Lien waivers exist to protect property owners, lenders, and other parties funding construction projects from double payment and undue financial risk. Without a secure, signed lien waiver, these top-of-chain parties might face a mechanics lien even if the hired parties are paid.
When a contractor, supplier, or other party signs a lien waiver, they give up their right to file a mechanics lien. When the process is handled securely, everyone benefits – the hired party gets paid and the client avoids being liened.
Conditional Waivers with Every Payment
It is best practice for property owners, lenders, and other parties making payment to collect a signed lien waiver with every payment. The safest way to do this is to use conditional lien waivers. As the name suggests, conditional waivers are conditioned upon the occurrence of some other event – typically actual receipt of payment. Therefore, everyone is protected: the signing party maintains lien rights until the check actually clears, and the paying party is protected from liens once payment is made.
Full Price Lien Versus Unpaid Balance States
The amount of money that hired parties can claim with a mechanics lien varies by state. In Full Price Lien states, the lien secures money for the total amount of work that has been provided by the lien claimant. In Unpaid Balance Lien states, the lien claim is limited to the amount of money that the property owner has not already paid to the general contractor.
Consequently, property owners in unpaid balance states are slightly more protected by the nature of lien law. In full price lien states, property owners are open to more financial exposure since a subcontractor has the right to claim a lien for the full amount owed even if the property owner already paid that sum to the general contractor. Therefore, it’s a good idea for property owners hiring a contractor in full price lien states to be extra careful when securing lien waivers from hired contractors.
Get Waivers From Everyone – Not Just the GC!
Just because you have received a signed lien waiver from your general contractor doesn’t mean you are off the hook for amounts owed to sub-tier parties like subcontractors and suppliers. You could still be held responsible even if you have fully paid the GC. Therefore it is generally a good idea to request lien waivers from all parties involved on your project, even if you only have a contract with the GC.
Wondering how to find out who these sub-tier parties are? Many states’ lien laws include a stipulation that the GC must provide a list of all hired parties to the property owner if the owner at the owner’s request. It’s generally a good idea to take advantage of this law if it applies in your state.
Statutorily-Required Waiver Forms
Twelve states require the use of specific lien waiver forms which are outlined in their lien statutes. In these states, a lien waiver is not valid unless it uses the correct form, so it is essential to download an accurate form template or use a lien waiver management software.
The following states require specific lien waiver forms. Read this article for more information.
*Florida does not require that parties use the statutory lien waiver, but it offers the waiver as a safe option, and seems to prohibit parties from requiring a non-statutory form.