What is a mechanics lien?
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A mechanics lien is a legal claim for unpaid construction work. When a contractor files a mechanics lien, they gain a security interest in the home or property. The lien clouds the real estate title, making it difficult for the homeowner or property owner to sell it until the lien claim is paid.
Typically, anyone who provides labor or materials to property improvements can file a mechanics lien if they are not paid. Because a lien disrupts the flow of funds on a construction project, it gets multiple parties, like lenders, property owners, and general contractors involved in making sure the right person gets paid.
The origin of the mechanics lien dates back to the founding of the United States, as newly titled landowners were rapidly developing their property. Thomas Jefferson introduced the first mechanics lien laws to protect builders and other tradesmen, who were known as “mechanics” in those days. Every US state now has construction lien laws to ensure that contractors, suppliers, and others are paid.
Types of mechanics liens
A mechanics lien is a broad category for any type of construction lien on real property, which is why it is sometimes called a construction lien.
When referring to parties who supply materials to a project, it may be known as a materialman’s lien or supplier’s lien. A design professional’s lien is used by architects, engineers, and others in the design field. An artisan’s lien is available to tradesmen, though it is often used on personal property, like a vehicle, rather than real estate.
In general, these are all types of mechanics liens, and they all attach to real property in the same way.
Why mechanics liens exist
Getting paid in construction can be slow and difficult. Construction projects often require significant costs up front, while the property owner only pays for the work after it’s complete. Because of this, the people who provide labor and materials spend a lot of time, effort, and money before they get paid.
Additionally, it can be difficult for the owner of the property to identify everyone on the project to ensure they get paid. A subcontractor or sub-subcontractor may not even know who the property owner is. If their hiring party doesn’t pay their invoices, these sub-tier parties have a right to place a lien on the real estate in order to get the owner involved.
Liens give leverage to the contractors and suppliers who provide work and materials for an improvement of the property. They can place a claim on the property if they don’t get paid for their contribution, and even force it into foreclosure.
Who can file a mechanics lien?
In general, anyone who makes a permanent improvement to real property can file a mechanics lien. Each state has their own construction law governing who has lien rights, or the right to make a valid claim.
General contractors, subcontractors, material suppliers, and laborers can typically file a mechanics lien if they do not receive payment for their labor or materials. Some states also provide lien rights to equipment lessors, architects, engineers, and other design professionals.
Liens are typically only available on private construction projects, like residential, commercial, or industrial construction or renovation. While a lien cannot be placed on public property, workers on most public projects will be able to make a bond claim if they are unpaid.
How liens work in construction
It’s best to think of a mechanics lien as a process, rather than a stand-alone document. Before you can record a mechanics lien, you must take initial steps to protect your right to file a claim. Generally, state laws require you to send specific documents at specific times during a construction project in order to preserve your lien rights.
While each state has their own laws, there are 4 basic steps in the process:
Provide Preliminary Notice
Preliminary notice is a document sent at the beginning of a construction project that tells the GC, property owner, and/or lender that you’re on the job. Many states have notice requirements that construction professionals must follow in order to protect their right to make a lien claim later on. It may be called by a variety of names, like Notice to Owner or pre-lien notice.
Even in states where a written notice isn’t required to protect lien rights, sending preliminary notice can improve communication and visibility on a construction project.
Send a Notice of Intent
A notice of intent to lien (NOI) is a document that notifies the GC, property owner, and others that a mechanics lien will be filed if they do not make payment. An NOI is effective at encouraging payment without the need to file a lien.
File a Mechanics Lien
Filing a mechanics lien involves filling out a lien claim form with accurate detail on the property, the work performed, the amount owed, etc. The form is generally filed with the county recorder’s office where the project is located. Unpaid contractors must follow the steps to file a mechanics lien carefully, or risk losing their right to make a claim.
Release or Enforce the Lien
After filing a lien, the lien claimant will need to take additional steps. If the lien is satisfied, then releasing or cancelling the lien is often required to avoid penalties.
If the hiring party still doesn’t pay, then the lienholder can choose to enforce the lien. Enforcing a lien requires a court action to foreclose on the property. If you choose to enforce a lien, it’s a good idea to get legal advice from a construction lawyer or law firm before proceeding.
