If you have a lien on your property or a project that you’re managing, you’re probably feeling the pressure. Financing could be getting difficult. The proposed sale you had planned might be falling through. Or, the project owner might be breathing down your neck. Either way, you’re wondering about how to remove a lien.
You’re not alone. Most general contractors and property owners search for answers when they find themselves under the weight of a lien. After all, mechanics liens are very effective tools and they can have serious consequences, so it’s best to be proactive about resolving the situation and getting the lien removed.
First thing’s first: What is a mechanics lien?
If this is your first experience with a mechanics lien, you might not fully understand what they are and how they work. There are a lot of thorough explanations you can read through, but this article will approach it in simple terms.
A mechanics lien is a legal claim placed on a property by someone supplying labor or materials who has not been paid in full for their effort.
For example: If Joe’s Painting gives your barn a fresh coat, and you stiff him for any amount of money, he can file a lien against your property. Likewise, if you hire Mike’s General Contracting to manage the job and Mike hires Joe’s Painting, but Mike doesn’t pay Joe, Joe can file a lien against your property.
And, the lien attaches to the property, not the project owner. This can make the property harder to sell, make lining up financing or refinancing the property more difficult, or even cause issues when rolling from a construction loan to a conventional mortgage. If you don’t pay the lien filer the indebted money, they can foreclose on the lien and force the sale of the property.
To learn more about mechanics liens and how they work, click here.
Why you might have a lien on your property
The core reason for a lien is someone didn’t get paid for their work on a project. But there are a few reasons why this could happen, and how you approach removing the lien might depend on why it’s there in the first place.
You didn’t pay the contractor
When you hire a contractor of any type to undertake a construction project on your property, you’re agreeing to pay them for their work. If you’ve chosen not to pay them for any reason, they have the right to file a lien on the property. It doesn’t matter if you didn’t pay them because the work was shoddy or because you can’t find financing, filing a lien is a legal right in all 50 states.
Learn more – Lien Rights: How Contractors Earn & Protect the Right of Lien
The GC didn’t pay a subcontractor or supplier
There are lots of moving parts on a project. Even smaller jobs might include four or five subcontractors or trades that need to come in for one reason or another. Hiring these subs is the job of the general contractor, and so is paying them.
If the GC decides not to pay a sub or supplier, they can flex their muscles and file a lien against the property. And get this: It doesn’t matter if you paid the general contractor already. If that lower tier contract participant isn’t made whole, they have the right to file a lien.
No one knew the subcontractor or supplier existed
In a perfect world, everyone appreciates and respects everyone on a project. The owner pays the GC and the GC turns around and pays all the subcontractors and suppliers. But, a few months later a notice of intent to lien shows up. How is that possible?
It’s not unheard of for a subcontractor to hire their own subs without the general contractor or project owner even knowing. They assume the crew performing the work are employees of the sub. If the project owner and GC don’t know that person exists, how or why would they cut them a check?
How to remove a lien
There are only a few ways to remove a mechanics lien, and unfortunately, there is no secret recipe or cheat code you can punch in to skip the level. Most likely, you’ll have to utilize one of the following methods of how to remove a lien on your property or a project you’re managing.
Dispute the lien
One way to resolve a lien issue is to dispute it right away. Many states allow project owners and their attorneys to file “preliminary objections” to the lien claim with the court. The court will take a look at the circumstances around the lien and make a decision about its validity. If the court’s decision is in the property owner’s favor, the lien will be removed.
This approach is most effective when you’re sure a lien is invalid or you’re certain that the contractor did not preserve their lien rights correctly. Reasons for not preserving their lien rights could include not carrying the proper license or registration, filing the lien late, not sending preliminary notice, and many more. It’s important to understand your state’s mechanics lien laws.
Force them to foreclose sooner
Another approach that a project owner or GC could take is forcing the lien filer to foreclose sooner. In some states, owners can send a Notice to Foreclose which gives the contractor much less time than typical to foreclose on the lien.
While forcing their hand might be risky, here’s what can happen:
- The contractor never intended to hire a lawyer or foreclose on the lien, so the window to take action will come and go.
- The contractor is unable to get their act together within the 30 days, hire a lawyer, and get the case to court.
- The contractor is able to get to court, but their case isn’t strong enough, and the decision goes to the project owner.
It’s entirely possible that the contractor will win the suit, so employ this tactic at your own risk. But, again, if you’re sure that the lien is invalid, you can present your case in front of the court and let them make the decision. If you win or the contractor can’t get their case together in time, the lien will be removed.
Learn more – Construction Payment: What Is a Notice of Intent to Foreclose?
Let it run out
In some situations (particularly cases of extortionary lien filings), the lien filer never had the intention to take you to court. They filed a lien as a scare tactic to squeeze you for more money. After all, hearing that your house can be foreclosed upon for $2,000 sounds scary.
