Finally! That big payment problem has come to an end. Whether you’re the person who filed a lien, the general contractor, a property owner, or someone else – battling out a payment dispute can be brutal. But even when both sides have come to an agreement, there’s one more detail to sort out — filing the lien release.
But when should you file the lien release?
Specifically, what comes first: The payment or the release? Do you swap them at the exact same time? Exchanging payment for the release can turn into a standoff, so what should you do then?
Timing a Construction Lien Release
So what comes first? The chicken or the egg? The lien release or payment? Unfortunately, there isn’t a very cut and dry answer.
On one hand, the property owner (or contractor) doesn’t want to make payment unless the release is in-hand. Sometimes, this is the second time an owner or contractor has paid for the work, and caution is to be expected. They want to be sure this dispute is absolutely through with. And that’s fair.
You know what’s also fair? A lien claimant has performed work, and when payment doesn’t come through, the lack of cash flow strangles a construction business. Slow payment (and nonpayment) is a threat to the claimant’s livelihood. So, now that the claimant has jumped through extra hoops to make sure money is coming their way, it’s natural to be a skeptic and require cash in hand before releasing their filed lien.
So What Gives?
…or rather, who gives?
The owner or contractor is the one with the money, and we all know money is power. But mechanics liens are pretty powerful, too. Who should go first?
The party making payment will demand that they go first. Often, that’s the way it goes. The ultimate goal here is the receipt of money, and the party holding that money naturally holds the power. Unless the paying party has really shown they’re untrustworthy, there may be little reason for a claimant to be skeptical. Nobody likes liens, and everyone wants a resolution as quickly as possible.
But for a lien claimant – their lien is all the leverage they’ve got. Typically, by the time the dispute is resolved, the deadline to file a lien is long gone. Meaning, if the lien is released and payment isn’t received, the lien claimant may end up empty-handed. What to do?
A claimant shouldn’t release their lien until payment has been received.
Why? The claimant never wanted that lien. They just wanted payment. What’s the point of holding on to the lien after money is in hand? There is more incentive for an owner to withhold payment after a lien release than there is for a claimant to hold onto their lien after receiving payment. Mechanics liens are incredible leverage tools, and letting one go without receiving payment could ruin a business.
4 Myths About Mechanics Lien Releases
1. LIEN RELEASE IS NOT REQUIRED – FALSE
Releasing a lien once the payment has cleared will always be the right thing to do. However, in the majority of states, it’s also the required thing to do. In these states, the deadline to release the lien ranges from within 10 days of receiving payment up to 60 days. In some other states, the deadline to release the lien is triggered by the written request of the payer to release it after payment has been made.
2. LIEN RELEASES ARE ALWAYS ACCEPTED BY COUNTY RECORDERS – FALSE
We’ve written quite a few times about the peculiarities of county recorders and their potential impact on successfully filing a mechanics lien. Well, that potential impact also extends to successfully filing mechanics lien releases.
One of the most common mistakes that can lead to a lien release’s rejection is providing incorrect or incomplete reference information to the original lien. It’s important to include the instrument or case number of the originally filed lien, as well as the book and page (if there is one), and a reference to the date the lien was originally filed.
You can usually find this information on the lien itself, but it may be necessary to contact the recorder’s office if your lien copy doesn’t have this info (or if it’s illegible).
3. LETTING THE MECHANICS LIEN EXPIRE MEANS YOU DON’T HAVE TO RELEASE THE LIEN – FALSE
For #3, we return to our old friends the county recorders. This may be surprising to many people, but letting a mechanics lien expire does not automatically “un-record” the mechanics lien from the county’s property records. As Levelset CEO Scott Wolfe Jr. likes to say, “County recorders record. Rarely do they un-record.” In fact, a lien release is just another recording, not an un-recording.
Anyone doing a title search on the property will stumble upon the mechanics lien filing, even if it is expired. (For more on this, please see #4 below.) And even though the lien claim may be expired, the title searcher will likely not feel comfortable with the existence of the lien unless a release is recorded. So if you get paid, or if you have another, valid reason to release the mechanics lien, you should go ahead and do it.
4. LIEN RELEASES ERASE THE ORIGINAL MECHANICS LIEN FROM EXISTENCE- FALSE
Canceling a mechanics lien does not erase the lien from existence as if it was never filed in the first place. While releasing a lien may have that exact legal effect, the original lien will likely still to be found in the county property records even after it’s formally released. In fact, in many cases, the release is recorded on the original lien itself as a notation.
