When an unpaid contractor or supplier files a mechanics lien, the goal is to get paid the full amount. But sometimes, the property owner may not have enough funds available to cut a check for the whole thing. If the lien claimant receives a partial payment, what should they do with their lien claim? If the property owner is demanding that you cancel it, don’t panic just yet. There are a number of options available.
Options after a partial payment
If the property owner or GC paid some of the amount in your mechanics lien claim, but not all of it, you may be stuck wondering what to do with the claim itself. Here are the options, though not all will apply in all states. Consult with a construction attorney before making a legal decision that could affect your lien rights.
Option 1: Cancel part of the 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 removed.
Lien release example
So, for example, if the original claim was for $75,000 and you were paid $25,000, you could file a “Partial Lien Release” referencing the original lien and saying something like:
The Claim of Mechanics Lien filed on ____ date, in the records of ______ County, as instrument number ____________, was originally filed for the amount of $75,000. $25,000 has been paid to the Lien Claimant, and the Claim of Mechanics Lien recorded as instrument number ___________ is released solely to that extent. The new total of the amount secured by the lien recorded as instrument number ____________ is now $50,000.
If you’re in a state where the rules aren’t clear, it comes down to a business decision. If you’re uneasy about trying to partially release the lien, it might be worthwhile to reach out to a local attorney and see what they think.
Option 2: Modify the original lien
Another option that seems to be about as easy as the partial release described above is to file paperwork to modify your original lien. If you filed a lien claim for $100, and then were paid $50, then you should just be able to modify the first 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 and totally separate claim.
If the original filing deadline hasn’t passed, you may not be risking much to try to modify the lien. Even if the state considers it a brand new lien, you’re still within your right to do so. The new, lower lien claim would just replace the old one.
However, if you modify a lien after the deadline to file the lien has already expired, then you could unintentionally invalidate the original lien. That would leave the claim worthless, and powerless to help you collect the remaining money. In short, modifying a lien claim isn’t always worth the risk.
Option 3: Release the entire lien
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. Remember, a promise to pay is not equal to a payment itself.
Once a lien claim is released, most claimants won’t be able to re-file it again at a later date.
Option 4: Do nothing (for now)
Believe it or not, doing nothing is generally the safest (and easiest!) option. If it causes friction with the person who made the partial payment, remind your customer that the faster the debt is paid, the faster the lien goes away.
Leaving the lien in place as-is means that the lien continues to provide security for the entire claim. If the claim goes to foreclosure, any partial payments would be subtracted from the total value anyway. The property owner is in no worse position for the lien being left unmodified.
Of course, don’t wait forever: If you decide to take your claim to court, you’ll need to do so before the enforcement deadline in your state expires.
A partial payment does not obligate you to do anything
When a contractor’s claim is paid, releasing the lien is the right thing to do — but only when it is fully satisfied! Trying to cancel or modify a mechanics lien to reflect a partial payment could invalidate the claim and cause you to lose your leverage.
No matter what state you’re in or how loud the property owner is yelling, you’re well within your rights to leave the lien claim alone until you get the full payment. But waiting will only get you so far. If you don’t receive the rest of your funds by the foreclosure deadline, it may be time to enforce your lien.