What Is a Mechanic's Lien?
Imagine a contractor builds a new addition to your home, but you fail to make the final payment. Naturally, the contractor has the right to take you to court for breach of contract to recoup these funds. What you might not realize is that the contractor also has the right to place a mechanic’s lien against your property. This type of lien could impact your ability to sell your home in the future, obtain a home equity loan or even get a second mortgage.
Before you consider not paying that final bill, it’s important to understand what a mechanic’s lien is, how it works and how it can impact you.
Liens are not that uncommon when it comes to lenders and creditors. For instance, most home mortgage lenders put a lien on the property as collateral for the loan. In legal terms, a lien is defined as “any official claim or charge against property or funds for payment of a debt or an amount owed for services rendered.”
A mechanic’s lien, also referred to as a construction lien or contractor lien, is a specific type of lien generally placed by contractors, subcontractors or suppliers when a property owner fails to make payment for work done on their property. For instance, if you have a contractor build a swimming pool in your backyard but fail to pay them for their services, that contractor can place a mechanic’s lien on your property.
These liens aren’t limited to the contractor who has a contract with you. They also extend to any subcontractor or supplier who works under your general contractor. That’s right. If your general contractor fails to pay their subcontractors or suppliers, these entities can also place a lien on your property. In most cases, these third-party liens are designed to pressure the general contractor into paying the subcontractors and suppliers in full.
Each state has its own set of conditions that must be met before obtaining a mechanic’s lien and a specific statute of limitations from the date of service. It’s important to contact your state representatives to determine the specific lien statutes for your area.
Once there's a lien on your real property, it’s typically attached to your deed. Generally, the courts give priority to mechanic’s liens, which means the debts are paid off first when you sell your property. It can be extremely difficult to sell your home, refinance your mortgage or obtain a home equity line of credit until the mechanic’s lien is taken care of in full.
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The last thing you want is to pay a contractor for the work only to find out they didn’t pay the subcontractors or suppliers. This unfortunate event could entice those third-party vendors to put a lien on your property. If, even after the lien, your general contractor still fails to pay the subcontractors and suppliers, you could be forced to pay double to have the lien removed.
Fortunately, there are several steps you can take to avoid or minimize the risk of a mechanic’s lien.
- Conduct a reference check: Be sure to conduct a thorough reference check on any general contractor you're considering. Make sure they don’t have a history of failing to pay subcontractors or suppliers.
- Obtain lien waivers: Request a lien waiver from your general contractor and all subcontractors and suppliers they work with on your project. While this can’t prevent your general contractor from suing you if you fail to make payment, it can prevent a mechanic’s lien from third-party vendors.
- Pay vendors separately: To ensure all subcontractors and suppliers are paid on time, you can request to pay for these services separately. This way, you can maintain records that show the payments were made in full.
When having construction work done on your home, be sure you understand the implications of a mechanic’s lien. Also, make sure you take the necessary steps to protect yourself and your property.
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