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McCloud Law Group Legal Blog

Thursday, March 19, 2015

What is a Mechanic's Lien ?

What is a mechanic's lien?

 

A mechanic's lien is not just for mechanics.  It is a legal tool used to protect workers and suppliers who contribute the labor and materials used to improve a property, real or personal.  Workers and suppliers can file a mechanic's lien if they do not get paid and may be able to force the sale of the property to receive payment. 

 

How Does One Place a Mechanic's Lien on a Property?

 

To place a mechanic's lien on a property, a "contributor"—someone who supplies labor or materials—must provide the property owner with notice describing the material or service contributed.  Depending on state law, the owner usually must receive this within a certain number of days of when the work began.

 

If the contributor isn't paid after completing a job, it can file a "claim of mechanic's lien" in the county where the property is located.  The contributor then has a few months to bring a lawsuit to enforce the mechanic's lien.  If the enforcement action doesn't take place by the deadline, the lien is no longer valid.  If the lienholder wins the lawsuit, the property can be sold at auction, with the proceeds used to pay the lienholder.

 

Mechanic's liens often have priority over other security interests in a property, such as a mortgage, though it may depend on when the lien was filed.  Construction loans may sometimes take precedence over mechanic's liens in certain states.

 

Who Can File a Mechanic's Lien?

 

Laborers and professionals who can take advantage of a mechanic's lien include carpenters, electricians, HVAC providers, plumbers, architects, and civil engineers.  Suppliers may include lumberyards, plumbing and electrical supply houses, and offsite fabricators of items that become part of a project.

 

 

How Can Property Owners Protect Themselves?

 

Property owners who are concerned that a mechanic's lien may be filed can obtain a "Release of Lien" from everyone connected to a project, relieving the owner from the threat of a lien.  Before making final payment, owners can also insist on an affidavit from their contractors listing anyone not yet paid.  The owner can then insist that those parties sign releases.

 

An owner can also file a "Notice of Commencement" before beginning a project listing all the contractors and subcontractors working on it, and a "Notice of Termination of Notice of Commencement" when the project is concluded and everyone has been paid and/or has signed a release. 

 

If a lien has been filed, in many states there is a procedure by which an owner can challenge it on technical grounds, such as improper notice or identification of the property.  Owners may also file a "surety bond"—a promise to pay backed by an insurer—with the court to protect themselves against enforcement of the lien.



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