Perhaps you have heard of a Mechanic’s lien when working on a construction project. Depending on the field and type of work, you may know the term as a “construction lien” or “property lien,” as well. But, what are these documents and how do they affect you?

The Basics of Mechanics lien

Mechanics lien are pieces of documentation that reserve the rights of the filer to unpaid compensation. This means that if a hired contractor is refused their pay for a project, they can either sue the hirer or fill out a mechanic lien. By doing so, the person who hired the contractor will carry the title with them and it will appear on public records.

When a person with a mechanics lien filed against them wants to sell a new property, the buyer would have to take the property subject to the lien or the seller, with the lien, would be forced to pay it off. Typically, the seller will pay off the lien before selling another property.

This also becomes an issue for homeowners who are trying to sell their homes. Banks and financial institutions will not provide any financial resources until outstanding lien are paid off in full.

What Can a Mechanics Lien Be Used On?

Mechanics lien can not be issued for all types of costs. Instead, they can usually be issued for labor, materials, and services for the services that contractors provide to improve a property. Say, for example, a lien was filed for a project involving the development of a pool. A contractor could file a lien for the value of the concrete, the rental equipment costs, and the hourly time cost of their services. However, the contractor would not be able to include the attorney fees associated with filing the lien, punitive damage, emotional distress, or other types of qualitative damage.

It is important to remember that the regulations for mechanics lien vary from state to state. This includes the required filing period, costs included in the lien, and the formatting of the lien. You can view each state’s regulations here.

Avoiding Mechanics Liens

After reviewing the basics and purpose of mechanics liens, we should also consider how to avoid a mechanics lien being used against you. Here are some ways you can avoid a lien being filed against you:

1. Pay with checks
   1. Making out a joint check to both the contractor and subcontractor/supplier that worked on your property can help you avoid a mechanics lien. This helps ensure that both parties receive their payment.
2. Get a waiver
   1. On construction contracts, project developers can have contractors put a lien waiver provision. This means that the burden of payment would never fall on the project developer, but rather stay as the responsibility of the contractor. For example, the workers that the contractor employs must be paid only by the contractor, and this can not be shifted to the project developer if the contractor refuses to do so; a waiver prevents the contractor from avoiding payment.
3. Make direct payments
   1. Although not seen as the most favorable option, you can make direct payments to avoid a mechanics lien being imposed on you.

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