What Is A Mechanic’s Lien? How It’s Used And Ways To Prevent It

What happens when people who do work on a home don't get paid for the work they do?

A mechanics lien may show up on the title search of a property, meaning that you could have trouble selling, refinancing or borrowing against your home.

In this article we will lay out the ins and outs of a mechanic's lien and how to handle one if you encounter it on real property.

What Is A Mechanic’s Lien?

In real estate, an encumbrance puts limits on what you can and cannot do with your property. A lien on a house, such as a mechanic's lien, is an example of an encumbrance.

A mechanic’s lien is a legal claim that acts as a guarantee of payment for contractors, suppliers and other workers involved in building or repairing properties. The claim can lead to a lawsuit if the homeowner doesn't pay the unpaid wages or expenses.

The lien stays in force until every construction worker has been paid.

Who Can File A Mechanic’s Lien?

If you hire someone to work on your home, that person is considered a general contractor. If that general contractor hires others, those other individuals are considered "subcontractors."

So, who can file a mechanics lien, exactly? In addition to the contractor or subcontractor, a wide array of workers who supply labor or materials can get a mechanic's lien, including material suppliers, equipment lessors, designers and more.

A contractor can file a mechanic's lien if a property owner fails to pay for the work the contractor performed, such as building a deck or finishing a basement. Similarly, a subcontractor can put a lien on the property if the general contractor does not pay the subcontractor for the subcontractor's work.

A general contractor and subcontractor can file with the mechanic's notice and lien registry to get the lien. The lien lasts a certain amount of time and it depends on your state laws.

What Is Included In A Mechanic’s Lien?

The method of filing a mechanic's lien depends on the state where you live. However, the document always shows up on the title search of a property and includes:

• A legal description of the property
• Name and address of the homeowner
• The dollar amount owed
• The county where the property is located
• The first and last date when the material was furnished
• Tax parcel identification number

How Do Mechanic’s Liens Work?

How do mechanics liens work, exactly, and how are they enforced?

A mechanic's lien gets recorded with land records and shows up on a property's title search, which is a legal examination of public records to determine the legal ownership of a property.

Anyone who buys the property after a lien claim will find that a property cannot be sold, refinanced or transferred without addressing the lien. Before a sale can go through, for example, the buyer and seller must pay a contractor to get the lien removed.

Note that if the homeowner pays the wrong party – for example, if you pay the contractor, not the party who requires the money (a subcontractor, supplier, etc.) – you may end up paying for the same work twice.

If a contract does not receive payment, the contractor can try to foreclose on the lien.

Mechanic’s Lien Example

Here's an example of when a contractor might file a mechanic's lien.

Let's say a homeowner hires a landscape contractor to put a patio in the backyard. The landscape contractor does a wonderful job on the patio but the homeowner chooses not to pay the last $3,000 of the balance of the patio.

Mechanic's liens travel with the property, meaning that anyone who buys the house would purchase the property with the contractor's lien.

How A Mechanic’s Lien Gets Filed

Learn more about how to file a mechanics lien.

1. Notice Is Provided To The Homeowner

First, the homeowner receives a notice. A lien claimant (the contractor, subcontractor or supplier) provides notice to the homeowner about what they have done in the home, typically within a month.

2. A Mechanic’s Lien Is Formally Filed

Next, they must file a "claim of mechanic's lien" in the county where the property is located if they don't get paid. A recorded lien on the property title can affect a homeowner's ability to refinance, sell or borrow against the home.

3. A Resolution Must Be Reached Or A Lawsuit Can Be Filed

The contractor usually has 2 to 6 months to work out a solution or file a lawsuit with the property owner.

How To Get Released From A Mechanic’s Lien

When you want to get rid of a troublesome lien on your property, you can negotiate with the contractor to remove the lien, get a lien bond to discharge it or file a lawsuit to get rid of the lien.

Negotiating with a home contractor means settling the outstanding balance, which also means that you might have to pay more than you believe they deserve for the work. However, the contractor may also accept a lower amount to get paid off. The contractor can then get a resolution for the lien quickly after the negotiation.

A lien bond (also called a surety bond or lien discharge bond) takes a mechanic's lien's place. It releases you from the lien and attaches to the bond itself, allowing you to resell or refinance the property. However, you will have to repay the debt – it does not release you from it. If you want to sell or refinance your home quickly, you can do this and remove the lien from your property.

When you fight a contractor in court, you must get an attorney that practices construction or real estate law, forcing a contractor to explain why you owe them money. You can prove that the contractor offered services not up to par or did not complete work correctly under contract. However, going this route means that you could lose the lawsuit and it could take years and cost a lot of money.

Avoiding Mechanic’s Liens

As a homeowner, you can safeguard your property from a mechanic’s lien using a few methods:

• Use joint checks: Consider using joint checks, sometimes called two-party checks. Contractors and subcontractors (as well as other suppliers) must endorse the check, ensuring that everyone gets paid.
• Get a lien waiver: A lien waiver allows you, as the property owner, to not have to pay everyone for the work. However, you sometimes cannot get a waiver until you make a payment.
• Pay workers directly: You can also choose to make payments directly to subcontractors and suppliers and subtract them from the amount the general contractor receives.

FAQs On Mechanic’s Liens

Still wondering more beyond "what is a mechanics lien?" Take a look at some frequently asked questions.

Can a contractor include legal or filing fees in the lien amount?

Yes, a contractor can include filing fees, court fees or attorney's fees – more than the amount owed in the regular bill. However, it depends on your state. Consult with an attorney for more information about what is legally viable in your personal situation.

Can a contractor extend their mechanic's lien?

Most states do not allow contractors to extend their mechanic's lien. In addition, the statute of limitations varies for each state, which refers to a maximum amount of time that parties in a dispute have to initiate legal proceedings.

What is a bond discharge on a mechanic’s lien?

A bond discharge takes a mechanic's lien's place. You are released from the bond, which means you can resell or refinance the property. However, you still have to repay the debt – it doesn't get you completely out of it.

The Bottom Line: Shield Your Home From A Mechanic’s Lien While You Improve It

A mechanic’s lien refers to a legal claim as a payment guarantee for contractors, suppliers and other laborers. The claim can lead to a lawsuit if the homeowner doesn't pay up.

Before you hire someone for a construction project, know your lien rights, how a mechanic’s lien works and the best way to handle one. Learn more about home improvement loans that can help you afford the entire cost of property renovations.