A mechanic's lien is an extraordinary remedy for contractors, subcontractors, and others related to the construction industry to resolve payment problems. If filing a mechanic's lien against the owner of a project being improved, it will put a hold on selling or refinancing the property without first paying off the disputed debt. A mechanic's lien is a tool that when used properly will assure that the owner completes all required payments to the contractors participating in the project.
Mechanic's Lien: Preliminary Notice
A subcontractor, contractor, or any other construction agency related to a project that does not have a direct contractual relationship with the owner must provide a preliminary notice within the established time limits. In most states, contractors have to provide this notice at least 20 days in advance of putting on the lien. Preliminary notices must be provided to the owner, general contractor, and lender. The contractor needs to provide a detailed bill and statement that outlines all of the services that were performed for the individual on the property in question.
The process of filing a mechanic's lien is somewhat different in every area. Mechanic's liens are available to almost anyone who contributes labor, services, or materials to a real estate improvement project. It is used to exact payment out of the real estate itself by placing a lien on the property and, if necessary, allowing the lien holder to go to court to have the property sold at auction.
A mechanic's lien must be recorded at a corresponding local or state office in the county in which the project is located to which the labor or supplies were provided. If the contractor filing a lien is not licensed, the lien will be considered invalid. In addition, the lien laws are not available to suppliers who have supplied only to other suppliers and not directly to the project.
A stop notice will go against money that hasn’t been paid by the owner, freezing it so the owner or lender must hold the remaining construction funds so that claimants can recover for work already completed. Stop notices are not available to claimants with a direct contractual relationship with the owner.
Mechanic'sLien: Removing a Lien or Stop Notice
Once a mechanic's lien has been recorded, the claimant must file a court action to enforce the lien within an established time. If no court action is filed by that time, the lien is no longer valid. However, many title companies don't recognize this fact and require that liens be removed before you can pass a clear title to a buyer. The easiest way to clear a lien is to ask the lien holder to file a release of lien. If they will not, you can petition the court to release the property from the mechanic's lien.
Frequently Asked Questions
These are some of the most common questions in regards to a mechanic's lien:
- When is the right time to file a lien? It varies. Every jurisdiction has its own regulation in regards to the limit of time on when to file the lien, so be sure to consult a local attorney or work through a local agency.
- What types of limitations or costs can be included? It also varies from state to state. Normally, profit will not be allowed to be recovered while sometimes even rental equipment and tool costs can be recovered.
- Is there only one person responsible? Sometimes. When building a multi-family property, all owners could potentially be part of the process and every one of them will be responsible for a portion of the claim.