While the purpose of mechanics liens is to get construction industry participants paid what they deserve, a mechanics lien can be an enormous burden on the property owner. Having a mechanics lien encumbering the property makes it difficult or impossible to refinance or sell the property, and can even force the property owner to pay twice for the same work (in full-price lien states). With such significant effects, the first thing that property owners want to know when a lien is filed against their property is “What do I do now?” Read on for some expert advice for property owners and other upper-tier participants that may find themselves in this situation.
Identify the Claimant
First off, it’s entirely possible that you may not know the lien claimant. This might be because the project took place in a non-notice state and you didn’t contract with the claimant directly, or perhaps because you received a preliminary notice but did not examine it. It’s even possible that the lien was recorded against your property in error, due to a mistake in the legal property description on the lien. And there have even been cases where a lien was filed in error on a piece of property that didn’t even have any construction work done!
If the lien was mistakenly filed against your property, inform the claimant and request in writing that the lien be released since they did not perform work on your property. If you can identify the claimant, or get a satisfactory explanation of the claimant being on your project, move on to the next step – making contact.
Contact the Claimant – To Pay, or to Request Removal
Whether or not you agree that money is owed to the claimant, you should contact the claimant after a lien has been filed on the property. If you do not dispute that the money is owed (or some part of the money is owed) you can contact the claimant to attempt to arrange payment or negotiate a payment plan which, when completed, will result in the cancellation of the lien.
If you do dispute that money is owed, this is another chance to request the lien be removed. In order to be most effective, a request to have the lien canceled or released should be in writing, and should specifically set forth the basis why you believe the lien to be improper. Such reasons may include:
- No preliminary notice was given (or preliminary notice was given late), and the project state requires preliminary notice to be given within a certain amount of time.
- The lien claimant missed the deadline by which liens must be filed. This timeline varies by state, but missing the deadline is generally fatal to a lien claim.
- The lien is exaggerated or for amounts not due.
- The lien claim is facially deficient. All mechanics lien statutes require that certain information be presented on the lien claim, failure to provide the correct information can result in an invalid lien.
- The lien was not appropriately served. Many states have requirements that the lien be served on the property owner, by some specific method. If this did not occur, the lien may be fatally flawed.
No matter what the reasons for believing the lien invalid, it helps to have supporting information to back up your position. It may also help to have an attorney review the lien claim for sufficiency, and send a demand to have the lien removed if it is deficient in some manner.
Do You Need to Remove the Lien Proactively?
In some circumstances, it may be necessary to take proactive steps to have the lien removed from the property, even if you believe the lien to be invalid. Some of these circumstances may be as a condition of your mortgage (or lease, if you are renting the property), or if you are in the process of selling or refinancing the property.
There are a couple of different ways that a mechanics lien may be proactively removed. The first is to “bond off” the lien. This requires a deposit of money with the court (either cash or a letter of credit) in an amount that may be required to exceed the lien amount (usually 100 – 150% of the amount claimed by the lien). This can be a complicated process, and full of technical procedural steps, so it may be beneficial to enlist the assistance of an attorney to help with the process. Once the bond is posted to bond-off the lien, the lien will be removed from the property – but the dispute is not over. The claimant now has a right to recover from the pile of cash you put up – the ‘pile of cash’ is the actual bond itself – to get the lien released, to the extent that their claim is valid.
Another potential option to get the lien removed is through litigation. This can be accomplished by initiating a suit against the claimant to release the lien, or, in some states, by demanding that the claimant enforce the lien within a certain period of time. This option has the benefit that if the claimant fails to initiate the suit to enforce within the deadline, the lien is rendered ineffective and must be released.
Wait it Out
If you are not looking to sell or refinance, there isn’t an issue with your mortgage, and you don’t believe there is anything due to the claimant you can always just wait it out until the claimant either files suit to enforce the lien, or the lien expires. Every state has a deadline by which a mechanics lien must be enforced, and if that deadline is missed, the lien becomes unenforceable and ineffective. Once this happens, the lien must be removed. While this can be the easiest and least expensive way to go about reacting to a lien claim, you have to be willing to wait (the enforcement period can be a number of years in some states) and you must be willing to accept that the lien could be enforced at any time, dragging you into court, and will remain a cloud on your property’s title until removed.
Essential Info: Lien & Notice Deadlines in All 50 States
While having a lien filed against your property is never a desired situation, with some thought and preparation, it can be handled in an efficient manner. If the lien is for valid work, just paying what is already owed will get it taken care of (and double payment could be recovered from your GC). If the lien is not valid, fighting an invalid lien requires organization, but is not something that you need to panic about.
While mechanics liens are powerful, they exist to get companies paid what they are due – not to be abused to cause undue consternation to innocent property owners.