A lien permits a person to have an interest share in another individual’s property. It creates a legal right for the creditor to obtain the property if the debtor fails to repay their debt according to the terms of their agreement. Liens are meant to provide security to individuals taking out a loan to cover their debt and obligations.
Generally speaking, liens are public and notify creditors about any existing debts. As a formal document, it is signed by either the creditor who is owed the money or the debtor who agrees to make the due payment. The lender plans to ensure that payments are made on the loan; liens create that extra leverage against the debtor. The lender becomes a lienholder on the debtor’s property by filing the correct paperwork. The debt becomes secured, and the lender has a better chance of getting paid back.
A mechanic’s lien is a type of guarantee of payment to builders, contractors, and construction firms. These lines ensure that the working parties are paid before anyone else should liquidation happen. A mechanic’s lien may also be extended to material suppliers, subcontractors, and building repairs.
Suppose the property owner does not pay for the services or materials that have been rendered. In that circumstance, the worker can start a court proceeding to force a sale of the property to pay for the services and materials.
Mechanic’s lien laws differ from state to state. They are largely state-specific. An example of this would be how a mechanics lien expires between one and two years in Texas, depending on the project. In New York, a lien must be filed within eight months of the last performance of labor.
Further, individual counties are typically responsible for their property records. This means that one county clerk may have especially detailed methods in terms of how they require liens to be formatted to be accepted. In contrast, another county clerk adheres to criteria set by another county.
In terms of who is considered to be a “mechanic” for a mechanic’s lien, the following service providers are some common examples:
- Vehicle repair;
- General contractor; and
Basic Requirements for Mechanic’s Lien Rights
Two basic elements are required to determine if a person has mechanic’s lien rights.
The first element would be improvements. The improvements made by the contractor, or the materials the contractor uses, must be intended for the real property that the lien will attach to. An instance of this would be how a contractor cannot build on one piece of land and file for a mechanic’s lien on another piece of land, even if the same owner owns both pieces of land.
The second element would be consent. This means that the property owner must consent to the work that the contractor or subcontractor is performing. Because a contractor or subcontractor cannot improve the property without the owner’s permission, the contractor cannot demand payment for that work. They could not claim the mechanic’s lien rights if the homeowner did not agree to the arrangement.
How Does a Mechanic’s Lien Work?
As previously mentioned, the individual employed to improve the property attaches a financial claim to the property that they were hired to improve. The lien serves as a hold on the property.
Generally speaking, the property owner will be served with a notice of a lien. The lien will be recorded at the county or city recorder’s office so that it becomes attached to the title of the property. If the property owner does not pay what they owe the individual hired to improve their property, the court will likely hold proceedings to sell the property for payment of the services.
The filing requirements for a mechanic’s lien differ greatly from state to state. In general, the process is as follows:
- Default: The property owner must first default on their payment before the process may be initiated.
- Preliminary Notice: The claimant must provide the property owner with written notice of the lien within a statutory period. The notice must include the following information:
- Lien claimant’s name and address;
- Name of the individual who contracted for the work or services, meaning the property owner;
- A general description of the labor or services rendered, as well as the estimated total price of the job; and
- A description identifying the worksite.
- A Claim of Lien: This is a written statement, signed and verified by the lien claimant, including the same details as that provided in the preliminary notice. A claim of lien must be recorded with the county recorder’s office in which the relevant property is located. This recording period is defined by statute.
- Action to Foreclose: This foreclosure action for a mechanic’s lien is comparable to a foreclosure on a mortgage. In short, it is a lawsuit that is brought to force the sale of the property to satisfy the labor or services debt. This action must also be filed within a statutory period defined by each state.
A mechanic’s lien contract will differ according to the needs of each situation. The contract will typically state the terms of the agreement and provide proof of consent. A mechanic’s lien contract will also clarify what repairs are being made, what materials are being provided, and what cost.
What Are Mechanic’s Lien Waivers?
Commonly, a property owner will pay the general contractor and trust that the general contractor will pay any subcontractors. Nevertheless, when a general contractor fails to pay the subcontractors, the subcontractors may still have the right to file for a mechanic’s lien against the property owner. This remains true even if the property owner can demonstrate they paid the general contractor; courts do not generally accept this as a defense to a mechanic’s lien proceeding.
It is just as common that property owners will require the subcontractors to waive their rights to a mechanics lien. This is so that the property owner does not risk possibly paying for the same work twice.
What Do I Need to Contract Work for My Property?
If you are considering contracting work for your property, the following preventive steps are worth consideration:
- Well-Written Contract: A clear, well-drafted contract should include provisions that provide for unfortunate situations, e.g., unreasonable delays and the general contractor’s failure to pay all subcontractors.
- Notice of Completion: When all work is accomplished, file a Notice of Completion. It notices when the construction job is finished and shortens the filing time for a mechanic’s lien. It is recorded with your county’s recorder’s office.
- Record Contract and Payment Bond: Recording a copy of your contract and payment bond with your county’s recorder restricts your liability to subcontractors to the remaining amount owed to the general contractor (for mechanic’s liens filed after your recording.)
How Do I Get a Mechanic’s Lien Released?
If a mechanic’s lien has been filed against you, you have a few choices:
- Satisfy the Lien: Paying the lien amount can release a mechanic’s lien. Nevertheless, if paying the lien amount is not equitable, negotiate a more reasonable payment. As part of the settlement, have the contractor sign a mechanic’s lien waiver and release that removes the lien from your property.
- Lien Release Bond: You can contest the amount or existence of the lien with a lien release bond. A lien release bond shortens the lien claimant’s enforcement period and can release your property from the mechanic’s lien or terminate a foreclosure action.
- Court Ordered Release: If the lien claimant fails to meet the statutory requirements, the mechanic’s lien is invalid. If the lien claimant fails to execute a release of the mechanic’s lien, petition the court to release the lien. You must be proactive to ensure the mechanic’s lien is released. If not, the lien will remain and can cloud your title.
Do I Need a Lawyer for my Mechanic’s Lien Issue?
A real estate lawyer can help you draft a contract that anticipates and protects against challenges. Suppose someone has already attached a mechanic’s lien to your property. In that case, an attorney can help you through the procedures to ensure your property will not be sold, develop defenses if you are taken to court, and file a release if the mechanic’s lien remains in your title chain.