A mechanic’s and/or materialman’s lien, also known as a construction lien, when properly recorded, creates a security interest in real property that can be used to secure payment for services and/or materials that were consumed to construct, remodel, repair, or otherwise improve the real estate. The M&M lien allows the contractor or subcontractor who records the lien to have the right to seek recoup any unpaid invoices arising from the construction work through the forced sale of the real property. If the M&M lien is not paid, the contractor has one (1) year to file a lien foreclosure case that, if successful, allows the contractor to execute on their money judgment via a county sheriff’s public auction of the underlying property in the same manner as other foreclosure sales. This is the case even if the property is your homestead or you have an existing home mortgage.
Though this may seem like an easy way to collect money, construction liens do add complexity to any construction project. For example, the owner of the property will want the lien removed quickly because the mere recording of the lien may be a breach of their construction loan or could give their lender the right to accelerate the loan and immediately demand payment in full. Furthermore, the existence of the lien may hinder the owner’s ability to sell or refinance the property. Conversely, a subcontractor’s filing of a construction lien on a project will oftentimes interrupt a general contractor’s ability to make progress on a project as the owner may be reluctant to make additional payments while the lien is in place.
For these reasons, if a M&M lien is recorded against a project, it can bring the project to a halt. Accordingly, Oklahoma law provides a mechanism to remove some of the uncertainty and hardship that comes with a construction lien being recorded against the real property. To obtain this relief, any party having an interest in the real estate may obtain release the real estate from the liens which have attached to it by substituting a cash bond for the real property that is securing the unpaid amounts claimed by the contractor or materialman.
In order to secure the immediate release of the lien, an individual with an interest in the real estate must deposit a sum of money sufficient to pay the total of the amounts claimed in the lien(s) being released, plus twenty-five percent of such total (effectively 125% of the amount being claimed in the lien). The deposit must be made in the office of the clerk of the county in which the lien is recorded. This deposit can be made in cash, certified check, other bank obligation, or a surety bond issued by a surety company authorized to do business in the state of Oklahoma.
After the deposit has been made, the county clerk will release the lien and the property owner no longer has to worry about a judicial foreclosure and potential subsequent sale of the real property. Instead, the deposit with the county clerk will be used to satisfy any successful lien foreclosure claim. Upon release of the real estate from lien obligations, the rights of the person claiming through the lien are transferred from the real estate to the deposit. If a release of the construction lien through the substitution of collateral is a financial possibility, it can be better for both parties overall because the owner can avoid property foreclosure and the contractor or material supplier can take solace in the fact that if they prevail through the judicial proceeding, their claim will be paid in full.
This article is meant to provide a general understanding of how to substitute a deposit with the county clerk as collateral for a construction lien in Oklahoma. There are other nuances to filing liens or securing the release of liens.