How to File a Lien Release
Lien releases are filed with the county recorder or office where the lien was recorded. Make sure that the lien release contains all the proper information because making a mistake can invalidate the release and can potentially create problems for the lien claimant. In most cases, the lien release must also be notarized.
You can file a lien release through Levelset in minutes. Click here to get started.
What Happens If I Don’t Release the Lien?
Failure to release a lien can result in penalties for the lien claimant. In Alabama, for example, failing to release a lien (or releasing it late) subjects the lien claimant to the personal liability of $1000 and liability for actual damages. Many states have similar fines and financial penalties to discourage lien claimants from failing to release liens within the mandated time period.
In addition to statutory penalties, non-compliant lien claimants might face a lawsuit from the property owner. The owner can allege that since the lien is still on record and has formally expired, it is “frivolous” and “slandering title.” Losing such a court battle could result in the lien claimant being responsible for costs and attorneys fees in addition to statutory penalties! This situation is undesirable and can be easily avoided by releasing the lien.
What else can you do to manage the standoff scenario described above? Meet at the job site with a check or a lien release in hand? Trade a completed (but unrecorded) release for the check, and cash that check immediately? Escrow may be an option.
Another route? Draw up a short contract stating that once payment is rendered you will file the release of lien. This way you can retain your leverage while providing some reassurance to the other party as well. But again, this is not always the best solution or you may not want to enter into another contract at all.
Unfortunately, there is no go-to solution in these scenarios. Get creative, but don’t give up. As a lien holder, remember that your lien is your leverage, but payment is the ultimate goal. As the party making payment, understand that the claimant’s lien might be their livelihood. Plus, once a lien is paid it can’t be enforced.
The Bottom Line on Lien Releases
If the underlying payment issue that led to filing a mechanics lien in the first place gets resolved, then releasing the lien is the proper thing to do. As discussed above, a recorded mechanics lien will “always be there,” so, the property owner will – at some point or another – need that lien release to be recorded.
If you don’t release a mechanics lien that should be released – either on your own or upon the property owners request – the property owner may have to file a lawsuit against you (the claimant) to get the lien released. And, the property owner will almost certainly win that lawsuit, exposing you to costs, penalties, and fees that could’ve easily been avoided.
Lien Release Requirements by State
|State||Is Releasing a Lien Required?||When Is It Required?|
|Alabama||Required||Within 30 days of satisfaction|
|Alaska||No specific requirement|
|Arizona||Required||Within 20 days of satisfaction|
|Arkansas||Required||Within 10 days of satisfaction|
|California||May be required|
|Colorado||Required||Within 10 days of written request|
|Connecticut||May be required|
|Delaware||No specific requirement|
|Florida||May be required|
|Georgia||May be required|
|Hawaii||No specific requirement|
|Idaho||No specific requirement|
|Illinois||Required||Within 10 days of written request|
|Indiana||No specific requirement|
|Iowa||Required||Within 30 days of written request|
|Kansas||No specific requirement|
|Kentucky||Required||Within 30 days of satisfaction|
|Louisiana||Required||Upon written request|
|Maine||Required||Within 60 days of satisfaction|
|Massachusetts||No specific requirement|
|Minnesota||No specific requirement|
|Mississippi||Required||Within 15 days of satisfaction|
|Missouri||Required||Within 10 days of satisfaction|
|Nebraska||No specific requirement|
|Nevada||Required||Within 10 days of satisfaction, upon written request|
|New Hampshire||Required||Upon satisfaction|
|New Jersey||Required||Within 30 days of satisfaction|
|New Mexico||No specific requirement|
|New York||No specific requirement|
|North Carolina||No specific requirement|
|North Dakota||No specific requirement|
|Ohio||Required||Within 30 days of satisfaction|
|Oregon||Required||Within 10 days of satisfaction|
|Pennsylvania||No specific requirement|
|Rhode Island||No specific requirement|
|South Carolina||Required||Within 10 days of satisfaction|
|South Dakota||Required||Upon satisfaction|
|Tennessee||Required||Within 30 days of satisfaction|
|Texas||Required||Within 10 days of satisfaction|
|Utah||Required||Within 10 days of written request|
|Vermont||No specific requirement|
|Virginia||No specific requirement|
|Washington||Required||Immediately upon satisfaction or written request|
|Washington DC||No specific requirement|