Owning property and improving–or repairing–property go hand in hand. Whether it’s rental homes, commercial real estate, or simply owning your own home, over the course of time buildings need a new roof, paint, or repairs, or simply improvements made upon vacant land. When using an outside contractor the property owner must be aware of the Mechanics Lien.
The Mechanic Lien holds and encumbers the property as a form of collateral against the debt incurred by the property owner who has the work done. A contractor, sub-contractor, materials vendor, or anyone who provides labor or materials that goes in to the work being done on the property has the right to file a lien against the property to recover their costs and/or recoup for their labor.
It’s not quite as simple for the contractor as going down to the county offices and filling out a Mechanics Lien form, but if a contractor, sub-contractor or materials vender follows the proper steps, the property owner is likely to find his investment tied up with a lien if there is a dispute.
What is a Mechanic’s Lien?
An incomplete job, or job completed poorly, or an unresolved dispute with any of the people performing the tasks or services at, or related to the property can be a big problem for the property owner. Naturally, the threat of a “Mechanic’s Lien”, “Mechanics’ Lien”, or “Mechanics Lien” gives any individual significant leverage in these types of disputes. Home and property owners need to be familiar with the Mechanics Lien, and understand how it works.
It is very important for property owners to understand that when you hire a contractor, you are authorizing that contractor to oversee the work to be performed by sub-contractors, and you also authorize them to purchase materials from vendors that will be used for the job you have contracted to be performed.
In the end, the contractor’s decisions come back to the property owner, and Mechanics Liens can be filed by vendors or people who provided materials, or did work on the property, even if the property owner has never met them or approved every individual deal the contractor may made with each of them.
A Valid Contract
First of all, no Mechanics Lien can be filed unless there is a valid contract for the work that has, or is to be performed.
Please Note: Oral contracts can meet this requirement and will support the imposition a Mechanics Liens. For that reason, ALL property owners are advised that ANY work they contract for should only be performed under the terms of a written contract.
That contract should, at the very least,
- Outline the scope of work to be done
- Should set forth a reasonable time-frame for accomplishing that work
- Must also include an itemization for the specific costs of the project
- It should include language setting forth provisions to address reasonable cost overruns
Written contracts prevent misunderstandings and disagreements about the scope of the work contemplated, and will provide clarity in the event of disagreements arise, and will provide evidence of the mutual understanding of the contracting parties should someone attempt to file a Mechanics Lien later.
Notice of Intent to Lien
If there is a dispute, and someone doesn’t get paid (and this INCLUDES the contractor refusing to pay a sub-contractor or materials provider) the person wishing to file a lien must serve a Notice of Intent to Lien, 10 days before filing the lien itself. The Notice is either mailed or personally served upon the property owner.
The purpose of the Notice is simple: It provides the owner notice that there is a pending dispute which allows the property owner the chance to find out what is going on before the lien is filed, and it offers an early opportunity to settle the dispute. If a property owner receives a Notice of Intent to Lien from someone the contractor is responsible for paying, that property owner should act immediately to find out what the problem is. A Lien Statement MUST accompany the Notice of Intent to Lien.
Remember: A property owner is responsible for paying for the materials supplied or used at the project, and for payment for any labor performed at the property.
Of course, if the contractor is the one filing the lien, chances are the property owner already knows about the dispute, but sub-contractors and materials providers have probably been working with the contractor, not with the property owner, and they are owed monies for their specific activities too. Unfortunately, it is not uncommon for a property owner to find out about a problem for the first time only when the Notice of Intent to Lien is served upon them.
Filing the Lien Statement
After 10 days from serving the property owner with a Notice of intent to Lien, the Lien Statement can be filed in the county the property is in. The period of time for filing the Lien Statement varies according to the scope of work performed and/or the the type of relationship the person filing the lien has with the property, but it is generally no more than four months after the last day of work, or the day the last materials were provided at the project. However the Notice of Intent to lien expires six months after the date the Notice is filed.
The Lien Statement must be notarized, and it must include the names of the property owner[s], and it must identify the property subject to the lien, and it must set forth the exact amount due.
Perfecting the Mechanics Lien
A Mechanics Lien is said to be perfected when it is recorded along with the Notice of Intent.
Foreclosure of the Lien
The final step is the actual foreclosure of the lien, and it is here that contractor or other participant asks the court to force a sale of the property in order to pay their outstanding bill, or in some cases, for the removal of the improvements from the property.
Lien Waiver
The property owner’s best defense against the Mechanics Lien is accomplished in three ways:
1) Work With Reputable Contractor
Check references and do your due diligence when looking for a contractor before agreeing to let them start work at the property.
2) Always Use Writtent Contracts for Property Repairs and Improvements
Read the contract carefully, and know exactly what the scope of work that is going to be performed by the contractor and subcontractors. Develop a work performance time line and confirm that the work and material supplied for that portion of the project have been paid for. Each portion of the project will have its own DEADLINE and it will help to determine whether a particular subcontractor or vendor has been paid. This confirmation protocol will help alert the property owner to impending problems related to unpaid debts for which they are ultimately responsible.
3) Always Use Lien Waivers
Get copies of all Lien Waivers from the contractor and keep them in your records. The executed Lien Waivers, or Waiver of the Right to Lien will set out what materials and work has been paid for, and they will show that there is no further unpaid balances due.