What is a Mechanics' Lien?
By Kristi Vaughan
If you are buying, building or remodeling a home, it is a good idea to understand how mechanics' liens work and the way they can affect your transactions.
In brief, a mechanics' lien is a claim for unpaid services or merchandise placed by a contractor against your property, or the property you are hoping to purchase. In making the claim, the contractor claims an interest in the property equal to the amount of the unpaid services or merchandise.
Although specifics vary by individual state law, any contractor or supplier who has worked on a particular property can place a mechanics' lien claiming lack of payment. This includes contractors and suppliers working under subcontract.
It is only after payment has been made, or the courts have ruled that the payment is not needed, that the lien is lifted.
How does it affect a purchase or sale?
Even though you, as the property owner, might contest the validity of a contractor's claim, your ability to transfer the property could be impacted since the lien is attached to the property.
The existence of the lien, or notification that a claim has been made -- called a lis pendens -- could reduce the sales price or limit the number of buyers willing to take on a property with such an encumbrance.
If you are the potential buyer you, or your attorney, should research land records before committing to a purchase to ensure that property is not subject to any liens.
Protect yourself
One of the best ways to protect yourself against unexpected mechanics' liens is to have a contract with your contractor that clearly specifies what work is to be done, the payment to be made and a schedule of work and payments. You also should get a list of all subcontractors working on the project so you can verify they have been paid.
The Federal Trade Commission additionally recommends that you not make the final payment or signoff an Affidavit of Final Release until you are satisfied with the work and you know that subcontractors and suppliers have been paid.
If a subcontractor notifies you that he has not been paid, and you have not yet made final payment to the contractor, you may have the option of paying the subcontractor directly and reducing the payment to the contractor by that amount.
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