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A mechanic’s lien is a legal claim against a home or other property. Mechanic's liens are typically used by subcontractors and suppliers when they haven't received payment for improvements they made to a property. They are a way to seek payment for the work done remodeling or improving a home.
You can face a mechanic's lien even if you weren't the one to miss payment. For example, if you remodeled your bathroom and the general contractor did not pay the material supplier who supplied the bathtub, the material supplier can place a lien against your house to recover the money. You, as the homeowner, will be responsible for these payments when sub-contractors, laborers, or suppliers are not paid.
What can be surprising to most homeowners is that it doesn't matter if you already paid the general contractor for the bathtub. If the subcontractor or supplier isn't paid by the general contractor, the law allows the subcontractors to come after you and the real property that was improved (which is often your house). In the end, you may be responsible for paying for the work twice or being forced to sell your house, so it is important to understand how mechanic's liens work and how to avoid them.
It may seem fundamentally unfair that you can end up paying for the general contractor's irresponsible behavior. The rationale for allowing mechanic's liens is that between the person with improved property (you) and the person who worked on the construction project, the supplier's needs to get paid are greater.
The law also presumes that you can, in turn, sue the general contractor. While this is true, this doesn't really help you in the short run. Suppose a supplier places a mechanic's lien against your house because the general contractor failed to pay them when the general contractor lost all of their money gambling. You can certainly go file a lawsuit against the general contractor, and, over time, garnish their wages or force them to sell their property, but that takes time. Furthermore, wringing money out of someone who doesn't pay their subcontractors and suppliers can be difficult. Meanwhile, you owe twenty thousand dollars and have a matter of days or months to pay the supplier or else your house will be sold to satisfy the mechanic's lien against you.
To get a mechanic's lien, state law will usually require the subcontractor or supplier to do the following:
If the lawsuit isn't filed within the given timeframe, then in most states the lien should have no further effect. However, it is still worth your time to get a court order (well after the lawsuit should have been filed), to clear your property of the lien. Otherwise, you may have difficulties selling the property down the road.
So how do you prevent a mechanic's lien on your property? Here are some tips:
One way to ensure that subcontractors and suppliers get paid is to write a series of checks, made out jointly to the general contractor and the particular subcontractor or supplier. The checks can only be cashed if the ultimate beneficiaries endorse them. This helps ensure the subcontractor or supplier gets paid.
Another way to avoid mechanic's liens is to have the contractor put a lien waiver provision on the construction contract. This would allow the owner of the property to be relieved from paying everyone who the contractor is responsible for paying.
In many states, a contractor must provide a waiver for all work for which the contractor has been paid before accepting further payments from the owner. Keep in mind, however, that in many states, there can be no waiver of a mechanic's lien until payment is actually made (a few states allow waiver before payment is made).
This is probably the least favorable option, but you can make direct payments to the subcontractors and suppliers and deduct those payments from the general contractor's amount. The difficulty with this option is that you can end up looking like the employer to the subcontractor or supplier. This would make you responsible for doing things such as withholding income for taxes and Social Security. To avoid ambiguity, it's recommended that you try the first two options before even considering this.
It goes without saying that you should keep all the receipts and paperwork you receive from the contractor, subcontractor or supplier, especially notices from subcontractors or suppliers of services or goods rendered. It may also be helpful as the project is finishing up to follow up on those notices to determine whether the subcontractors and suppliers have been paid. If they haven't, you can request waivers from them when you next meet with the general contractor.
Liens on your property can prevent you from getting a loan or selling your property. If you have a mechanic's lien on your property or are about to have repairs done, you may benefit from professional advice. A local real estate and construction law attorney will be able to ease your concerns and protect your interests.