Imagine this scenario: you’re a subcontractor on a project with a payment issue. First, the payment was late. Then, the payment was even later, and after waiting for too long a time (and with deadlines approaching), you finally decided to file a mechanics lien.
Then, about a week later, a check arrives in the mail. Hurray, it’s your payment! The mechanics lien worked! But when you open the check, you discover that it’s only for half of the amount owed. What should you do now? How does a partial payment affect your mechanics lien?
Several Options, Not All Are Good
Partially Releasing a Lien
Of all the options available to at this point (having received part, but not all, of the money owed), filing a partial release of lien seems to make the most sense. After all, partial payment = partial release. Easy, right?
Unfortunately, partial lien releases aren’t specifically allowed in most states. If a lien claim has been filed and partially paid in one of these states, it’s not clear whether a document attempting to partially release a lien would be effective.
So, when a partial release of lien is requested, it might be wise to check whether partial lien releases are specifically set out by your state’s mechanics lien statute. In the meantime, encouraging a customer to keep making partial payments could help! Remind them that the sooner the debt is paid, the sooner the lien can be released.
If you’re in a state that allows partial lien releases, it is prudent to take care to make sure not only that the release clearly states that it’s only a “Partial Release,” but also that it is not a lien modification (discussed in next section). This can save from troubles down the road, and keep your full payment secured by the property. For those in states where it’s less clear, it comes down to a business decision. If you’re uneasy about releasing the lien, it might be worthwhile to reach out to a local attorney and see what they think.
Modifying the Original Lien
Another option that seems to be about as easy as the partial release described above is to file a lien modification. If you filed a lien claim for $100, and then were paid $50, then you should just be able to modify the original lien to reflect that you are now owed $50, right?
Actually, attempting to modify your original lien can be very dangerous. In some circumstances, a modified lien might be considered a new filing date. If the date on which you modified the lien ends up being after the deadline to file the lien originally, then a claimant might unintentionally invalidate the original lien, leaving that claim worthless, and powerless to collect the remaining money. In short, modifying a lien claim isn’t always worth the risk.
Releasing the Lien Entirely
This is typically a bad option when full payment hasn’t been made. It’s easy to imagine a scenario where the paying party sends a partial payment and then begs you to release the lien, promising the rest of the money will be arriving shortly. Obviously, claimants don’t want to give up their leverage until every single penny is paid.
Once a lien claim is released, most claimants won’t be able to re-file it again at a later date. That means it might be better to keep the entire lien claim in place, and to remind the customer that the faster the debt is paid, the faster the lien goes away.
Believe it or not, doing nothing is probably the easiest and safest option, even if might cause some friction with the party who’s making partial payment. But, if filing a partial release of lien isn’t an option, then doing nothing could be the smartest and safest bet. As stated above, the faster payment is made, the faster the lien will be released – and property owners should understand that when staring down the barrel of a lien claim.
When full payment is made on a lien claim, the best thing (and the right thing) to do is to file a lien release. Mechanics liens do not just expire or “go away” by themselves. They must be actively removed by the filing party. But when only partial payments are made – the equation of what to do can be a lot more complicated.