Editor’s note: We usually don’t write much about the property owner or developer’s perspective on mechanics liens, because our blog targets mechanics lien compliance issues confronted by credit managers, controllers and business owners in the construction industry. Nevertheless, it’s a relevant conversation for our audience. We are happy to have this guest post from Alex Summers on selling real estate when it is burdened with a mechanics lien.
In real estate sales, any type of lien can be a deal breaker. Having a lien on a property for sale is an inconvenience for both buyers and sellers, but it is surmountable. Discovering a lien prior to closing will delay if not negate mortgage approval. In the meantime, seller will have to contend with additional expenses tied to clearing the lien and the delay in title transfer.
Sellers should not be deterred from putting their property on the market even when faced with a mechanics lien. Continue to prepare the property for buyer inspection by decluttering and moving out most personal items to temporary places, like self storage units or similar facilities. These preparations can be done while seeking a lien release.
What is a Mechanics Lien?
A mechanics lien is claim for payment filed by a contractor or subcontractor for work done on the property that remains unpaid after job completion. It is a legal recourse for plumbers, electricians, carpenters, handymen, landscapers and others in the home improvement business to force payment of overdue invoices especially when the property may change hands soon. The mechanics lien is attached to the property and not to the owner of record.
Contractors may fail to pay their subcontractors even after accepting full payment from homeowners. In these cases, subcontractors can pursue payment by attaching a lien to the property and negotiating with the homeowner to find some solution for their unpaid services.
How Should a Homeowner Handle a Mechanics Lien?
The initial step for homeowners is to determine the validity of the lien. Review the claim and match it against invoices and payment receipts. Hopefully, the homeowner has obtained a signed receipt from the contractor that the bill is paid in full. Having this receipt in hand will be enough to file a lien release form.
It is never that simple, though. When homeowners realize that the unpaid bill was an oversight on their part and the demand for payment is legitimate, payment in full will extinguish the debt and lien release follows.
If homeowners cannot pony up the payment demanded, they can enter a payment arrangement with the lienholder with a promise to pay in full when the sale of the property goes through. The lienholder may agree to release the lien with this expectation.
How to Obtain Lien Release
Ask the lienholder to sign a release of lien form, along with a lien waiver form, if all parties have agreed to a resolution of the dispute. To learn more about how lien releases work, and the requirements in each state, visit our main Lien Release page.
If the lienholder refuses to sign the document, the property owner can file a Petition to Release Lien with the courts and await a hearing scheduled with a judge. If the judge decides in favor of the homeowner, the lien will be removed from property records and selling the home would follow standard procedures.
A real estate attorney can help sellers deal with the lien release process to ensure that the property has a clear and negotiable title.