Understanding and Avoiding Construction Liens
Provided by HG.org
A construction (or "mechanic’s") lien gives builders, contractors, and suppliers legal recourse to get paid for their work as well as any materials or supplies purchased for a project. This recourse is in the form of a right to interfere with your ability to convey clear title to your real property and/or to foreclose the construction lien to take title to that property.
So, when considering hiring anyone to work on your property, it is important to understand how construction liens work and how to avoid them.
Mechanic’s lien is a term originally associated with the automobile industry. When the owner of the automobile failed to pay the bill for the repair services, the mechanic was allowed to place a lien on the car’s title by filing a claim in the local magistrate’s office, and often allowed to retain possession of the vehicle until the lien was paid off (or “satisfied”). This practice was eventually followed in the construction industry and today, a mechanics’ lien is an effective remedy for contractors, subcontractors, and material suppliers involved in the construction or improvement of real estate to resolve payment problems. If a service or material provider records a mechanics’ lien against the real estate being improved, it becomes difficult for the owner of the property to sell or refinance the property without first paying off the debt secured by the lien. The lien creates an interest in ownership of the property, meaning that at some point the person who placed the lien (the “lienor”) may have a right to foreclose that lien and take title to the property if the debt is not satisfied. As a result, banks will be reluctant to lend and buyers will not be interested in buying because they may lose their rights in the property.
Although all 50 states have construction lien laws, laws differ widely from state to state. Some variations include notice requirements that those who may be able to claim a mechanic's lien must provide to the owner of the property, the amount of time in which the lienor has to place the lien, and the degrees of separation between the lienor and the owner of the house (i.e., was the lienor a sub-sub contractor, and if so, do they have a right to lien the property?).
The best way to avoid construction liens is to stay on top of your construction workers and make sure everyone has been paid as they are supposed to be. If you have a contractor who is failing to pay the sub-contractors or suppliers, you may be on the hook, so do not be afraid to insist on receiving proof of payment and having recourse in your construction contract against the contractor should they fail to pay these parties. If anything is filed against your property, take it seriously, even if you do not believe it is valid. The worst possible thing you can do is ignore the problem and hope it will go away. Chances are, it will not.
If you are facing the possibility of having a construction lien placed against your property, contact a qualified, experienced construction attorney for advice on how best to handle the situation. Many construction lien laws contain very specific requirements for how the lien must be recorded and how notice must be provided to the property owner. Any misstep may invalidate the lien, and an attorney with experience in this area of the law may be better able to identify those defects and guide you through the process of exploiting it. You may also have claims against other parties responsible for causing the conditions that led to the lien, and your attorney may be able to assist you with those claims, as well. Also, attorney fees are often recoverable in such disputes, meaning you will either not have to pay or will have your attorney fees and costs reimbursed if you are successful in your case.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.