A collateral is a right on an asset that has the purpose of facilitating the payment of a debt in favor of the creditor. Although there are different types of collateral, in the United States the most common forms for a normal citizen are: the right of retention (guarantee of the mechanic), and the lien on one or more assets of the debtor following a sentence. The first is a power granted to construction or maintenance companies, aimed at recovering the sums due for the work done, which is exercised with a burden on the asset on which they worked, until the debt is satisfied. The second, which recalls the right of pledge of the Italian law, guarantees the payment of the sums that have been recognized in your favor by a court sentence, at the end of a trial.
Steps
Method 1 of 2: Record a Right of Retention
Step 1. Exercise any other credit recovery options
Transcribing a right of retention means publicly declaring that someone has not paid for the jobs they have ordered, and it is a legal move to weigh for its consequences. Before registering a right of retention, talk to the owner of the property and try to find an alternative solution.
- From the beginning of a job it explicitly states that you will exercise the right of retention if the debts are not paid. Some states, such as Washington, have prepared forms that you can use to notify the owner of the property that you are entitled to exercise the right of retention if you are not paid. You can also invoke the right of retention in the contract to make sure that the owner of the asset is aware of it.
- If the owner subscribes to a payment plan, make sure the deadlines are reasonable, and that the plan is in writing. For example, if you have completed some work on your customer's garage for 2,000 euros, you could have a payment plan in which the customer agrees to pay 500 euros per month for the next four months. It is advisable at this point that you consult a lawyer to help you draft a settlement.
- You can also consider a mediation-based dispute resolution. For example, you and the client may share the cost of approaching a neutral broker to help you find a mutually acceptable solution. This process is often less confrontational, more efficient and less expensive than the transcription of the right of retention. The local court or the court website of your province may have a list of mediation resources available in your area.
- Contacting a credit recovery agency is another way to avoid wasting time and expenses related to legal formalities for exercising the right of retention. Debt collection agencies specialize in the matter and can put pressure on the client without having to take legal action. If you decide to go this route, look for an agency with a good reputation that specializes in practices similar to yours.
Make sure you've made a prior notification. Most states require that you notify the debtor of your intention to exercise the right of retention if he does not pay. Typically, you'll make this notification within the first few weeks of business, before payment can become an issue. In the absence of prior notification, you may lose the opportunity to exercise the right of retention if the customer fails to pay.
Step 1.
- A specific notification form may be required. Check with the local court clerk to find out if it has specific requirements.
- In most cases, the preliminary notification must be given within 10-20 days from the start date of the works.
Step 2. Check the deadlines set in your court of jurisdiction for the registration of a collateral
You only have a short period of time after completing the work, to transcribe the entitlement, and in some cases this period is as little as 60 days.
Depending on where you live, you may not have time to exhaust all other possible solutions before transcribing, if you don't want to lose this faculty. For example, in some cases the deadline is only 60 days from the end of the work, in others you have a full year from the date on which the debt became due - and this is sufficient period to find a payment solution in agreement with the client
Research the property. To transcribe a right of retention on an asset, you must do research to ensure that the customer is the actual owner and to obtain the details of the legal title from the deed. This verification could cost you several hundred euros.
Step 1.
- In some states, construction or maintenance companies that register a right of retention have a right of first refusal over any other encumbrance on the property, even if a mortgage loan or other collateral has been registered before.
- If there are other creditors who have collateral on the property, it is advisable to consult a lawyer for advice on the legal priorities of the related credits, and on the advisability of choosing alternative payment paths.
- Other collateral on the property, which have priority over yours, may mean that you will not recover the money and the debt will not be paid, even if you take legal action and obtain the sale of the property.
Step 2. Draw up your right of retention
This is usually shown on a one-page document with information about the creditor, debtor, and property. Many courts have specific forms that need to be filled out.
- You can find out the requirements in your state by contacting the local clerk of the court clerk.
- Check the formatting requirements in the province where you are transcribing the collateral, as many secretariats require strict regulations governing document size, margins, and text font. If you do not comply with these rules, the office will reject the request.
- The type of information required for the right of retention also varies from state to state, but typically includes your name and address, the customer's name and address, the amount of the claim, a description of the type of the works or services performed and the place where the property is located.
- Make sure you have included all the necessary information or your entitlement will be worth less than nothing. For example, if you are exercising your right to real estate, in most cases it will take a legal description of the property as shown in the deed, not just the street name.
Step 3. Write down the collateral
The request must be filed either with the registrar of the property register or at the court chancellery. Each state designates a specific office to record retention rights, so be sure to go to the right office.
