So let’s start this discussion by clearing away some common misconceptions about the purpose of the Mechanics Lien.
Key Takeaways
- Qualification Criteria: To have a right to lien, your work or materials must improve the value of the property, not just maintain it. This distinction is crucial for qualifying under mechanics lien laws.
- Preliminary Notices: Serving a preliminary notice is often required at the project’s start to secure lien rights. Failing to do so can nullify your right to file a mechanics lien.
- Legal Standing: Contractors must hold valid licenses and ensure their business is in good standing with the Secretary of State to maintain their lien rights.
The Mechanics Lien is a legal instrument designed to protect your unpaid balances on a construction project where you qualified to have a right to lien. The key here is understanding how someone “Qualifies”. The following are some basics for qualification:
- The work you perform, or materials or services you supply, must improve the “Value” of the REAL PROPERTY. This qualification is consistent in all mechanics lien laws. So how can you determine if what you did or supplied, improved the Value? Keep in mind that (Improving the Value) and (Maintaining the Value) are entirely separate concepts. Here is an example:
- A Landscape Contractor may be contracted to install new landscaping which could include lawns, trees, shrubs. It may also include installing underground irrigation and a host of other beatification structures which increase the Value of the Property by 10%.
- The same Landscape Contractor may also contract with the property owner to maintain the landscape on a weekly basis. This weekly maintenance service will MAINTAIN the Value of the property but it WILL NOT IMPROVE the Value of the property.
- Now one could argue that without the landscape maintenance the Value of the property could decrease. And while this is surely a possibility, most lien laws do not consider this component. The operative word is IMPROVE. So unless the products or services you are providing can be proven to IMPROVE the Value of the property, the rights to use the mechanics liens laws may not qualify you to use a mechanics lien.
- Many states require that a formal notice, such as a “Preliminary Notice” be served on the Owner, Original Contractor, and the Construction Lender, at the start of the project or within a short period of time on either side of the day you start to work on the job. Failure to properly serve this notice may nullify your RIGHT to a Mechanics Lien. This is not the case in all states as some states have a Right to a Mechanics Lien built into their lien laws.
You may use the CRM 50 State Guide to research the prerequisites of every state.
- Another misconception about having the RIGHT to a Mechanics Lien is that it applies to everyone who participates in the improvement to real property. It is very easy to disqualify your Right to a Mechanics Lien simply by not having a valid contractors license in states who protect only those contractors who are licensed and that their license is in good standing at the time they start to work on a real property. This same logic holds true for the standing of your company with the Secretary of State. If for some reason your business license has been suspended or is revoked, your Rights to protect your work or materials may be subject to the status of your legal right to perform the services or provide the materials which will improve the value of the property.
These are only a few of the concerns which often fall by the wayside when someone who should have a right to file a mechanics lien, loses their rights based on misunderstanding of that which qualifies for protection under the mechanics lien laws or fails to keep their company in proper legal standing so that it may avail itself to the protection which the mechanics lien laws provide.
At CRM we help our clients when setting up a new CRM open account, by examining many of these hurdles which can compromise our clients intentions of protecting their accounts receivables. For more on this subject please call CRM at 1-800-PRELIMS
CRM Lien Services, Inc. “Serving Industries that build America” for over 30 years.
