The email arrived from the company that’s doing the title search on the perfect Cirrus SR22T that you are all the way ready to buy: “The aircraft has a mechanic’s lien on it in the amount of $17,823. It looks like a previous owner didn’t pay for an annual. Give us a call and we’ll discuss your options; nevertheless, this is going to delay closing on the sale.”
“Ah, dirty words.”
Rightfully so. Finding an old lien on an airplane that you wish to buy can be anything from a minor nuisance to a deal killer. No matter what, dealing with an unexpected lien and getting it released before the sale—if that is possible—is extra effort neither you nor the seller wants to go through.
We’ll talk about what a lien is, the two general types that can be placed on airplanes, what can be done if there is one on your airplane and how to avoid them.
Types of Liens
There are two general types of aircraft liens, nonconsensual and consensual.
A nonconsensual lien arises through the operation of law, not by any agreement between the aircraft owner and the person/company filing the lien. These are usually mechanic’s liens where the shop is asserting a security interest in the aircraft because it didn’t get paid for working on it, storing it or fueling it.
A consensual lien is by agreement between the parties involved—almost always as part of financing a loan for the buyer to buy the aircraft. The lender and the buyer agree on the amount of the loan and the lender files a lien on the airplane, making the airplane security for repaying the loan.
Bottom line, a lien properly filed and recorded tells the world that the lien holder has a property interest in the airplane and the airplane owner cannot give clear title to the airplane in a sale. If you discover there is a lien on an airplane you wish to buy do not complete the sale unless you get proof that the lien is released before you close.
We’ll discuss the types of aircraft liens in order after we deal with something that may not make a lot of sense: Aircraft lien law is controlled by the states. Whether someone can assert a lien on an aircraft, how it does so, how the aircraft owner can defend against a lien and how long a lien lasts depends on state law, not the FAA.
If you live in Oregon and have an Oregon shop work on your airplane and don’t pay for it, Oregon lien law determines whether the shop can place a lien on your airplane and how it does so.
How Do You Find a Lien?
There has to be a way for someone who wants to buy an airplane to find out if there are any liens on it, so the buyer doesn’t get bushwhacked sometime after the sale.
That’s where the FAA comes in. Liens obtained on aircraft under state law are then recorded with the FAA so that people looking for liens on a particular aircraft have one place to look—in the FAA Registry.
At the same time, when a debt reflected in a lien on an airplane is paid off, the person who placed the lien files a notice of release of the lien with the FAA.
However, the FAA only functions as a repository of lien filings. It keeps the filings along with the date and time it received each one—because that may prove important if there is litigation over liens on an aircraft and which one has priority. It does not make a determination if a lien that is filed with it is valid or not. That is up to the courts in the state in which the lien was originally filed.
Mechanic’s Lien
Let’s track what happens with a mechanic’s lien. Our favorite maintenance shop, Wrench Swingers LLC, performs an annual on a customer’s Diamond DA40. The customer has been around just a short time. On two occasions the shop has done work, the customer took the airplane, the shop sent a bill about a week later and the customer paid it.
This time, however, the customer drops of the airplane at the agreed time for its annual inspection. There is no discussion about ground rules for the annual.
Two weeks later the shop texts the customer that the airplane is done.
“Great,” the customer responds, “I’ll be by to pick it up tomorrow.”
The customer arrives, gets the logbook sticker, chats briefly with the A&P who did the work, makes a test flight and finds all is well. Customer then flies the airplane home.
A week later the customer gets a $24,000 bill for an annual that he expected was going to cost no more than $5000. He calls the shop manager and in between expletives says that he’s not paying that bill.
Over the next few days the manager and customer have some more telephone conversations but cannot come to any resolution.
I want my money!
The shop manager decides to place a mechanic’s lien on the airplane. She calls up the lawyer that does work for the shop and describes the problem and says that she wants to lien the bird only to get told by the lawyer that there’s nothing she can do. Once the shop let the airplane go, the law in that state prevents the shop from filing a lien on the airplane. The shop will have to sue the owner for payment.
This article is not legal advice; however, its bottom line is that you should make sure you know your state’s law on mechanic’s liens if you are an aircraft owner or facility that services, fuels or stores aircraft.
We also recommend that if you are an aircraft owner or shop that you join AOPA’s Legal Services Plan for inexpensive access to aviation lawyers—we think it can save you a great deal of money when, not if, you have a legal question involving an aircraft.
In our research, we found that in most states a shop that wants to place a lien on an airplane it has worked on cannot do so if it lets the owner take it away from the shop after the work is done.
That is what is known as a possessory lien. In most states a shop automatically has a lien on an airplane that it has worked on, so it does not have to let go of it until the bill is paid. It gives up the lien if it releases the airplane before payment.
