A lien waiver is a document signed by a contractor, subcontractor, or service provider that affirms they have been paid for their work and that they waive their future rights to file a lien. This is a way for property owners to prove they have settled their dispute and prevent any future claims against the title of their property. A mechanic’s lien can cause all kinds of headaches, so a lien waiver is a way to affirm the debt has been paid, and there is no need for further action. There are four types of lien waivers, but not all are legal in every state.
Having a mechanic’s lien on the title to your property can create complications for homeowners and managers of commercial construction projects. It’s tough to sell a building, refinance a loan or perform any similar action that requires a title search with an unpaid lien. So, if there is a dispute between two parties over unpaid work or labor, many property owners or construction managers will want some form of proof that the problem has been resolved if they make a payment. A lien waiver is a legally binding document, so the owner could easily dispute the claim if the claimant were to file a lien after signing it.
Partial Conditional Lien Waiver
A partial conditional lien waiver is used when the contractor expects to receive payment in stages, not all at once. This type of lien waiver only applies to a specific portion of the work and not the entire project. Conditional means that the payment has not been made yet and will only go into effect once the check clears.
Partial Unconditional Waiver
A partial unconditional waiver means that the contractor or service provider has been paid for a portion of the work and is willing to waive their rights to a lien specifically for that project but not the entire assignment. Unconditional means that the waiver goes into effect immediately because the claimant has received payment.
Final Conditional Waiver
A final conditional waiver means the claimant is willing to waive their right to a lien for the entire project but has not received payment. This waiver will go into effect once the balance is paid and the work is finalized.
Final Unconditional Waiver
A final unconditional waiver means all the work is finished, and the contractor or other party has received payment in full. This confirms the claimant has no right to any future payments and is satisfied with what they’ve received. Claimants are wise to avoid signing a final unconditional waiver until the money is in the bank, in case their check bounces or there’s another problem with the payment.
Keep in mind that a lien waiver is different from a lien release. A lien waiver is signed before a claimant files a lien and is used as a preventative measure to avoid title issues. A lien release is a document signed after a lien has already been filed that is used to remove the lien from the public record. The lien must be paid off for the lien release to take effect. Both essentially accomplish the same goal. But a lien waiver is used to avoid any claims in the first place, whereas a lien release is used to mitigate the damage after the fact.
There is also a concept called a no lien clause that is similar but slightly different to a lien waiver. A no lien clause is a clause contained in a contract between a property owner and a contractor, subcontractor, or service provider that prevents the possibility of filing a lien even before a project begins. A lien waiver, on the other hand, is typically signed after the work has been done but before the contractor files a lien. Most contractors should avoid signing a no lien clause unless they fully trust the person they’re working with because it voids your right to file a claim against the property, even if they never give you a cent.
While lien waivers are used all over the United States, 12 states have laws on the books that dictate what must be included in the formatting of a lien waiver.
Those states are:
- Determine whether or not you’ve been paid and, if not, when you expect to be paid
- Make sure the waiver type matches the nature of the agreement
- Keep an eye out for overly complex language, and consult an attorney if you don’t understand
- Note the length of the document
- Don’t be afraid to ask for clarity
Lien waivers are a fairly common practice in the construction industry. However, it’s important to be sure you read the document closely to avoid being scammed. If you accidentally sign the wrong type of waiver, it’s possible that you could give up your rights and still not receive payment. So be sure to understand what you’re signing and consult an attorney with any questions.