If you are engaged in the real estate or construction industry world, either as a contractor, sub-contractor, or even a real estate owner, there’s a probability that you have come across the term “mechanics lien”. People also refer to mechanics’ liens as “building liens” or “property liens,” depending on the jurisdiction in which you live. Anyway, what exactly are mechanics’ liens? Who can file a mechanics lien and how do you do it? What happens when a mechanics’ lien is filed on a house? All these may seem like simple questions, but on the contrary, a mechanics lien is one of the legal instruments in the United States that is considered to be one of the most difficult to understand. This article will explain how the mechanic’s lien works with an example to provide an easy understanding.
Not only do the hardworking people in the construction business struggle to understand mechanics’ liens, but many licensed attorneys also find them to be quite a difficulty! Now let’s make it as simple as you can understand.
What is Mechanics Lien
A mechanic’s lien is a legal claim that ensures payment to the builders, contractors, and construction companies that are responsible for constructing or repairing buildings. In addition to covering building repairs, mechanics’ liens extend to the suppliers of supplies and subcontractors working on the project.
It is a legal claim that can be made against real estate by suppliers or contractors who have not been paid for the work that they have performed or for the materials that they have supplied. It serves as security for unpaid bills. This type of lien is valid even after the primary contractor has been paid in full for the work. Contractors, subcontractors, or suppliers can still file a claim and it will be enforced.
In the event of a liquidation, a mechanic’s lien ensures payment to builders, contractors, or construction firms that repair structures. It also covers other stakeholders who were involved in the project.
Understanding a Mechanic’s Lien
Even though each state has its own set of rules governing mechanic’s liens, the underlying concept is always the same. A supplier or contractor who has not been paid may file a mechanic’s lien on a property in order to secure payment for their services.
The use of a mechanics lien is usually essential so as to ensure adequate labor on a construction project. The lien will stand until the completion of the project and the payment of all of the construction staff.
The process usually starts by first recording the lien. And then, within the allotted amount of time, you need to take legal action to have the lien enforced. In the event that you’re unable to complete this, the lien will lose its legal standing.
In the event that the homeowner does not make arrangements for the payment of the due amount, the holder of the lien has the ability to foreclose on the property and sell it. Likewise, property subject to a mechanics lien, without it being removed, will make it impossible to sell the property. The homeowner will also be unable to refinance the property if the lien holder does not remove the lien.
Homeowners who are unable to convince the major contractor to make their payments could very possibly end up paying twice as much for their homes. And if they don’t, they risk losing their house or property.
What Happens When a Mechanics Lien is Filed?
If agreed-upon payments for services are not made, the holder of the mechanics’ lien may be able to continue to maintain control of the house at issue. Likewise, a car mechanic could be able to keep a customer’s vehicle until the owner pays for the repairs.
However, mechanics are not the only people who can file a mechanic’s lien. It may also refer to other terms, such as construction lien, laborer’s lien, artisan’s lien, supplier’s lien, garageman’s lien, and material man’s lien. The main reason for doing this is to prevent misunderstandings.
A lien can lead to a variety of problems, some of which are as follows:
- Foreclosure (in the event that the homeowner does not pay the lien);
- If the homeowner pays the direct or primary contractor, but he or she does not pay the subcontractor, worker, or supplier, then there will be double payment for the same job.
- A registered claim against the owner of the property, may restrict the capacity of the owner to sell the property, refinance it, or borrow money against it.
What is Mechanics Lien on a House
A mechanic’s lien is a legal claim against a house or other property. Subcontractors and suppliers usually turn to mechanics lien when they don’t receive payments for their modifications on a house. A mechanics lien is a method of pursuing reimbursement for the work they perform to renovate or improve a house.
Even if the disputed debts are not entirely your fault, you could still be hit with a mechanic’s lien. For example, if you refurbish your kitchen and the general contractor did not pay the material supplier, who is the supplier of the kitchen cabinet, the material supplier may issue a mechanics lien against your house in order to retrieve the money the general contractor owes them. In the event that the primary contractors did not pay subcontractors, laborers, or suppliers on time, you, as the homeowner, will be liable for making these payments.
It makes no difference whether or not you already paid the general contractor for the kitchen cabinet beforehand. If the general contractor fails to pay a subcontractor or supplier, the law gives the subcontractors the right to seek you and the house. If you don’t understand the mechanics’ lien and how to avoid them, you may end up paying for the work twice or having to sell your house.
How Do a Mechanics Lien Work on a House?
If you want a mechanics lien as subcontractor or supplier, as the law permits, you’ll normally need to complete the following things:
- The subcontractor or supplier as the lien claimant must notify the homeowner of their contribution to the project. This should be within 20-30 days of the contribution
- A claim of mechanics’ lien must be filed in the county or location of the house if the subcontractor or supplier does not receive their payment even after notifying the homeowner.
- The subcontractor or supplier has two options to choose from within two to six months; either reach an agreement with the property owner or go to court.
If you wait until after the case should have been filed to secure a court order, you can still free your house from the mechanics’ lien. This is because liens in most states expire if the case isn’t filed within the specified deadline. If you don’t clear your house against the mechanics’ lien, you can have trouble selling the house in the future.