Also, it cannot then take a tug, go to the owner’s hangar, remove the airplane and bring it back to the shop. That’s generally a criminal act.
In addition, the shop cannot hold the aircraft logbooks hostage to enforce payment for work on the airplane. We’ve seen that tried. It’s often considered a criminal act and things can get very ugly quite quickly.
Think about when you pick up your car at a shop—you pay for it before it’s released to you. That’s how the shop makes sure that it can enforce its mechanic’s lien on your car.
In addition, in most states, the shop has to give you an estimate of the cost of repairs and get your approval before they can start work on the car. That system works fairly well.
Professional Shop
In our opinion, a professional aircraft repair shop will inspect your airplane, provide you a squawk sheet with estimates to repair each item, say which items are airworthiness issues and must be repaired and which are not and you, the owner, can decide whether you want the work done. At the end of the discussion, the shop knows what work it is going to do and you know what it’s going to cost.
If, while making repairs, the shop runs into other issues, it stops until it can give you an estimate of additional work that needs to be done and you and the shop go through it and agree on the work and the cost.
As a result, when it’s time to pick up the airplane, there are no surprises as to the cost and the owner is in a position to pay for it right then. In our opinion that is the best procedure to avoid the need to put a mechanic’s lien on an aircraft.
From the standpoint of a maintenance shop, our recommendation is that you not release an aircraft to the owner until you have been paid. Sure, some owners won’t like that and will go elsewhere, but right now there is a shortage of A&Ps and work backlogs at shops. What have you got to lose?
If you, the shop, are turning airplanes over to owners without getting paid, you’re loaning the owner money. In most states you are also giving up the leverage you have to get paid—possession of the airplane.
Perfecting a Lien
Let’s say the shop does it right, holds onto the airplane and the owner doesn’t pay. Then it’s time to “perfect” the shop’s mechanic’s lien. In this case “perfect” means to jump through the legal hoops to make the lien enforceable. Again, this varies by state. Usually step one is to file the lien with appropriate authorities in the county where you are based. There may be a format established by law.
The next step is to file the lien with the FAA if your state law provides for recording claims of liens. If it does, you send an original of the claim of lien to the FAA Registry, with $5. The claim must include the amount of the claim; description of the aircraft by N-number, manufacturer name, model designation and serial number; dates on which labor, materials or services were last furnished; and the ink signature of the claimant showing the signer’s title as appropriate.
The FAA will then send you Form AC 8050-41, Conveyance Recordation Notice. That form can be used as a release of the lien if the claimant signs it and returns it to the Aircraft Registration Branch.
If the owner still won’t pay, the next step is to initiate a foreclosure proceeding in the time set forth in your state law. Assuming you are successful in the action, the court will order the aircraft sold at a sheriff’s sale. If the aircraft sells for more than your claim, you get your money and the rest goes to the now former aircraft owner.
There are defenses against a claim of lien, primarily that it was not properly perfected, it has expired or the amount claimed is in excess of what is justly due. It’s possible that the lien claimant way overstepped and the aircraft owner may recover damages from the shop, although those details are beyond the boundaries of this article.
Consensual Lien
The other type of lien, a consensual lien, is almost always part of an agreement you’ve reached to borrow money to buy the airplane. The lender and you sign various sale documents, including a claim of lien showing that the lender has a property interest in the airplane. The lender files it locally as required by law and with the FAA.
Once you pay off the loan, the lender sends the FAA a release of lien and the lien is no longer valid.
The bottom line is that if there is a lien against your airplane, whether consensual or not, and the lien is properly recorded, it is a notice to anyone wanting to buy your airplane that someone else has a property interest in your airplane and you cannot deliver clear title to the airplane at the time of sale.
As far as we’re concerned, if you’re looking to buy an airplane, any lien on that airplane that cannot be released during closing (that’s usually when liens arising out of financing the airplane get released) is a deal killer. We’ve seen too many people buy airplanes that had a several years old lien on them that the seller assured wasn’t anything to worry about and then the lien holder came after the airplane.
Buying an airplane and then having someone come after you for several thousand dollars is not a path that you want your life to take.
Most purchase agreements require the buyer to deliver “clear” title to the aircraft. If there is a pending lien, that’s impossible for the buyer to do. We can’t recommend strongly enough against ever buying an aircraft when the buyer cannot deliver clear title. No matter how deeply you’ve fallen in love with the airplane, an unreleased lien can be a very expensive way to have a love affair ruined.
Conclusion
Of equal importance to a careful prebuy examination of an airplane you want to buy is obtaining the FAA records of the airplane and having a company that specializes in aircraft title searches perform one for you. We also recommend buying title insurance to protect you from liens that may exist buy aren’t caught on the title search.