Out of Sight: Should You Release a Vehicle Before You've Been Paid in Full? - BodyShop Business

Out of Sight: Should You Release a Vehicle Before You’ve Been Paid in Full?

If you know your state law regarding mechanic's liens, you can return a vehicle to its rightful owner and exercise your right to be paid for work performed.

Mechanic’s liens and/or garagekeeper’s liens are actually founded on the 400-year-old English Common-Law principle of artisan’s lien. At its origin, an artisan’s lien defined the right of one who has improved an item of personal property (an artisan) to retain possession of the property pending payment of the artisan’s charges. This type of lien is referred to by law as a “possessory” lien meaning, in effect, the artisan need only to retain possession of the personal property to perfect his lien rights.

There’s a historic legal distinction between the definition of mechanic’s lien and artisan’s lien. Though a mechanic’s lien had been intended to denote a tradesman’s lien interest for work performed on real property, the term has evolved over the years to generically apply to artisan’s lien situations. In fact, most statutes now employ the term “mechanic’s,” “garagekeeper’s” or “garageman’s” to describe artisan’s lien situations. For the purpose of this discussion, we’ll use the term “mechanic’s” lien.

In doing my research for this article, it soon became clear that statutory guidelines relative to mechanic’s liens vary widely from state to state and rely heavily on case law interpretation. For me to have put together a comprehensive definitive reference on mechanic’s liens, on a state-by-state basis, would have resulted in more than a helpful discussion – it would’ve constituted a legal doctoral thesis. Short of that, this discussion will review points that are universally applicable in all states (no pun intended), with suggestions for generic courses of action and a direction for defining your state-specific unique options and requirements.

How to Release the Vehicle and Get Paid
The first universally applicable point to be made here is that a mechanic’s lien is superior to any other lien interest, including that of a secured lien holder. In other words, if you have rightful possession of a customer’s vehicle for which your charges have yet to be paid, the lien holder of that vehicle has no right to take possession of the vehicle without paying your charges. However, your right to enforce your lien interest may become subject to a legal action known as “replevin,” which I’ll review later.

Secondly, releasing a vehicle (to anyone but law enforcement) before your complete charges are paid will severely compromise – and in some cases void – your right to enforce collection.

For example, let’s consider this common occurrence: You’ve received an initial payment for repairs, but a supplemental payment is pending. You’ve completed the repairs, and the owner needs his vehicle back. An insurance person says something to the effect of, “Go ahead and give him the car. I’ll get you a check for the supplement.” So what should you do? Refusing to release the car is counter-productive to your business “good will.” But releasing the car compromises your right to enforce collection.

Suggestion No. 1: Have the vehicle owner put the supplemental amount on his credit card and release the vehicle. Tell the insurance person to pay the vehicle owner directly. Release the vehicle. If a charge-back occurs, repossess the vehicle. In most states, a charge-back will revalidate the mechanic’s lien.

Suggestion No. 2: Have the vehicle owner give you a three-day post-dated check. Tell the insurance person to pay the vehicle owner directly. Release the vehicle. After three days, deposit the check. If it doesn’t clear, repossess the vehicle. In most states, your mechanic’s lien is still valid until the check clears.

Suggestion No. 3: Have the vehicle owner sign an actual lien document (seek legal counsel for document verbiage) that memorializes your ongoing possessory lien interest giving the owner (x) days to satisfy the balance owed. Release the vehicle. Provide a notice of lien (with a copy thereof) to the insurance person. If the balance isn’t satisfied in the time allowed, repossess the vehicle.

In my opinion, either of these three suggestions is beneficial to your shop’s good will, earns respect from the customer and puts the burden on the back of the insurance person to keep his promise. All in all, it’s a win-win situation.

Speaking as a former claims adjuster with some experience, honorable insurance people will take no offense to either of these three suggestions. If any offense is expressed by an insurance person, the shop has a basis to question the future veracity of that individual.

If you’re considering “Suggestion No. 3,” discuss with your legal counsel the option of incorporating into the lien document an assignment of rights and benefits in favor of the shop. This could put your shop in position to bring an action against the insurer for “Breach of Contract, Breach of Good Faith” and compel the cooperation of the vehicle owner in pursuing any legal remedy. Reading such a lien, with these provisions incorporated therein, will definitely get the attention of the insurer.

