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[Source: INEDA, 11.2016 | Keywords: Business Operations, Liens]

Sometimes it is necessary to exercise your legal rights when a customer fails to pay for parts and service. This article will help you understand those rights under Iowa and Nebraska law, and how those rights are exercised.

While the employee who actually provides the services and/or installs parts may be a “mechanic,” when the customer does not pay his/her bill the dealership acquires an “artisan’s lien” (NOT a “mechanic’s lien”) on the subject equipment.

To be enforceable, an artisan’s lien must be “perfected.”

In Iowa, an artisan’s lien is perfected by and during the possession of the equipment by the dealer. Stated alternately, in Iowa, if the dealer gives up the equipment before they are fully paid, they give up their artisan’s lien on the equipment.

Nebraska has a similar provision regarding the necessity of possession of the equipment. However, Nebraska law imposes an additional requirement that a UCC financing statement be filed for the artisan’s lien to be perfected. A recommended practice would be to file the Nebraska UCC financing statement shortly after payment is past due.

A perfected artisan’s lien gives the lienholder the right to sell the equipment. This is called “foreclosure” of the lien.

HOWEVER, before the lien can be foreclosed (and the property sold), a “notice” of the potential sale must be sent to ALL parties who hold an interest in the equipment. This would include the “owner” of the equipment and anyone who holds a PRIOR lien on the equipment. Accordingly, it is necessary to do a lien search PRIOR to issuance of the notice.

The notice of sale must:

• Identify the customer, and the dealer who holds the lien

• Describe in reasonable detail the equipment which will be the subject of the sale

• Describe the method the dealer intends to use to sell the property

• Provide a listing of charges by the dealer

• State the date of the intended sale.

Neither the Nebraska nor Iowa statutes specify how much time must pass between the date of issuance of the notice of sale and the sale date. However, in view of the requirement that notice be issued before any sale, and because the lien can be discharged by payment of the amount due to the dealer by the customer and/or any prior lienholder prior to the sale, a “reasonable” time should be allowed to pass before the sale of the equipment. Determining a “reasonable” amount of time between the issuance of the notice and the sale of the equipment is generally decided on a case-by-case basis, but it is our recommendation that the sale not be conducted earlier than thirty (30) days after the issuance of the notice of sale.

Both Iowa and Nebraska require the sale of the equipment to be in a “commercially reasonable” manner. This can be either by public sale (like an auction or on-line service) or by the dealer to a private party. Although a sale from a dealer to a private party may be cheaper and easier, it also has the greatest possibility for challenge by the customer or a prior lien holder. Accordingly, we recommend that a public sale be the method of disposition.

Upon sale the proceeds are distributed as follows:

• To prior lienholders to the extent of ALL of their prior liens; THEN

• To the dealer to the extent of the amount due; THEN

• To the customer/owner of the property

It is entirely possible that because of prior liens (including a bank’s “blanket” lien) the sale of the equipment will not provide any funds to the dealer. If the sale of the equipment does not produce sufficient funds to pay the dealer, the dealer could still sue the customer to recover the deficiency.

Getting paid is ALWAYS a tricky matter. If your customer doesn’t pay you for the parts and services you have provided them, you have the right to sell the equipment you worked on. In order to exercise this right, it is necessary to strictly comply with ALL of the applicable statutory procedures and requirements.

If you need assistance on this, or other legal matters, contact Samuel I. Kreamer, J.D., C.P.A. of the Kreamer Law Firm, P.C. at 515-727-0900 or at [email protected]