Possessory Liens: A Tool to Collect Sums Due For Contents Restoration

If you take your Ferrari to the shop for a new carburetor, and you refuse to pay for the work, the shop can keep your Ferrari, just like a dry cleaner can keep your pants if you don’t pay for the cleaning. 

These providers have liens on the property, and restorers have them, too.

These liens are different from mechanic’s liens, which attach to real property improved by a provider. The liens on contents are called “possessory liens” because the lien is based on possession. 

A possessory lien is a security interest in personal property that secures payment for services rendered with respect to that property. No special forms or paperwork are required to secure these liens. They exist by operation of law, merely by virtue of the fact that a provider is in possession of the goods and has not been paid. 

If the customer fails to pay, the law outlines a procedure that allows the provider to eventually sell the goods and apply the proceeds to the past due balance. This is rarely necessary, but can be a good bargaining chip.

Countless times, restorers have called our office and reported that their customers are demanding the return of their contents but have not paid for the restoration and/or storage of those contents. “You’re holding my belongings hostage,” these customers proclaim. But do they say the same thing to the Ferrari mechanic or the dry cleaner? 

 I would venture to guess that the industry has lost hundreds of millions of dollars by waiving important rights based on an incorrect assumption their customers will act in good faith and will pay.

Here’s a conversation I have had many times:

Restorer: Uncle Ed, the customer owes me $315,000.
Uncle Ed: Do you have a lien?
Uncle Ed: Why not?
Restorer: I thought they were going to pay so I did not pursue a lien.

Don’t do that. The rate of recovery is way higher among restorers who protect and properly assert their legal right to lien property.

If the customer is refusing to pay for contents restoration when you are in possession of those contents, do you really think they will pay you after you have relinquished possession? Possessory liens, like mechanic’s liens, are powerful leverage in collections negotiations. 

When restorers call our law office and report past due balances for contents restoration services and/or storage, we frequently advise them to withhold the property and assert a possessory lien under the applicable law. In California, it appears in Civil Code §3051. 

Beware of Household Movers Laws

It is commonplace for restorers to transport contents from residential property to storage facilities or cleaning facilities. These providers may hold business licenses and contractor’s licenses. They presume they are allowed to move household goods. However, some states, including California, have laws that require a mover’s license to move an individual’s personal property over public roads. A contractor’s license is insufficient. The laws I have seen do not apply to commercial projects—only residential. California sets legal trends. Check the law with your local attorney.

Certain public agencies have an eye out for restorers who move household goods without a license. They warn consumers “to check the licenses on damage restoration companies,” and that “bandit restoration companies extort money from customers while holding goods hostage.” They complain that “unlicensed companies can extort money from customers, use bait-and-switch tactics, hold possessions hostage, steal some or all of the items or not insure damaged or destroyed items.” 

The agencies vow to “take a hard stance against this illegal activity, and we hope to send a message to bad operators that holding consumer goods hostage for more money will not be tolerated.” They proclaim that they will use sting operations and aggressively seek enforcement actions against unlicensed companies. Operators may be cited and fined up to $5,000 for each violation in some states. Violations may be referred to local district or city attorneys for possible prosecution. 

However, to my knowledge, no court or public agency has said that moving goods without a license trumps the possessory lien asserted for the service that did not require a license. If the cleaning service was performed lawfully, the invoice for it should be paid, even if the provider broke laws in other aspects of the project.

Lawyers for homeowners sometimes raise the license issue in disputes over balances due for contents restoration services. Many states dictate that when an unlicensed party performs work that requires a license, it cannot charge for the unlicensed work. The work is free, even if the consumer knew the provider was unlicensed before authorizing the work. These states say that customers who have paid for unlicensed service are entitled to disgorge sums paid for the unlicensed work. In other words, they get a refund.

Subbing out the moving service does not solve the license problem. Only licensed movers may sub out moving service. The solution is to refer the customer to a licensed mover to transport the property to and from your facility. Be careful about seeking a referral fee or a commission; it may be illegal in your state.

Consumer attorneys push the envelope when household goods are moved without a license. Without offering to settle the cleaning invoice, they demand a release of the property. They claim that since the property was moved unlawfully, there can be no possessory lien because a lien requires lawful possession. I argue that the possession became lawful once the property arrived at its destination. When the restorer asks for payment, the attorneys change the subject, allege theft, and threaten to call law enforcement. We have yet to see law enforcement order a provider to return goods when there is a payment dispute. They see it as a civil matter. 

The mover’s license law should not invalidate lien rights for cleaning services that do not require a license. This does not stop the attorneys from arguing that the provider must return the goods because the provider never had a right to possession of the contents in the first place.

They’re missing the point.

The point of the mover’s law is to protect consumers from fly-by-night companies who receive household goods based on a promise to provide service for one price, and then they change the price later and refuse to release the property unless the higher price is paid (bait and switch). If a restorer holds no mover’s license in the states that require a mover’s license, but performed legitimate cleaning services, the restorer should consult with an attorney. They should write off the moving charges but assert a possessory lien for the balance due for cleaning services. If the moving charges have been paid, depending on the law in your state, it may be worthwhile to refund those payments in an effort to immunize the rest of the invoice from attack, and make yourself less of a target for public agencies.

So what happens if the moving was illegal but the contents cleaning was legal? Does the lien disappear? I am unaware of any courts that have answered that question.

My view is that as long as you don’t extort money from customers, use bait-and-switch tactics, or steal any of the property, you should have a very good chance of recovering a reasonable price for contents cleaning and storage, even if you moved them without a license. If the contents-related service has been paid, the contents probably need to be released, even if the customer has breached a contract to pay for structural repairs or remediation of real property.

It’s a good idea to have a contents restoration contract that explicitly states that you are authorized to remove the contents from the home. This mitigates the “unlawful possession” argument. Regardless of what the contract says, I argue that the restorer was authorized to take possession of the goods, and authorized to load them into a truck. If there was a violation, it only existed from the moment the ignition was started on the truck until the truck reached its destination. The mover’s laws I have seen don’t say that unlawful moving makes contents cleaning free. That would result in an unfair windfall. No license is required to clean contents. I contend that at most, the customer would be entitled to a refund of the moving charges because that’s the only component that was “illegal.” 

 Storing and restoring personal property is big business, but it must be conducted carefully. Do not move household goods without a license if a license is required in your state. But stick to your guns on your legitimate lien rights, and remember the old adage: “He who holds the contents, holds the power.”

Yours in the struggle,

Uncle Ed

Edward H. Cross, Esq.

Edward H. Cross is president of Law Offices of Edward H. Cross & Associates, PC in Palm Desert, California. Since 1997, he has specialized in representing restoration contractors across the country. He can be reached via email at EdCross@EdCross.com.

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