The Legal Brief: When A Mechanic’s Lien Becomes Extortion
By: Franklin Drake
Executive summary: don’t pay more than 15 days storage to an NC mechanic to recover your collateral unless the mechanic can prove he complied with the notice requirements of NC Gen. Stat. §20-77(d).
“Either you pay me my entire storage bill for all 6 months I’ve held this car, or I’ll buy it myself at a mechanic’s sale and you’ll get nothing!” Have you ever heard that from a mechanic, with just the slightest smirk in his voice? How many times in your CU career has a member abandoned your collateral at some repair shop or tow-in lot for weeks or months, leaving an unpaid bill and mounting daily storage charges? It seems those calls never come to you until the storage bill equals the car’s value. Must you either abandon your collateral or pay extortionate storage fees to a mechanic who waited for months before calling? Not necessarily. Read on.
Most lenders realize that a mechanic’s unpaid bill for towing, repairs and storage of motor vehicles in NC amounts to a lien on the car. That lien is superior to the lender’s lien on the car’s title, so long as the mechanic holds onto the car. (GS §44A-2(d) & §44A-3). If most lenders know it, surely all mechanics seem to know it. What no one seems to know about is the language of GS §20-77(d). That statute is not found in Chapter 44A with the mechanic’s lien laws. It’s buried 2 volumes away, in the middle of North Carolina’s “Motor Vehicle Act of 1937”. For secured lenders, it makes delightful reading:
“(d) An operator of a place of business for garaging, repairing, parking or storing vehicles for the public in which a vehicle remains unclaimed for 10 days […], shall, within five days after the expiration of that period, report that vehicle as unclaimed to the Division. Failure to make such report shall constitute a Class 3 misdemeanor. Persons who are required to make this report and who fail to do so within the time period specified may collect other charges due but may not collect storage charges for the period of time between when they were required to make this report and when they actually did send the report to the Division by certified mail. [my emphasis added].
Plain English translation: If your member fails to pay the cost of repairs to his mechanic for 10 days after his car (your collateral) is ready, then between Day 11 and Day 15, the mechanic has to send a certified letter to the NC DMV, containing a “Report of Unclaimed Motor Vehicles”. If the mechanic fails to send that Report, he has 2 problems:
1. The mechanic has committed a Class 3 misdemeanor (i.e., up to 10 days in jail + a $200.00 fine), but
2. More importantly, the mechanic forfeits his right to claim storage charges from Day 16 forward, until he does send in the Report! If he has never sent in the Report (and many don’t), then his mechanic’s lien beats your security interest only for towing (if any), reasonable repairs, and storage for only the first 15 days he held the car. That mechanic has no right to charge the CU or anybody else for any more storage!
How can you use this law to your best advantage? Browbeat the mechanic with the law and his failure to comply. Re-read the first paragraph of this article, after the Executive Summary. Let’s presume that is your problem: a mechanic with a whopping storage lien on a car he’s held since last Christmas.
1. First, ask the mechanic for a breakdown of the separate charges for tow-in (if any), repairs (both parts & labor), and then storage. If he is legitimate, the mechanic will have some sort of an invoice. Get a copy, either in person or via fax.
2. Second, ask what the per-day storage charge is, for what period, and beginning on what date. The current market rate for storage appears to be between $10.00/day & $25.00/day. (If the mechanic’s last name matches the member’s, most likely it will be the latter.)
3. If you are suspicious you are dealing with a “shade-tree” mechanic or the defaulting member’s buddy or uncle, ask him for his business’s federal tax ID. Tell him you need it for your accounting office. If he balks, you’re dealing with a faker.
4. Whether or not you get an answer to #3, now spring the trap. Ask the mechanic when he mailed in the Form ENF-260 “Report of Unclaimed Motor Vehicles” to the NC DMV Headquarters in Raleigh by certified mail. Chances are, you’ll be met with silence or disdain.
Now you can tell him about Class 3 misdemeanors and his forfeiture of storage. Show him a copy of the statute you have printed. Then show him a copy of the Report form. If knowledge is power, then chances are pretty good you can back him down about the exorbitant storage. Be ready to pay for the repairs and for 15 days’ storage on the spot (preferably in cash). Since you have seen the bill already, it should be too late for the mechanic to monkey with the numbers.
Suppose the mechanic is smarter that you thought, and he actually did file his Form ENF-260. Ask to see a copy, and the certified mail receipt too. If he refuses, be suspicious, and contact the Storage and Liens Section of the NC DMV Headquarters in Raleigh. The DMV can furnish you with a copy of what it got and tell you when it arrived. The Form itself details the date the vehicle was left with the mechanic, and the DMV date-stamps its receipts. You can calculate for yourself the number of permissible storage days: the first 15, plus any that elapsed after the date a tardy Form reached the DMV. (Even if the mechanic filed his Form on time, GS §44A-4(a) requires that he begin foreclosure proceedings before 180 days’ of storage have accrued, or he loses his priority over your lien for Day 181 forward).
Suppose the mechanic is just as ignorant of the law as you thought, but still flatly refuses to hand over the car unless you pay him whatever it is he demands. If you cannot persuade him or browbeat him into agreement, then you get to make a business decision: pay the extortion to get the car, or tell him you’ll see him in court. Yes, you will pay legal fees, but there are remedies in the law for lenders confronted with mechanics who stubbornly refuse to take only what they are rightfully due and no more, in GS §44A-4(a). Of course, there is also the matter of the Class 3 misdemeanor for you to mention to the mechanic and then to the local D.A.’s office.
Many mechanics know just enough of the lien law to be dangerous. They know how to assert their statutory lien under §44A-4(b)(1) by notifying the DMV of their impending mechanic’s lien foreclosure sale – when they get around to it. They often don’t know their duties under §20-77(d), but now you do. Use it to your advantage just once, and you will save your CU plenty.
ABOUT THE AUTHOR
Frank Drake is a senior partner in the firm and has more than 30 years of legal experience. He concentrates his creditors’ rights practice in the areas of bankruptcy and commercial litigation. Frank represents credit unions, banking and financial institutions, consumer and commercial lenders, and student loan agencies. Frank has taught classes on bankruptcy and commercial law for various Bankers Associations as well as the National Association of State-Chartered Credit Union Supervisors and various states’ Credit Union Leagues.