Protect yourself from mechanic's liens if your contractor fails to pay subcontractors or suppliers.

All Kate and Peter wanted to do was remodel their ancient kitchen and build on a family room. They saved and borrowed, got their permits, and hired a contractor. The construction was over after just five dusty months, but the legal headaches were just beginning.

It turned out that the contractor hadn't paid the lumberyard thousands of dollars for the lumber, doors, and windows used in the new family room. The lumberyard recorded a lien on Kate and Peter's house and threatened to file a lawsuit to force the sale of the house. Kate and Peter had already paid the contractor and had no money left over to pay again.

Suddenly they were faced with the possibility of losing the house they'd worked so hard to improve. Kate and Peter were blindsided by what's known as a mechanic's lien. A mechanic's lien has nothing to do with mechanics in the usual sense. It's a legal claim against property being improved, and it can be filed by anyone who provides materials or does work on the project and doesn't get paid. The property itself becomes responsible for the debt, and the people who are owed money can force its sale at auction if something isn't worked out.

The Rationale of Mechanic's Liens

Most homeowners, like Kate and Peter, are shocked when they find out that they might still end up owing laborers, carpenters, electricians, materials suppliers, or equipment lessors, even if they pay the contractor in full. But that's the law. The whole point of the mechanic's lien procedure is to make the improved property the ultimate guarantor of payment for all contributors to the project. It dramatically turns the economic tables by shifting the burden of proof on the question of payment from workers and suppliers to the property owners themselves.

Basically, state law is more concerned about those who provide labor or materials to an improvement project without getting paid than it is about the possibility of the owner having to pay twice for the same work. After all, the owner can turn around and sue the contractor (or subcontractor or supplier) to recover the funds. But that's another story.