A mechanics lien is a remedy construction companies utilize when they are unable to get paid for the work they have completed for a customer. Although there are several different tools that contractors and suppliers can use to collect an unpaid balance, mechanics liens can often be the most effective and affordable option.
Whether you’re a new contractor or you’ve been in the business for years, this article will help you understand how a mechanics lien for contractors and material suppliers works. Learn more here about a tool you can use to ensure payment for your services.
What Is a Mechanics Lien?
If you’re into studying Latin words as they relate to terms used in the English language, you may be familiar with the word ligāre. It means “to bind.”
If a builder or contractor places a lien on a piece of real property, it binds or encumbers the property’s title. To get even more specific, federal law states that a lien is “a charge against or interest in the property to secure payment of a debt or performance of an obligation.”
For a construction company, filing a mechanics lien is often the quickest and most reliable way to receive payment when their customer fails to pay.
With a mechanics lien on their property, the property owner is the one in a bind if they want to sell or transfer the title to the property. That’s because a lien clouds the property title.
How Mechanics Liens Work?
A mechanics lien isn’t just something an irritated contractor writes up and hands to a property owner who is a little late paying an invoice. Liens are legal claims on real property.
A legal claim entitles the unpaid contractor with a security interest on the property. Unsettled mechanics liens sometimes lead to a forced sale — or foreclosure—of the property. If the property sells, the contractor receives payment to satisfy the debt. This is very rare, however, and most of the time, filing a mechanics lien will encourage payment to be supplied quickly either by your customer or the property owner.
Most property owners want to avoid liens being filed on their property because they can cause significant issues, such as a cloud on the title, and can inhibit the property owner from being able to sell or refinance the property.
If the title search reveals an existing lien, the property owner usually must pay the debt before the real estate closing. Not many buyers want a property with liens attached, so if the seller can’t satisfy the debt associated with the lien, it could interfere with the sale.
From the contractor’s perspective, a lien guarantees they will eventually receive payment for work they’ve completed. Doing business in the construction industry comes with a heightened risk of nonpayment, and a mechanics lien is one of the most effective tools to reduce the risk of nonpayment and protect your unpaid balance.
Who Can File a Mechanics Lien?
If a person has lien rights, they can file a mechanic lien. Lien rights exist in every U.S state. The challenge is figuring out the rules of your state and how they apply to you.
In short, if you’ve done work on a property that creates a permanent improvement, you have the right to file a lien if your customer fails to pay you. Usually, this means you are working on a job site as the general or sub-contractor, laborer, or material supplier.
There are caveats.
For example, many states in the U.S. require that a Preliminary Notice be served at the beginning of the construction project in order to secure the right to lien. If your state requires it and you don’t serve the preliminary notice correctly or within the timeframe defined in the State Statutes, you may lose the right to claim the lien.
Lien rights expire as time goes on. Many States require that the Mechanics Lien be filed within 90 days from the last day worked on the job site in order for the lien to be valid. Failing to record the lien within the timeframe required by the state statutes could forfeit your lien rights, and render your lien invalid.
Instead of trying to navigate what can be a complex process alone, consider partnering with CRM. We have a team of Lien Experts who can advise you on your rights and assist with all the other steps of the lien filing process. We make the process of filing a lien simple and straightforward, and give you the confidence that your payments are protected.
How to File a Mechanics Lien?
Once you know you have a right to file a mechanics lien, you can move forward with the process of preparing the mechanics lien to get it filed with the recorder’s office.
Every state has unique requirements for what needs to be included in the Mechanics Lien document. Generally speaking, the Mechanics Lien needs to include the name of the Property Owner, the description of the property and location, the name of your customer or the entity that hired you for the job, a description of the work being performed, and the amount of money that is owed to you. There may also be specific language or verbiage that needs to be included on the Mechanics Lien or a specific template or format that needs to be used in order for the document to be recorded successfully.
Now that you have prepared the Mechanics Lien document with all the required pieces of information, you are ready to submit the lien to be filed with the county recorder’s office. Mechanics Liens need to be filed with the county recorder’s office of where the job site is located. For example, if you did a construction project in Los Angeles County California, you must record the lien at the Los Angeles County Recorder’s Office. If you tried to record in a county that is different from where the job site is located, it would be rejected. There are a few different ways to submit the lien to be recorded. You can take it in person to the recorder’s office and typically get it recorded that same day. You can also send the mechanics lien document via mail or fedex. There are also E-Filing services that you can use to submit the lien to the recorder’s office electronically.
After you have submitted the lien to be filed to the County Recorder’s Office, you have to wait until the recorder’s office officially records the lien. If there are any issues or errors on the lien document, the county recorder will reject the lien and then you must correct the document and try again. When the lien has been recorded successfully, you will receive the recorded copy of the lien via mail. Some states require that once the Mechanics Lien is filed successfully, you must notify the Property Owner that the lien has been filed by serving a Notice of Lien.
Once you have been paid for the money owed to you or have agreed to a settlement, you will be required to file a Release of Mechanics Lien in order to remove the lien from the property. This document also needs to be prepared according to the legal requirements and be filed with the county recorder’s office.
How Long Does a Mechanics Lien Last?
Each state sets its own time frame for liens. In many states, the lien expires 90 days after record filing. In other states, liens remain valid and enforceable for up to one year after filing.
In most cases, filing the Mechanics Lien will encourage your customer or the property owner to submit payment quickly. However, when you do not receive payment right away after the lien is filed, It is important to take further action with the Mechanics Lien before it expires. Typically this means opening up a lawsuit of foreclosure with a construction attorney or filing for an extension on the lien.
Do You Need to File a Mechanics Lien?
Are you owed money on a construction project and have experienced issues or delays in getting paid? You can move forward with utilizing Mechanics Lien law today to protect your unpaid balance and be confident that you will get paid. By following the information we have provided here in this article, you have a great starting point to move forward with a Mechanics Lien on your own. If you are reading this article and want to partner with experts who have navigated this process successfully thousands of times, feel free to give our team a call at 800-773-5467 or you can submit your order for a Mechanics Lien here.
