Mechanic’s Liens Are A Wild Card In Kansas

I told you last week I had a closing crater because of a situation completely out of my control.  Now that I’ve put the gun down I thought I would tell the tale of how anyone can become a problem in the state of Kansas and Missouri if they choose to be.

Less than two business hours before closing I received a phone call from the listing agent stating that we had a “serious problem.”  I don’t like serious problems much.  Especially when I’ve monitored the transaction very closely.  You see, my buyers were purchasing a duplex in Overland Park, Kansas where the owner had very little margin for error in selling because he owed anybody whose anybody money.  Seems his business hadn’t been going very smoothly and he needed to dump this property.  The buyers negotiated a price that made sense to them and that the owner could “handle” which is to say he was going to have to bring a small amount of money to closing while foreclosure proceedings had been delayed by the bank.

One of the units had a tenant in there that had done some remodeling in lieu of rent.  And the tenant had done a good job.  Since there was no lease and since the waived rent was a greater amount than the work performed the seller did not believe there would be a problem in asking him to move out so that my clients could move in at closing.  I watched with a wary eye. 

But I have to say that everything was progressing nicely.  The repairs were being done in their entirety and on time for closing.  I made weekly calls to the seller’s agent making sure there were no ghosts in the closet that would come out.  Heck, even the tenant who lived on the one side had moved out right on schedule so that after closing my buyers could move in.

Then the seller’s agent calls and says “We have a problem.” 

Seems the tenant had forgotten the free rent for a year or more.  Well, at least that’s what I’m told by both the seller’s agent and on a phone call from the seller who was apologizing sheepishly.  The tenant just decided that things weren’t right and filed a mechanic’s lien on work he feels he was not properly compensated for.  About $9,400 worth I’m told. 

Let’s see.  Rent of $725/mo multiplied by 13 months is $9,425.  Hmmmm. 

But the thing that really causes problems is the State of Kansas allows him to do this last minute.  Without verification or proof anyone can file a mechanic’s lien on anything that they want to.  Sure, in time this will all be sorted out and a legal finding will find for the seller or the tenant.  The problem is that in the mean time the buyers have a truck full of furniture and a fistful of cash they were looking to unload on this duplex. 

Scrambling set in and they found an apartment with a three month lease.  Now we have to find them another property.  So the former tenant had better be in the right because let me tell you the smell of lawsuits is in the air if this is found to be a frivolous lien…  Let’s count who lost on all this;

  • Seller loses because now the bank decides to press forward with foreclosure.
  • Buyers lose because they don’t get the duplex they want, have lost monies spent on inspections, appraisals and travel not to mention the additional costs of leasing a short term apartment.
  • REALTORS lose because those commissions are gone.  Well, I’ll help the buyers find something else but the work starts all over again.  The seller’s agent is just out.
  • The tenant in the other side who is building a home and was planning on renting the place out for several more months will get notice to vacate now that the property is in foreclosure.  They are also “friends” with the former tenant.
  • Bank loses because now they will have tens of thousands of dollars in legal costs to foreclose.

The former tenant.  He gets to give everyone the finger without recourse unless there is a judge out there with a spine. 

Now all of this is going on the assumption that I’ve received the full story.  But the consequences of the matter are clear.  And not to be taken lightly.

9 Comments

Filed under Misc. Real Estate, Personal Real Estate Opinions

9 responses to “Mechanic’s Liens Are A Wild Card In Kansas

  1. Oh boy. All I could think was holy ****. Unbelievable. Someone needs to take that guy out behind the woodshed.

    Multiple episodes of the Sopranos come to mind.

  2. This can be filed under, “You just can’t make this stuff up.”

  3. I keep asking myself if there was anything I could have done differently. I feel so bad for the buyers to have to go through all of this stress just because someone wants to be an ass.

  4. Oh, and I should point out that the former tenant suggested that the agents should each pay $4,500 towards the lien so the closing would happen. Excuse me?

    How much did he think I was making on this transaction?

  5. Another Investor

    Having never dealt with a mechanic’s lien, I wonder if the foreclosure wouldn’t wipe it out as junior to the first? If that’s the case, did someone point this out to the former tenant and suggest that he settle for $500 or something to avoid losing his claim altogether? That’s akin to paying a bad tenant to move – morally repugnant, but often expedient…

  6. You are correct in that the foreclosure will wipe out the lien. But the vibes I’m getting is that this person is more interested in saying F YOU! to his “friend” than resolving this in any satisfactory manner.

    I do not believe we are working with a rational person here.

  7. Only thing I thought about last night was, could the seller have required a lien waiver (at least that is what it is called in Minnesota) from the tenant earlier to block a lien being filed?

  8. That’s incredible. It is obvious that you all were not dealing with a rational person. I think the law is there to eventually punish problem tenant, but that does not help close the sale everyone else was working toward.

    Slander of title comes to mind, maybe interfering with a business relationship, but some other claims may be more appropriate depending on the specific facts. I don’t know.

    I am not sure that there was anything anyone could have done to prevent this except the seller/landlord. It is unfortunate, but seller/landlord really did not protect his investment. It sounds like all seller/landlord and problem tenant had with regard to the tenancy and rent was oral agreement or understanding. Something needed to be in writing. There is too much money involved and too much risk (as we see here) to be playing fast and loose with lease agreements.

    On top of that, people just don’t all of a sudden become irrational jerks and decide to file a mechanic’s lien. That is likely part of a pattern of behavior or a general attitude of the tenant. I have a hard time believing that the seller/landlord was totally surprised by the way things turned out. If the seller/landlord did not see the mechanic’s lien coming, he should have known that this tenant was or could be difficult to deal with.

    I hope this does not scare the buyers away from ever trying to buy investment property again.

  9. Thanks for weighing in. Since you deal with relationships after they’ve gone bad it’s great to get your perspective.

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