Court Tolls Foreclosure of Mechanics Lien during Bankruptcy

The 90-day period for foreclosing on a mechanics lien under Civil Code § 3144 is tolled during the pendency of bankruptcy proceedings, pursuant to 11 U.S.C. § 108(c). 

In Pioneer Construction, Inc. v. Global Investment, Inc. et al. (December 21, 2011) Ca. 2nd. Dist. Ct. App. B225685, a construction company filed for foreclosure of mechanic's liens against defendants' property subsequent to defendants' purchase of the property at a trustee's sale during the prior owner's bankruptcy proceedings.  

In March 2005, Pioneer Construction, Inc. (“Pioneer”) agreed to perform construction services on nineteen lots owned by Oakridge Homes LLC (“Oakridge”) located on Stevenson Ranch (the “Property”).  Pioneer performed its work, but Oakridge failed to pay Pioneer for the construction project.

On April 17, 2008, Pioneer recorded a mechanics lien in the Los Angeles County Recorder’s office against the Property for $2.47 million, listing Oakridge as the debtor and Mssrs. Nasir Eftekhar, Jin Shen and Benjamin Zhu as owners.  On June 13, 2008, Oakridge filed for Chapter 11 Bankruptcy.  On January 29, 2009, Pioneer recorded a second mechanics lien in the amount of $2.67 million, listing Oakridge as the debtor and Mssrs. Eftekhar, Shen, Zhu and Simon Thomas Homes, Inc. as owners.  On April 15, 2009, Pioneer filed a “Notice of Perfection of Security Interest” in Oakridge’s Chapter 11 proceedings, asserting a $2.67 million lien. 

In May or July 2009, Cathay Bank and Global Investment, Inc. (“Global”) obtained relief from the automatic stay in Oakridge’s bankruptcy and sold the Property at a trustee’s sale on August 25, 2009 to defendant Tsou. 

Pioneer filed a complaint to foreclose its two mechanics liens on November 12, 2009 and recorded a lis pendens on November 20, 2009.  Global and Shou demurred and filed a motion to expunge the lis pendens, based on the invalidity of the mechanics liens.  On March 16, 2010, the trial court granted the motion to expunge the lis pendens. 

California law permits a contractor who furnishes labor and materials for construction on real property to record a notice of lien against the property.  Civ. Code § 3115.  A mechanics lien claimant who provided labor and materials to a debtor in bankruptcy can record a mechanic’s lien after the property owner files for bankruptcy without violating the automatic stay.  11 U.S.C. § 362(b)(3).  A mechanics lienor must file a notice of lien in the debtor’s bankruptcy proceedings.  11 U.S.C. § 546(b)(2). 

Generally, an action to foreclose a mechanics lien must be brought within 90 days of recordation of the lien.  Civ. Code § 3144.  However, lien foreclosure actions are enforcement actions prohibited by the automatic stay.  In re Baldwin Builders (Bankr. 9th Cir. 1999) 232 B.R. 406, 410-411.  Nonetheless, pursuant to 11 U.S.C. § 108(c), mechanics lien actions are tolled while the property subject to the lien is property of the estate.  See In re Hunters Run Ltd. Partnership (9th Cir. 1989) 875 F.2d 1425, 1427.  The period of time that an automatic bankruptcy stay is in effect is not counted as part of the applicable limitations period.  Schumacher v. Worcester (1997) 55Cal.App.4th 376, 380. 

Thus, the 90 day period of Civ. Code § 3144 was tolled during the pendency of Oakridge’s bankruptcy, and didn’t expire until the later of the end of the period or 30 days after notice of the termination or expiration of the stay.

Pioneer filed its lien on January 29, 2009, during the pendency of Oakridge’s bankruptcy, so Civ. Code § 3144 was tolled.  The 90 day period under Civ. Code § 3144 did not begin until after the August 25, 2009 trustee’s sale.  Because Pioneer filed its complaint to foreclose its mechanics lien on November 12, 2009, 79 days after the trustee’s sale, the complaint for the foreclosure of the mechanics lien was timely.