi

For future reference, when any house is being built by contractor/owner etc, before any materials is put on/left on the property, have them sign a lien release and get a signed copy of the materials paid for. We did and it saved a big problem You can get these releases at any good stationary store.

I already answered this on the building a home forum, but again...of course, a lien can be placed on the PROPERTY. It matters not who owns the property or if the property has changed hands. You should be very concerned about new liens popping up. I would BET money on more liens being placed on that property. Your builder didn't pay people...that gives them the right to lien the property. The only thing that might protect you if you buy the property is your title insurance that you will have. The bank (seller) has to guarantee you clear and marketable title...they will have to state that there are no liens and that all contractors that have worked on the property in the past XXX (whatever your state mandates) days have been "paid in full." DEMAND LIEN WAIVERS FROM ALL CONTRACTORS!!!

Kudos for speaking with counsel.

Yes, liens can be filed against the property. It does NOT matter that the property changed hands via deed in lieu of foreclosure. If it mattered, that would defeat the entire purpose of Mechanic's Liens. They are to protect contractors, subcontrators, & suppliers against just that very scenario, and others of course.

I'm assuming you've met with counsel by now & are on your way towards resolution with the bank. If the bank told you no more liens could be filed because the property changed hands...I wouldn't trust anything they say. Mechanic's Liens are Basic Construction Lending 101. For them to make such a silly statement makes it pretty plain to see how the situation ended as it apparently has...with a partially completed house & insufficient funds remaining in the loan to complete. The bank should have been obtaining Lien Releases, title updates, & making on-site inspections throughout the entire build process. No draws should have been approved if there was even a hint of problems.

/tricia

Your GC has drawn 75% of the funds, and only paid for 10.6% of the work... You will have lots of liens on the property. Especially since the GC declared bankruptcy. The only recourse for these subs is you and the home.
How you are going to pay the $188,000 that has not been paid to subs, and then also finish up the home with the $65,000 left is gonna be a nightmare.
The bank is not going to close on a sale until they know that all subs have been taken care of, the house gets a CO, and the title insurance company beleives that the subs have been paid. You could be sitting around for months and months trying to figure out how it is all going to work out.
Hopefully, he lowballed your project, in order for you to be able to finish up, and still not be too upside down. Good luck.