What Is a Mechanic's Lien?

Subcontractors generally work on construction projects without directly contracting with the homeowner. Instead, homeowners pay the main contractor, who pays the subcontractors and suppliers. This can put subcontractors in a difficult position. What if the contractor doesn’t pay them? What recourse do subcontractors have to get paid?

If you work as a contractor, you know that one of the biggest hassles of your job can be getting clients to actually pay you. This article will explain what a mechanic’s lien is, how it works, and how to avoid it in the first place. Speak with a construction litigation attorney for advice on the best course of action to secure payment.

A Definition of a Mechanic’s Lien

A mechanic’s lien is a legal tool for subcontractors or suppliers who haven’t been paid for their labor or goods to assert a legal interest in the homeowner’s property. When a subcontractor puts a mechanic’s lien on a homeowner’s property, the homeowner can’t sell their property until they pay the subcontractor.

Mechanic’s lien laws can also prevent the owner of the property from borrowing from lenders until the lien is satisfied. If the homeowner doesn’t pay the subcontractor in time, the homeowner’s real estate or other property can be sold off to satisfy the lien.

“When a client comes to us, they have usually already tried collection,” says Mark B. Grzymala, a construction litigator in Skokie.

“So, we’ll send a demand letter to the debtor and owner. More often than not, the attorney’s letter will wake up the debtor, and the client will receive payment. Or, if there are issues with our client’s work or issues with payment upstream, the debtor will let us know. Usually in the demand letter, we state, ‘If our client is not paid in X amount of time, we will file a mechanic’s lien against the property.'”

This is a type of legal claim filed against the real property itself. It functions similarly to a mortgage. Essentially, the property itself serves as a form of security to ensure that the contractors who provide materials and labor towards its construction get paid.

“Mechanic’s liens are an incredible tool because you are recording a lien against the property and accordingly against the title to the property. Mechanic’s liens are clouds on the title. So, once the lien is there, it often holds up payments on a project. The owner also can’t sell the property, refinance, or usually take out any other financing until that lien is resolved,” Grzymala says.

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How Do Mechanics’ Liens Work?

State laws create mechanics’ liens. Depending on your state, they may be property liens, construction liens, or materialman’s liens. The requirements for placing a lien also vary from state to state.

“The process of preparing a lien claim starts with the client providing us with its information about the project, its contract, invoices, change orders, and confirmation regarding the balance that it is owed,” Grzymala says.

“Once we have the information and documents from the client, we order title work. The title report shows us who the owner of the subject property is, any mortgagees, and then the legal description of the property. The title work can take a couple of days, and then we prepare the lien claim.”

1. Preliminary Notice

To be able to file a mechanic’s lien later on, many states require subcontractors to give homeowners preliminary notice that they’re working on the project. This notice makes the homeowner aware that the subcontractor will be on the job and what they will be doing (for example, working on the roofing or pool installation).

2. Notice of Intent To File a Mechanic’s Lien

Before a subcontractor can file a lien, they typically must make the homeowner aware of their plans to do so. This gives the homeowner time to try to resolve the issue. Depending on the state’s notice requirements, the subcontractor may need to provide a 20 to 30-day notice.

3. File the Mechanic’s Lien

The person who wants to file a mechanic’s lien (called the “lien claimant”) completes a lien claim form at their county recorder’s office.

The claimant provides detailed information on the form, including facts about the construction project, the property, and the amount due. When filing the lien, the subcontractor becomes a lienholder.

4. Enforce or Release the Lien

The homeowner will have a certain time limit (depending on state requirements) to resolve the nonpayment issue. There are two options at this point:

• Lien satisfaction. If the homeowner satisfies the lien, the lienholder must give a lien release or cancellation. This removes the lien from public records so the homeowner can sell or borrow again. While mechanic’s liens eventually expire, getting a release can eliminate the satisfied lien sooner.
• Enforcement. If the homeowner does not pay the lienholder in the specified timeframe, the lienholder can pursue a civil lawsuit for foreclosure. A foreclosure action means that the property will be sold off, and the money will go to the subcontractor.

Why Are Mechanics’ Liens Allowed?

Subcontractors should have legal leverage to ensure that homeowners pay them for their work. However, it’s often general contractors, not the property owners, who fail to pay subcontractors. So why should homeowners be responsible for the general contractor’s fault? There are three general reasons:

1. The subcontractor needs to get paid.
2. The homeowner has already benefited from the subcontractor’s work.
3. The homeowner can recover their money later on by suing the general contractor.

Suing the general contractor is not as easy as it may sound. After all, if the general contractor failed to pay the subcontractor, it may not be easy to get them to pay the homeowner.

Lawsuits can also be expensive and time-consuming. The homeowner may have to pay the subcontractor immediately to get the lien taken off their house, but they may have to wait months or years to recover money from the general contractor. In short, mechanics’ liens are valuable for subcontractors to get paid but can put homeowners in a bad financial situation. This is why, from the homeowner’s perspective, it’s best to avoid mechanic’s liens altogether.

How You Can Avoid Mechanics’ Liens

If you’re a homeowner, there are several main ways to avoid having a mechanic’s lien placed on your property:

• Lien waiver. These are documents signed by the subcontractor or supplier in exchange for compensation, acknowledging they’ve been paid and waiving their right to file a lien in the future.
• Paying subcontractors separately. Instead of paying the general contractor for everything, the homeowner could pay subcontractors (and material suppliers) separately. This can be more involved than simply paying the general contractor, but it can avoid mechanic’s lien issues down the road.
• Using joint checks. When the homeowner writes checks to pay for the construction project, they make the checks out to both the general contractor and the subcontractors. For cashing checks, the general contractor and subcontractor must endorse them. This helps ensure that all parties get paid.

Obviously, avoiding a mechanic’s lien is not the same as avoiding paying contractors. The point is to ensure that everyone gets paid appropriately so that you do not suffer the consequences of a third party’s actions. By taking one of these steps, a homeowner ensures everyone on the project gets paid and avoids the need for subcontractors to file mechanic’s liens.

Find a Construction Litigation Lawyer

“The sooner a lien claimant comes to us, the more likely we are able to proceed with the best strategy. It is not a good practice to wait until the last minute because the title for a property might be complicated, which may cause delays,” Grzymala adds.

If you’re considering a mechanic’s lien for nonpayment, it’s essential to understand your state’s legal requirements. The best way to do this is to seek legal advice from a construction law attorney in your area.

Look for a construction litigation attorney in the Super Lawyers directory on matters related to mechanic’s liens.