Mechanic’s liens are filed by contractors and subcontractors when they have not been fully paid for work performed on a homeowner’s property. Like other liens, a mechanic’s lien is filed against the homeowner’s property in the public property records. Once the lien is filed, the homeowner’s title to the property is clouded.
The homeowner cannot sell the property and deliver clear title until the lien is removed. Getting a lien removed sometimes requires professional assistance.
How Do Mechanic’s Liens Work?
A mechanic’s lien is a legal document that a general contractor or a subcontractor can file against a homeowner’s property if the contractor has not been fully paid for his work. The lien will contain a lot of information, including the amount unpaid.
When the contractor files a mechanic’s lien, the lien document is recorded with the public land records. The lien attaches to the property and not to the homeowner individually.
That means the lien does not follow the homeowner. Instead, the lien stays on the property records and becomes an encumbrance on the property title.
If the homeowner wants to sell, refinance, or transfer the property, the new owner must take the title subject to the mechanic’s lien.
This means that the sale will not be able to close on the transaction without paying the amount due to the contractor under the mechanics lien or otherwise resolving the contractor’s lien claim through negotiation or lawsuit.
To enforce the mechanic’s lien, the contractor can eventually foreclose on the property and force a sale. Most homeowners want to avoid that outcome.
As a result, the filing of a mechanic’s lien will usually prompt the homeowner to take action to get the lien resolved. In cases where the property had a construction lender on it, the construction lender has financial incentive to step in quickly to get the lien resolved.
In some states, the construction lender will take swift action because mechanic’s lien will get priority in payment ahead of the construction lender.
Moreover, some state laws hold the construction lender responsible for indemnifying the owner if the lien arose due to the construction lender’s mismanagement.
Clearing Title and Resolving a Mechanic’s Lien Can Be Complex
Once a mechanic’s lien is filed, it can be difficult and costly to have it removed. Moreover, removing it is likely to take some time and can delay or jeopardize the homeowner’s ability to complete a transfer of the property.
The best way to handle a mechanic’s lien is to try to avoid having one filed on the property by getting help from a real estate attorney when entering into a major construction project.
The attorney can structure the transaction in ways that limit a contractor’s ability to file a mechanic’s lien.
Once a lien is filed, the homeowner may need professional assistance to resolve it.
There are several options available for resolution, but the best way to resolve the lien is highly dependent on the facts and circumstances that gave rise to the lien.
In some cases, the homeowner may be able to handle it alone, but in many cases the homeowner should get help.
Below are several common situations that help to illustrate some of the pitfalls that homeowners can find fall into when they try to go it alone.
Mechanic’s Lien Must Comply with Applicable State Laws
Every state has laws that govern the requirements of enforcing a mechanic’s lien. If the contractor did not comply with those state laws in providing the necessary notice to the homeowner and information about the contractor’s claim, the lien cannot be enforced.
However, a homeowner who is not aware of the state law requirements may end up paying on a lien that the homeowner need not pay because the lien is invalid. If the lien is invalid due to the contractor’s failure to comply with the state’s applicable lien laws, the contractor cannot enforce it.
Also, mechanic’s liens do not last forever. In some states, they are only good for 90 days, but in other states they last six months to one year.
That means the contractor has to enforce the lien by filing it properly and bringing a lawsuit for foreclosure before the lien expires.
When the lien expires, the contractor can no longer enforce the lien by foreclosure. Once the lien has expired, the contractor would have to sue the homeowner individually to collect the outstanding amounts.
Complications with Financing
When a contractor files a lien on property that has construction financing, the lien can make it hard for the homeowner to complete the loan process.
In many cases, the homeowner may not be able to convert a higher-interest construction loan into a low-interest mortgage without getting the lien resolved.
If the homeowner has paid the amounts due, the contractor has a legal obligation to remove the lien.
However, if the contractor fails to remove it, the homeowner may have to bring a lawsuit against the contractor to remove the lien.
The lien must be removed before the homeowner can deliver a clear title to a buyer or get a loan secured by the property.
In many cases, the homeowner can prompt the contractor to act by sending the contractor a letter demanding the lien removal.
Contact the Title Experts at Mathis Title Company for More Information about Mechanic’s Liens
If you are planning to transfer title to your property or need a title search for any reason, contact the title experts at Mathis Title Company for assistance.
They are experienced in searching property records and advising their clients on how to resolve mechanic’s liens and a variety of title issues.