While I share the above suggestions as being a sound business practice, I also recognize that some shops have, over the years, developed special relationships with insurance people. I’m not talking DRP here. Neither am I talking about special treatment. I’m talking about a mutual trust and respectful relationship that Bill Shopowner may have with Bob Insuranceperson. The kind of relationship where you can take the other’s word to the bank. In those types of situations, I’d suggest you defer to and respect that relationship. Take that other person’s word until he proves you can’t do it anymore. At that point, refer back to sound business practices. It’s my opinion that solid relationships are hard to come by and are worth more than the cost of one repair job.

Mechanic’s Lien – Challenged At Law
Within the judicial arena, there’s a legal cause of action generically referred to as replevin. Replevin was created more than 100 years ago as an equitable remedy for those who felt they’d been victimized by the abusive use of possessory liens – especially in shipping and/or transport situations.

For example, the owner of perishable personal property (livestock, fruit, vegetables, etc.) would contract for transport of same. Upon arrival at the destination, the back-end payment due would become artificially inflated. The holder of the possessory lien would attempt to extort additional charges from the property owner under threat of spoilage and/or death of the property. Because time would be of the essence in such situations, replevin was created whereby a court could intervene, immediately transfer possession of the property to the owner and provide a procedure at law for the resolution of the disputed charges.

The bringing of a replevin action requires the demonstration of two basic elements:

  1. Ownership of the personal property at issue.
  2. The personal property at issue is being held in violation of law (citation required).

Only the owner of the property can bring a replevin action. If an insurer is not the owner of the property, they do not have standing to bring an action of replevin. In that case, an insurer’s request for a replevin order from a court should fail.

If the property should become owned by an insurer, as in a total loss situation, your shop should require proof of ownership. That means actually seeing a vehicle title in the name of the insurer that complies with the state’s total loss title branding laws.

Once the primary prerequisite is met (ownership), the next prerequisite (violation of law) has to be addressed.

Even if the shop holding the property has a valid mechanic’s lien, the simple allegation of a violation of law could result in a court ordering possession of the property be released by the shop. However, return of the property to the owner could be challenged at law.

Since an allegation of a violation of law would have to have been made, such an allegation would be subject to a judicial finding of fact. At that point, the property could well become evidence and, as such, would need to be preserved. Were a shop to face this type of situation, the shop should bring its concerns to the court and request the evidence be kept in a mutually agreed upon secure storage facility where access would be controlled, supervised and monitored. The shop should further request the court order the plaintiff to pay the expense for such secure storage, pending adjudication of the replevin case.

A side issue to a replevin action is the requirement that the plaintiff deposit with the court a bond in an amount equal to the undisputed portion of the lien holders charges. If your lien is for $5,000 and the plaintiff has offered $3,000, that $3,000 is the undisputed amount. Don’t let the plaintiff get away with a measly $500 bond. While not a big issue, it’s an element worth examining.

Note: If the court chooses to issue an Order of replevin and the “Sheriff” arrives to supervise removal of the property at issue, you’re obliged to step aside and permit the removal. You’re under no obligation to facilitate the removal. Translation: If the property at issue is on jack stands with wheels off, surrounded by other units on jack stands with wheels off, the personnel sent to retrieve the subject property will have to move the other vehicles, without damaging them, as may be necessary to access the property at issue. If the tow driver, sent to retrieve the subject property, isn’t willing or is unable to do what’s necessary to access the subject property, that’s not your problem. Please understand, I’m not advocating that you make retrieval of the subject property difficult. I’m simply pointing out that your shop would be under no obligation to make retrieval easy.

Researching Your State’s Lien Laws
Statutory guidelines relative to mechanic’s liens vary widely from state to state and rely heavily on case-law interpretation.

When it comes to learning your state-specific unique options and requirements, I’m pleased to have discovered that mechanic’s liens are largely governed by a given state’s version of consumer-fraud statutes, blended with elements of the uniform commercial code as adopted by each state. These resources are where you’ll find state requirements that govern such issues as signed authorization, notice, copy, posting of rates and charges, etc., that control the legality and enforceability of mechanic’s liens.