But understand this: All 50 states have a deadline to enforce a mechanics lien (though they do vary). In some states, the contractor can extend the initial deadline, but that deadline represents the end of the lien. If the contractor doesn’t begin enforcing the lien by the end of the given window, the lien is removed.
If you have the time, patience, and confidence that a contractor is taking advantage of you, you can wait and let the lien run out.
Pay the contractor
This might not be your favorite answer, and it’s not always the right one, but you can remove a lien by paying the contractor for the agreed upon amount. You can even settle for a lesser amount if they’re willing to work with you. And paying the contractor is the fastest way to remove a lien.
But beware that double payment is a real thing. Double payment is when a property owner pays the GC the appropriate amount of money to cover the pay apps, but the GC doesn’t make the payment, and the owner pays the subcontractor themselves to avoid or remove a lien. In many states, the project owner can make a claim against the GC to recover the additional payment, but the claim is only good if the GC has the money to pay it back.
See the danger?
Get the contractor paid
This method of removing a lien can be difficult because it relies on compelling someone to do the right thing, but you can get a lien removed by getting the contractor paid.
If you paid the general contractor but the GC is holding the cash, you might be able to put some pressure on them to do the right thing and pay the subs. Unfortunately, financial leverage can be tricky as they can simply turn around and file a lien on your property as well. But, you can leverage future projects, announce shady business practices on social media, and give them a poor rating on their contractor payment profile.
With enough heat, they might feel compelled to do the right thing and pay the lien filer so the lien comes off the property.
Bond off the lien
If you want to remove a valid lien from a property but you aren’t able to make good on the payment, there is another option: Bonding off the lien.
When a contractor “bonds off” a lien, they’re shifting the claim to a surety. That can be good news for the lien filer as the surety is almost sure to pay the bond claim amount. That doesn’t absolve the property owner or contractor from the lien, however. They’ll still have to pay the bonded amount back, and, more than likely, a bit of interest.
Learn more – Bonding Off: Mechanics Lien Release Bonds in Construction
How to avoid mechanics liens
Mechanics liens are extremely effective tools so they can be very intimidating or frustrating to deal with. Before even figuring out how to remove a lien, it’s best to avoid them in the first place — and the following are a few tips on how to do that.
Prequalify your contractors and subs
One of the best ways to avoid mechanics liens on a project you own or are managing is to prequalify everyone on the job. This includes the GC, the subs, and the suppliers, and here’s a step-by-step guide on how to do it:
- Dig into the company’s payment history
- Review the company’s credit history
- Read subcontractor reviews
- Check out a sample subcontract, if available
- Familiarize yourself with the company’s payment process
If you can get a good look at how a contractor or sub treats its subs and suppliers, you’ll be able to choose project participants that aren’t as likely to cause headaches.
Make preliminary notices a requirement on your projects
Remember that scenario described earlier about a subcontractor filing a lien when no one even knew they were on the job? There is a way to avoid that: make preliminary notices a requirement.
It might seem counterintuitive to a project owner or GC to empower a subcontractor by requiring a document that likely protects their lien rights, but there’s more to the story. If everyone on the project is required to send a preliminary notice (regardless of the state’s requirements), you’ll know exactly who’s working on the job and what they’re doing. This will help ensure you get a check into the hands of everyone involved.
Leverage lien waivers
One way to mitigate the chances of a mechanics lien is to require lien waivers with payment applications. These documents state that a sub or supplier is forfeiting their right to a lien on the amount of money paid to them for that application. They’re helpful for getting a sub or supplier paid on time while also giving the project owner and GC peace of mind that sub won’t file a lien on the property.
There’s a level of accountability that lien waivers provide, as well. If you require all your project participants to send preliminary notices, you’ll have a complete roster of subs on the job. If you provide the general contractor with enough money to pay 20 contractors, but the GC only returns 15 lien waivers to you, they’ll have some explaining to do.
Learn more – Why You Should Send a Lien Waiver with Every Invoice
Require the general contractor to carry a payment bond
One way to avoid a mechanics lien (for the most part) is to put the onus on the general contractor. Project owners can require general contractors to secure payment bonds before starting the project. If the general contractor doesn’t pay the subcontractors, they can file a claim against the bond instead of a lien against the property.
Keep in mind that there is still some risk: the general contractor can file a lien if you don’t pay them on time.
Pay your contractors on time
It might seem obvious, but the most effective way to avoid a lien in the first place is to pay your contractors on time. It takes forever to get paid in the construction industry, so when a sub or supplier gets paid on time, it makes a positive impression.
These happy project participants aren’t likely to bite the hand that just fed them a meal on time — it’s a rare occurrence in the industry.
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