A lien allows a person to have an interest share in another person’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 a degree of security to the person taking out a loan to cover their debt and obligations.
Generally speaking, liens are public, and inform 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 payment that is due. The lenderer intends to ensure that payments are made on the loan; liens create that extra leverage against the debtor. By filing the correct paperwork, the lender becomes a lien holder on the debtor’s property. 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 occur. A mechanic’s lien may also be extended to material suppliers, subcontractors, and building repairs. If the property owner does not pay for the services or materials that have been rendered, the worker can initiate a court proceeding to force a sale of the property in order to pay for the services and materials.
Mechanic’s lien laws vary from state to state. They are considerably state-specific. An example of this would be how in Texas, a mechanics lien expires between one and two years, depending on the project. In New York, a lien must be filed within eight months of the last performance of labor.
Additionally, individual counties are generally responsible for their own property records. What this means is that one county clerk may have especially particular methods in terms of how they require liens to be formatted in order to be accepted, while another county clerk adheres to criteria set by another county.
In terms of who is considered to be a “mechanic” for the purposes of a mechanic’s lien, the following service providers are some common examples:
- Vehicle repair;
- General contractor; and
Basic Requirements for Mechanic’s Lien Rights
There are two basic elements that are required in order 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 example 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. What this means is that the property owner must consent to the work that the contractor or subcontractor is performing. Because a contractor or subcontractor cannot improve property without the owner’s consent, the contractor cannot demand payment for that work. As such, they cannot claim mechanic’s lien rights if the homeowner did not consent to the arrangement.
How Does a Mechanic’s Lien Work?
As previously mentioned, the person who has been 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 person hired to improve their property, the court will likely hold proceedings to sell the property for payment of the services.
To reiterate, the filing requirements for a mechanic’s lien vary 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 person who contracted for the labor and/or services, meaning the property owner;
- A general description of the labor and/or services rendered, as well as the estimated total price of the job; and
- A description identifying the work site.
- Claim of Lien: This is a written statement, signed and verified by the lien claimant, which includes the same information 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 similar to a foreclosure on a mortgage. In short, it is a lawsuit that is brought to force the sale of property in order to satisfy the labor and/or services debt. This action must also be filed within a statutory period as defined by each specific state.
A mechanic’s lien contract will vary according to the needs of each situation. The contract will generally state the terms of the agreement and provide proof of consent. A mechanic’s lien contract will also clarify what repairs are being made, or what materials are being provided, and at what cost.
What Are Mechanic’s Lien Waivers?
It is common that a property owner will pay the general contractor, and trust that the general contractor will pay any subcontractors. However, 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 is able to prove that they paid the general contractor; courts do not generally accept this as a defense to a mechanic’s lien proceeding.
As such, 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.
Can a Mechanic’s Lien Come with My New House?
Whether a mechanic’s lien can come with a new home depends on the specific property. This is due to the fact that mechanic’s liens follow the property, and not the owner. As such, it is entirely possible that your home may have a lien, especially when sellers improve their property just before a sale. If you are buying a piece of property, it is imperative that you check the records to see if the property has a mechanic’s lien attached to it.
A title search, or a property title search, involves reviewing files from the county records department in order to see a particular property title’s ownership history. The search is generally conducted by a commercial agent, such as a title company, a real estate attorney, or an escrow officer. The purpose of a title search is to confirm that the seller is the actual legal owner of the property being sold, among other facts. It also ensures that the title is not clouded by a defect that could reduce the value of the land, or would subject the buyer to some sort of legal liability.
Do I Need an Attorney for My Mechanic’s Lien Issue?
Working with a mechanic’s liens attorney can help you determine whether you are subject to legal liability. If you have consented to a mechanic’s lien and are experiencing issues, you should consult with an experienced local business lawyer.
As previously mentioned, many of the laws that govern mechanic’s liens vary from state to state. An attorney can help you determine your legal options according to your county’s specific regulations, and will also be able to represent you in court as needed.