You just finished building your dream home, and when you close on the house, you find out you have a mechanics lien from one of your contractors. What happens next?
First, let us talk about what a mechanics lien is. Most states have the mechanics' lien option for contractors and suppliers of materials. This is for the protection of the contractor/supplier to make sure he gets paid for the materials and services he provided.
How does it work?
Typically the contractor /supplier will notify you of the unpaid balance and demand payment. It would be best if you had anywhere from 10 to 30 days to respond. This period varies from State to State. If you do not pay or respond in that period, the contractor/supplier will file the lien with the court in your county. You then have a period, generally between 3 and 6 months, to work this out with the contractor/ supplier before he can then file a lawsuit against you. If the case is filed on time, you could be forced to sell your property to settle the lien, or it could delay or prevent closing. If the lawsuit is not filed on time by the contractor/ supplier, the lien becomes void. I highly suggest, however, that you go to the court where the lien was filed and get a court order clearing up the lien; you do not want this thing popping up later and preventing future sales of the property.
But I paid the General Contractor!!!!!
Yes, you probably did. In a perfect world, this would have been enough. You paid him, and he paid the suppliers and sub-contractors. This is far from an ideal world, however, and if he does not pay his subcontractors and suppliers, YOU could end up paying twice for the goods and services! This could be a danger because it is expensive and difficult to sue the original contractor, and many will try to pocket the money and leave you paying the bill.
How to avoid the mechanic's lien
If you are dealing with individual contractors and suppliers, the answer is to have a contract with what you are having done and the price in writing. Any changes you decide you want should also be in writing (change order), and any difference in the price is listed and signed by both parties. Then when the work is done to your satisfaction, pay the contractor or supplier and get a signed lien waiver from him.
If you are dealing with a General Contractor, you have two options. You can pay with joint checks that require the general contractor and the subcontractor to both be present to cash the check. This is not the best option for convenience since you may write tons of checks instead of just one check to cover the whole crew. The other option is to have each subcontractor and supplier sign a release of lien stating they have been paid for their service. There are two types of lien releases. The first is a progress release which says they have been paid for what progress was made but does not protect you from a lien until the job is done. The other is a final release of lien, which states the job is finished and the contractor/ supplier has been paid in full. I would use both.
I suggest chatting with each contractor individually, even if you use a general. It is a great way to see the progress on your home and make sure everyone is getting paid. Ask for and keep all receipts of payments made. Keep all written correspondence and change orders. Cover all your bases, and you should avoid the Mechanics lien.
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