While doing your research, explore the requirements for towing and storage liens. Such liens often offer a much lower threshold for perfecting the lien and present a much higher threshold for challenging such a lien.

All this information can be easily accessed online by visiting your state government’s Web site. Every state Web site I visited published its state statutes online. Most state Web sites have site-search capability. Use the search phrases “consumer fraud” and “uniform commercial code” to access the desired information. To access your state’s Web site, go to a search engine site, such as Google.com and enter the search phrase, “[Your State] Government.” The search engine will provide you links that you can “Click” on to go to the site you’re looking for.

Requiring a Deposit
While doing research, I spoke with attorneys, management consultants and shop owners. During those conversations, one unique (although it shouldn’t be) approach to collision repair kept surfacing. When insurance isn’t a factor in contracting for work, it’s common for contractors to require a partial payment deposit before work starts. This is true in the building or remodeling of homes, the building of in-ground pools, the restoration of vehicles, the painting of boats, etc. In other words, whenever an expensive project is to be undertaken, deposits are required and, quite often, interim payments (or draws) are made. Even financial institutions (like vehicle lien holders) are familiar with deposits and interim draws. certainly the term “construction loan” sounds familiar. Consumers and lenders alike are used to the concept of partial payment being required before work is started.

When insurers appraise the cost of repairing covered damage, they typically issue a payment document (draft/check) based upon their appraisal. Instead of having the repairing facility named on that document, which could artificially create a detrimental contractual relationship between the insurer and repairer, why doesn’t the repairer remove himself from that loop? Have the insurer pay the vehicle owner (and lien holder if applicable) and then require a deposit from the vehicle owner before work starts. If no deposit is made, a more easily enforceable “tow & storage” lien protects your shop’s interests.

I know of shops around the country that have adopted this deposit approach to business and, without exception, all have reported an ease with which deposits have been paid and a much smoother flow to the administration of their business.

If, after a substantial deposit is received and work begins, the insurer should decide to process the claim as a total loss, it’s then up to your shop to determine how much of the deposit is refundable.

Keep in mind the old insurance company version of the golden rule: Those with the gold make the rules. It’s much easier for shops to determine how much they’ve earned and refund the difference than it is for shops to chase what they’ve earned and to not be paid for the effort.

Lessons Learned …
In doing my research for statutes and regulations in various states, I found widely varying prerequisites for enforcement of a mechanic’s lien. And when mechanic’s liens are challenged (ie: replevin actions), various courts have been inconsistent in their findings. All a replevin plaintiff needs to do is cite an obscure ruling where some judge rendered a specious decision that would compromise your existing interests. So, if you (or your attorney) aren’t familiar with on-point favorable cites, you’ll be in trouble.

I recommend that you do your own research as outlined above and then, armed with your findings, meet with your attorney to review them. You’re now in a position to ask direct and specific questions and require on-point answers. Armed with what knowledge you’ve acquired, no attorney will be able to placate you with hollow, word-track answers.

When you’ve found an attorney who actually knows what he’s doing, form a relationship with him. Let him draft your documents for customer signatures and let him enforce and defend your lien interests.

Finally, don’t let yourself become intimidated just because you’ve never researched statutes before. Know from the beginning that you’re not going to find all the answers you need. What you will find are pathways to those answers. And then your attorney, with a knowledge of case-law interpretations, can explain which of those paths will lead you where you need to be.

Writer Dennis Howard is a retired adjuster continuing his consumer advocacy efforts from a wheelchair in his home in Branson, Mo. He founded the Insurance Consumer Advocate Network in 1994 and took his efforts online in 1997. The iCan web site can be accessed at www.iCan2000.com. Howard also owns and administers an industry-friendly discussion board at www.ProDiscussions.com.

Disclaimer: This author isn’t an attorney and nothing herein should be construed or replied upon as legal advice. This content is simply the result of a layman’s research, blended with personal experience, intended to be shared for the benefit of BSB readers. It’s suggested that points shared here be reviewed by competent legal counsel before any action is taken.

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