How to File a Mechanics Lien
To file a mechanics lien, you to accurately and adequately fill out a lien claim form. It requires you to fill in adequate details of; the property, your contributions( the work you do on the property), and the amount you need to receive.
#1. Do Some Research
To start with, you need to do some research. Check;
- If you are in a position to put a mechanics lien on the house.
- Does your work or supplies meet the requirement for lien protection in the state where you live?
- Do you need to first send a notice as the state law requires?
- Are you within the time limit for your lien?
#2. Draft the Lien
Basically, there are three elements of the mechanics’ lien form that can be challenging to fill out.
- The amount of the lien
- The Name of the Person Making the Claim (That Would Be You)
- A Description of the Real Estate/property
A current and precise lien form is necessary for the preparation of the lien. The recorder or clerk of the county or other jurisdiction in which the property receives and files the prepared liens. It is a usual thing for liens to be rejected because of the submission criteria of the recorder. As such, before you begin recording, take the time to familiarize yourself with the recorder’s requirements.
#3. Record the Lien
The next step is to record your lien with the county or other jurisdiction clerk or recorder. The county recorder will set the rules to do this and you can file it in person.
In order to speed up the process, you may decide to send your lien to the recording office by; sending it in the mail or filing it electronically with the county utilizing the services of a lien filing company or a legal firm messenger service.
You must file the lien in accordance with the state’s statute of limitations.
#4. Notify the Parties of the Lien
This has to do with when to serve your mechanics lien and how to do so properly. This part also involves whom you need to deliver the notice of your lien claim.
In many cases, it is necessary to give formal notice of the recording of the lien to the party or parties that are the subject of it. Again, each state has its own requirements. So, make sure you know who you need to notify and when you need to notify them. At the time you record the lien, in some states, you must notify all parties of the claim. Others may give you a few days to get back on your feet.
Regardless, make sure to tell all the relevant parties as well. As a general rule, this means the property owner or owners, but in some cases, it also includes the contractor.
#5. Release, Extend, or Enforce Your Lien.
Don’t let your lien expire. It is possible for liens to become null and void. So, continue with the process of foreclosing your lien or make demands and warnings of impending foreclosure.
While it’s possible in some states to extend a lien’s expiration date, you’ll need to file a lawsuit to enforce it in others.
After receiving your payment or maybe your lien has expired, you must release it or face financial penalties in some states. The majority of states have something called a “release of lien” that can be documented.
When it comes to collecting debts, liens can be a useful weapon to have. Hence, be aware of your legal rights and obligations when it comes to liens.
Who can file a mechanics lien?
Generally, a mechanics’ lien can be filed by anyone who makes a permanent improvement to real estate or property. Laws regarding lien rights vary from state to state, so it is important to familiarize yourself with the laws in your area before filing a claim.
A decision to file a mechanics lien against property can come from general contractors, materials suppliers, sub-contractors, or workers if they did not receive payment for their labor or supplies. Equipment lessors, architects, engineers, and other design professionals may also have lien rights to file in some states.
When it comes to private construction projects such as residential, commercial, and industrial renovations or construction, liens are often the only option. Workers on public projects in their case can file a bond claim if they don’t get paid for their job. This is because you can’t place a lien on public projects.
Mechanics lien example
If a property owner refuses to pay a portion of the bill for the work a contractor does for them, the contractor may file a mechanic’s lien. Likewise, if a principal contractor fails to pay a subcontractor for their services and materials, the subcontractor may also file a mechanic’s lien.
For example, a roof repairer that is having difficulty receiving the payment for their repairs to the roof of a renowned Doctor’s house may file a mechanics lien. This will drive the doc to hasten up payment of the repairer’s services or supplies
Using the above example again, but now as subcontracted to perform a roof repair by the primary contractor, they can record a mechanics lien on the house. This causes the owner of the property to pay the primary contractor, who in turn pays the roof repairer. Once he receives his complete payments, he can then makes the necessary arrangements to have the lien dismissed.
Conclusion
For those in the construction sector who are experiencing financial issues, a mechanic’s lien is a powerful tool. It gives powers to contractors and suppliers that offer work and materials for an upgrade to a property. A lien will prevent the owner of a project from selling or refinancing it until the complete payment of the disputed debts. When handled correctly, a mechanic’s lien can ensure that the owner pays all of the contractors involved in the project.
Mechanics Lien FAQs
How can you avoid mechanics lien?
You can prevent mechanics’ lien on your house with the below tips;
- Pay With Joint Checks
- Get a Lien Waiver
- Pay Subcontractors/Suppliers Yourself
Why Is It Necessary To Have Mechanics Liens?
Getting paid on a construction project is difficult because of the intricacy of the payment chain. Contractors, suppliers, and others in the construction business can enforce a mechanics lien to collect the money they earn on house projects and jobs they perform.
When are you allowed to file a mechanics lien in California?
You must file a mechanics lien within 90 days after the last day you did work or furnished items on the project, according to California law.
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