In re Saberman
| Decision Date | 31 March 1980 |
| Docket Number | Bankruptcy No. 79 B 39709. |
| Citation | 3 BR 316 |
| Parties | In re Henry Dean SABERMAN, Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Leonard Malkin, Mandel, Lipton & Stevenson, Ltd., Chicago, Ill., for Henry Dean Saberman, the debtor.
Gregory L. Tumbarello, Chicago, Ill., for AAA Building Maintenance Co., the creditor.
AAA Building Maintenance Co., (AAA) is a building contractor and a creditor. AAA has filed an objection to the Chapter 13 wage earner plan of Henry Dean Saberman, the debtor herein. The plan as proposed contemplates a sale of the debtor's real estate and provides for payment in full to secured creditors and a composition payment to unsecured creditors. AAA objects to this plan because the terms of the plan do not provide for payment in full for the work on debtor's residence. It is undisputed that the real estate was improved as a result of the labor and materials provided by the claimant.
AAA was engaged to provide certain improvements to the debtor's premises. The date last worked on this job was May 5, 1978. AAA filed its mechanics' lien for $1400 in January or February of 1980, subsequent to debtor's filing of its Chapter 13 petition.
The issues presented here are whether the mechanics' lien is avoidable as the debtor asserts and if so, whether and to what extent a Chapter 13 debtor may exercise the avoiding powers of a trustee. AAA asserts that an Illinois mechanics' lien may be perfected subsequent to the filing of a bankruptcy petition and its interest must therefore be recognized as a secured obligation. If the creditor prevails on the perfection issue, the issue of the debtor's avoidance power is moot.
It is clear that a mechanics' lien is a statutory lien, as defined in the Bankruptcy Code. 11 U.S.C. sec. 101(38). The legislative history of the Code makes this explicit. H.Rept.No. 95 —595, 95th Cong. 1st Sess. (1977) 314; S.Rept.No. 95-989, 95th Cong. 2d Sess. (1978) 27, U.S.Code Cong. & Admin.News 1978, pp. 5787, 6271. As a general rule, statutory liens survive the filing of a petition under the Bankruptcy Code so long as the statutory requirements have been strictly complied with.
11 U.S.C. sec. 545 provides that:
The trustee may avoid the fixing of a statutory lien on property of the debtor to the extent that such lien—(2) is not perfected or enforceable on the date of the filing of the petition against a bona fide purchaser who purchases such property on the date of the filing of the petition, whether or not such purchaser exists; . . .
This expression of the trustee's power to avoid statutory liens is limited by 11 U.S.C. sec. 546(b), which provides that: "(b) The rights and powers of the trustee under section 544, 545, or 549 of this title are subject to any generally applicable law that permits perfection of an interest in property to be effective against an entity that acquires rights in such property before the date of such perfection." The import of this section is that if under applicable law, here the Illinois Mechanics' Lien Act, a later perfection will relate back prior to the bankruptcy filing, the subsequent perfection will be good against the trustee and the lien will not be avoided.
Under Illinois law an inchoate mechanics' lien arises upon the substantial completion of the work contracted for. Upon filing and perfection, the date of perfection relates back to the date upon which the inchoate lien arose. Decatur Bridge Co. v. Standart, 208 Ill.App. 592, 595 (1917). The Illinois Mechanics' Lien Act, Ch. 82, Ill.Rev.Stat., sec. 7 provides, in pertinent part:
No contractor shall be allowed to enforce such lien against or to the prejudice of any other creditor or incumbrancer or purchaser, unless within four months after completion, . . . he shall either bring suit to enforce his lien therefor or shall file in the office of the recorder of deeds of the county in which the building, erection or other improvement to be charged with the lien is situated, a claim for lien. . . . Such claim for lien may be filed at any time after the contract is made, and as to the owner may be filed at any time after the contract is made and within two years after the completion of said contract. . . .
Thus, if a claim for a lien is filed within four months after day of completion of performance, then the lien will prevail against the original owner and other creditors, incumbrancers and purchasers.
However, if it is filed after four months but within two years, the lien will prevail only against the original owner but not third persons. Therefore, if a claim for lien is filed more than four months after completion of performance, it cannot prevail against one whom became a bona fide purchaser prior to its filing.
This view has been strictly adhered to by the courts. Even where a purchaser has, at the time be purchased, actual knowledge that a claim has been filed against the property, this claim for lien will be ineffective if it was filed more than four months after completion of performance. As stated in Von Tobel v. Ostrander, 158 Ill. 499, 42 N.E. 152, 153 (1895):
The lien given a material man or mechanic under our law is purely statutory, and can only be enforced in conformity with the provisions of the statute; and we think it too clear for argument that the mere fact that a party interested in the premises may have notice of the fact that the statute has not been complied with will not give validity to the lien. The filing of the notice in this case nearly ten months after the last payment became due amounted to no more than if it had not been filed at all, as against appellant.
Knowledge that the statute has not been complied with cannot give validity to the lien. Von Tobel at 503, 42 N.E. at 153; Sexton Manufacturing Co. v. Singer Sewing Machine Co., 194 F. 56 (7th Cir. 1911).
Arguments based on theories of actual or constructive notice of the lien where the lien was filed outside of the four month period were dismissed in Von Tobel. Even where a subsequent purchaser admittedly had knowledge that a claim was filed before he purchased but outside of the four month period, the Court held that the lien could not be given validity. 158 Ill. 503, 42 N.E. 153.
The mechanics' lien in the instant case was filed outside of the four month period and would not be good against a bona fide purchaser. Therefore, pursuant to Illinois law, this lien can be avoided by one standing in the shoes of such a purchaser.
Plenary Sessions of Regional Bankruptcy Seminars, 1976-1977, From Presentations by George M. Treister (Federal Judicial Center, December, 1977).
The legislative history of 11 U.S.C. sec. 545 discloses that sections 67b and 67c are to be followed.1 The Illinois Mechanics' Lien Act, by virtue of the two periods of limitation set forth—four months and two years—limits the rights of a lienor versus a bona fide purchaser or one standing in his shoes. Here the lienor, by its failure to file its claim for lien within the four month period, has an insufficient property interest to file a secured claim or to be entitled to what amounts to a priority in bankruptcy. Therefore, its claim is unsecured.
The question remains: does Henry Saberman, the property owner against whom AAA did perfect its lien within two years, in his role as a Chapter 13 debtor, stand in the shoes of a trustee so as to invoke the lesser four month statutory period within which AAA failed to perfect its lien? We conclude that he does insofar as the amount avoided impairs his exempt property under section 522. Section 522(g) and (h) provide:
To continue reading
Request your trial