Filing a Construction Lien

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 What is a Construction Lien?

Construction liens, also known as mechanic’s liens, refer to improvements made on a home. Although a mechanic’s lien may sound like a car repair lien, it is not the same thing. They are also sometimes referred to as materialmen’s liens. They apply only to real property such as homes, buildings, land, etc. They may not be obtained for vehicles or other personal property.

A construction lien is used by construction contractors to ensure the owner of the property will pay for the materials used and services performed to improve the property. If the owner of the property fails to pay for the improvements made on their home, the contractor can file for a construction lien in order to obtain payment.

Construction lien laws authorize the forced sale of a property to pay for materials used and construction services performed. They usually concentrate on the contractor performing the improvements but many states also have provisions in the liens that offer protection for the property owner.

In most cases, the property owner assumes the general contractor will pay subcontractors for any work performed. In some cases, the general contractor fails to pay the subcontractor. In these cases, the subcontractors may have a right to file a mechanic’ lien against the property owner. Even if the property owner can provide proof of payment to the general contractor, they may still have to pay the subcontractors. Some courts do not accept payment to the general contractor as a defense in a mechanic’s lien proceeding.

How Do Construction Liens Work?

In order for a construction lien to be imposed, there must be a valid contract between the property owner and the individual or individuals performing the construction. In order for an individual to have construction lien rights, two basic elements must be present: improvements and consent.

The improvements made by the contractor and the materials used by the contractor must be done on the real property the lien attaches to. The owner of the property must consent to the work the contractor or subcontractor is performing.

There must also be a breach of the contract provisions. This usually occurs when the property owner fails to pay for the improvements made by the contractor. Breach or default under the contract can cover a range of issues, so long as they are directly related to the services rendered by the individuals completing the improvements.

There are many types of work that go into completing a home or home improvement project. Because of this, the title of mechanic, used to refer to the individual making the improvements, can refer to an individual completing any of these services, including:

  • Plumbers;
  • Painters;
  • Carpenters;
  • Electricians;
  • General contractors; and
  • Subcontractors.

The aggrieved party, or party suffering a loss, which in these cases is usually the mechanic or construction worker, then has to file to have the lien enforced on the property. Construction liens are not automatic. They must be requested in a court in order to be enforced.

The contractor employed to make improvements on the property attaches a lien or hold on the property in order to ensure payments are made. The property owner will be served with notice of a lien. The lien is recorded at the city or county recorder’s office and becomes attached to the title of the property. If a construction lien is granted by a court and attached to the property, a property owner may be required to sell some or all of the property to satisfy the debt they have failed to pay.

In many cases, property owners will require that subcontractors waive their rights to a construction lien, known as a waiver. This ensures the property owners do not pay twice for the same work or services. If the mechanic or contractor has waived their right to a construction lien voluntarily, they will not be able to request one.

What are the Steps to File a Construction Lien?

The steps for filing a construction lien vary from state to state. Each step has a deadline that must be met and varies by state. Most states require the same basic elements, including:

  • A default on valid contract payments;
  • A prior notice to the property owner that a construction lien is being filed for;
  • Recording the construction lien with the county; and
  • A request for foreclosure action.

The construction lien must be requested for the real property where the improvements were made. Even if the same individual owns two properties, the contract is not permitted to make improvements on one home then request a construction lien on the other home owned by the individual.

Lastly, the property owner must have consented to the improvements the mechanic or contractor performed on the property. A construction lien cannot be obtained if the contractor or mechanic made improvements without the owner’s consent.

What are the Effects of a Construction Lien?

The effects of a construction lien can be severe. A construction lien can result in a foreclosure if the owner fails to pay it off. It may lead to double payments, especially when multiple subcontractors were involved with the improvements.

If the property owner has failed to make payments, the lien can have consequences on the property title. This is known as cloud on title or having an encumbrance on the property title. These issues may make the property very difficult to sell. It may also make refinancing difficult.

A construction lien foreclosure occurs when the property owner is forced to sell some or all of the property to satisfy the debts incurred from the improvements. This happens when the property owner has failed to make payments for the improvements as agreed to in the contract for improvements.

Can My New House Come With a Construction Lien?

Yes, construction liens follow the property and not the owner. It is possible that your new home may come with a construction lien. This may occur in cases where a seller made improvements to a home just prior to selling it. If you are purchasing a home checking the title records with a title search will indicate whether or not a construction lien is attached to the home.

Do I Need a Lawyer for a Construction Lien?

Yes, a business lawyer is a great asset for a construction lien. Construction issues are very complex and can have serious consequences. They may involve numerous parties including the property owner, general contractor, and subcontractors. Since these laws vary by state, it is important to seek the help of an attorney to ensure compliance with local laws.

If you are requesting a construction lien, a business attorney can advise you of your rights as a contractor. A lawyer can also review the contract to determine if there was a breach.

If you are a property owner and a construction lien has been imposed on your property, a business lawyer can help protect your rights. A lawyer can help keep communications straight between numerous parties and ensure there are no double payments. A lawyer can advise you on your case and try to keep the title to your property free from encumbrances.

A business lawyer can also assist property owners prior to making home improvements in an effort to avoid any disputes. This can include drafting a waiver so the subcontractors cannot file construction liens against the property.

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