A mechanics lien is one of the most powerful payment tools available to contractors, but it’s also one of the most misunderstood. Here are 6 things that every contractor needs to know about their lien rights — and why they are so important.
1. Mechanics Liens are Powerful
There are many reasons why mechanics liens are so effective at resolving payment problems. Perhaps the biggest reason is that it quickly gets the attention of the property owner and any lenders on the project. A lien makes your problem their problem. Once you file a lien, it’s all hands on deck to make sure you get paid.
Another major reason they’re so effective is that anyone can do it — in the vast majority of cases, filing a lien doesn’t require a lawyer or a lawsuit. If you haven’t been paid, you can fill out a lien claim, take it down to the county recorder’s office, and file it the same day.
2. You Have the Right to File a Lien
Every state has laws that give contractors the right to file a mechanics lien claim for non-payment. As soon as you start working on or providing materials to a construction project, you’re eligible for the protection of lien rights. This means that, as long as you follow the steps and meet certain requirements, you can file a lien if you don’t get paid.
3. You Can Lose Your Lien Rights
If you fail to send a notice or miss a deadline, you can lose these rights. In some cases, you may also end up losing your rights if you sign the wrong type of lien waiver. (Pro tip: until the money is in your bank account, watch out for final unconditional lien waivers.)
While every state has lien laws, the rules in each state are different. In some states, you need to send a notice within 20 days of starting work to secure lien rights. In others, you only need to send a notice before actually filing a lien claim. The deadlines for sending notice, filing a lien, or enforcing your lien can vary dramatically from state-to-state.
4. A Mechanics Lien Attaches to Property, Not a Person
In order to fully appreciate the importance of a mechanics lien, you have to understand how it works. When you file a lien, it attaches to the property that you’re working on. If the property changes hands, your mechanics lien claim will generally stay intact, ensuring that you have payment protection.
If you decide to take the extra step of enforcing your lien, you can potentially force the owner to sell the property and use the proceeds to pay your debt.
5. It is Actually a Process (not just a document)
To file a claim, you’ll first need to fill out a mechanics lien form. But submitting that form is only one step in the process. Each state has a slightly different process, and the same documents aren’t required in every one. But if you follow these three steps, you’ll be protected in pretty much any situation:
1. Send a preliminary notice
A preliminary notice is typically sent to the property owner, GC, and any lenders at the beginning of a project, either before or soon after you begin work. It lets them know that you’re on the job, what work you’re doing, and that you expect to be paid.
2. Send a notice of intent to lien
A notice of intent to lien is sent after payment is late, and typically a week or two before you’re ready to file a lien. It serves as a warning to the owner to resolve your payment dispute — or put their property at risk.
3. File a mechanics lien claim
If you still haven’t been paid, contractors must file a mechanics lien in the county where the property is located, where it will be included in the property records.
6. The Mechanics Lien Process Actually Helps You Avoid Mechanics Liens
It sounds like a contradiction, but it’s true. Each step in the lien process is incredibly effective on its own, reducing the likelihood that you’ll ever need to file a lien.
When you send a preliminary notice, you put yourself on the property owner’s radar. They know that on payday, you’ll be expecting a check…and ready to take action if you don’t. Sending one simple document greatly increases your chances of getting paid on time, and reduces the likelihood of ever having to file a lien!
A notice of intent to lien is like an invoice reminder with teeth. It lets the owner know that you haven’t been paid, and that they still have time to prevent a mechanics lien by paying your invoice.
It’s important to remember that everyone wants you to get paid on time. The owner wants to avoid a lien on their property just as much as you want to avoid filing one. The threat of a mechanics lien can be a powerful motivational tool. With great power comes great responsibility, as they say. Use this power wisely.
Want to learn more about payment in the construction industry?
Alex joined us on an episode of DirtStories to talk about payment in construction.
This article was written by a guest author. Alex Benarroche is from Levelset.