- If you are claiming a right of retention on a property, you must register it with the land registry of the province in which the property is located.
- Expect to pay a filing fee.
- While you can often submit your request by post, it is advisable to deliver it in person. Many offices have a backlog for mailing transcripts, and this is especially important if the due date is near. Also, delivering in person means that if there is something wrong you can find out and correct it immediately.
Step 4. Notify all parties that need to be notified
In most states it is necessary to notify the owner immediately upon transcription. Some states designate other entities to be notified, such as holders of other collateral. You can know who you need to notify when transcribing.
In many cases, the owner will pay the debt immediately upon receiving notification of the transcript
Step 5. Exercise your right
If the debtor does not pay after you have written down, you must pursue an enforcement proceeding by filing a debt enforcement action within a given time frame, usually one year.
- Enforcement involves the sale of the property. The proceeds from the sale are used to satisfy the existing liens on the asset.
- Be sure to check local regulations to know the deadline for the exercise of forced execution. After this period, the collateral expires and has no value.
- Since forced execution requires a formal complaint to court and the need to respect the rules, you should consider hiring a lawyer specialized in forced execution or in enforcing the right of retention.
Method 2 of 2: Write down a Real Guarantee as a result of the Sentence
Find out if you are eligible to write down this type of guarantee. For the transcription it is necessary to have won a lawsuit in a civil trial. The guarantee allows you to initiate a forced execution for the sale of the property or movable property subject to encumbrance and use the proceeds to satisfy a debt owed to you.
Step 1.
A real guarantee following a sentence does not guarantee, by itself, the payment of what has been recognized by the sentence. The lien is placed on a property or movable property, and informs potential buyers that the title has encumbrance. Placing this constraint on an asset does not guarantee the recovery of the credit until the owner decides to sell it
Step 2. Read up on local laws regarding collateral following a judgment
Each state has different procedures for recognizing and regulating this type of guarantee. If you are not familiar with these rules, you could make the guarantee ineffective due to the expiry of the terms.
- In general, a real guarantee can be transcribed following a judgment only on movable property that is in the state in which the sentence was issued.
- The warranty is only effective for a limited period, such as five years, but can be renewed if you have not been paid within this period.
- If the debtor sells the property or transfers the property while the guarantee is in effect, the guarantee continues to burden the property until the creditor has been fully paid.
Step 3. Prepare the documents you need
If you are eligible to write down this type of guarantee, check which documents are required to proceed, where they must be filed, and the costs that will be charged.
- Some states have pre-filled forms for you to fill out. Make sure you get the right ones for your case.
- In some cases the guarantee must be accompanied by a certified copy of the court ruling. You can get it by paying an additional fee at the clerk of the court where the sentence was issued.
File your documents. The place of storage depends on where the asset is located and on whether the guarantee relates to a property or a movable asset. Each state has different filing rules, and the same state may have different offices and procedures for real estate and movable property.
Step 1.
Generally it is possible to mail the documents to the authorized office together with the deposit fee amount, however, as in the previous case, it may be in your interest to file in person, so you know if the guarantee has been transcribed and you can correct any errors in the documentation immediately
Step 2. Wait for the debtor to honor the sentence
A collateral following a judgment does not guarantee payment of the debt. Rather, it is necessary to wait until the debtor sells the property. If the buyer wants a title without encumbrances, he will insist that the debtor honor the sentence before completing the purchase.
- While there is no law that requires the cancellation of liens before the property is sold, in most cases potential buyers want a title that is free from the debt of a third party.
- In some cases, if the debtor honors the sentence, you must cancel the guarantee by filing a form with the court that acknowledges the execution of the sentence.
Step 3. Follow other debt settlement solutions
If the debtor does not pay, there are other legal solutions available for debt recovery, such as foreclosure of the salary or forced withdrawal from the bank account. Talk to an experienced debt recovery lawyer to get an idea of all the available solutions.
Warnings
- Sometimes subcontractors cannot register collateral without the approval of the main contractor, or only contractors who are licensed in the state are allowed to register collateral.
- Since it is not possible to impose the sale of the property if you have a judicial collateral, recovering the money could take a very long time. Furthermore, if the owner is declared bankrupt, the judicial real guarantee may not have any effect.
- In many cases, the exclusion of the effectiveness of the guarantee is ensured for the main residence if the property is sold to pay for loans secured by a mortgage or other encumbrances. This could limit your ability to get paid if you write down the collateral on the debtor's primary residence.
