A mechanic’s lien is a claim filed by a contractor, subcontractor, or service provider who is owed money for a project they either completed or started and never finished due to payment issues. Whoever owns the home is responsible for paying the lien, which brings complications if you try to sell or refinance your loan. Plus, mechanic’s liens can also be filed by subcontractors who are not paid by the general contractor, even if the homeowner gave them the money to pay for it. So be careful who you hire to work on your home.
A mechanic’s lien works by ensuring debts are paid before the homeowner can enjoy unencumbered use of their property. Otherwise, it would be far too easy for unscrupulous borrowers to take out a loan and then stop making payments.
A lien will be recorded in the public records, which means that anyone who performs a title search can see the homeowner has outstanding debts. Mechanic’s liens are also typically a higher priority than other types of debt – meaning contractors and subcontractors must be repaid first even if the homeowner also owes money to a lender or the IRS.
Mechanics liens are pretty simple to understand. Say you hire a contractor to help build you a deck that will cost $10,000. Halfway through the project, you run out of money but never call off the project.
So, when the construction is completed, you only have $5,000 to pay the contractor. However, that won’t cover all the materials and labor. In that case, the contractor has a right to file a mechanics lien to collect the outstanding $5,000 if you had a contract. Plus, they also have the option to sue you for breach of contract.
The purpose of a mechanic’s lien is to give contractors, and other service providers leverage if a homeowner doesn’t pay. While they can also sue you, it’s often expensive and time-consuming to go through this process.
Filing a mechanic’s lien is comparatively much easier because all you must do is file some paperwork with the county clerk. Plus, it isn’t only contractors who can file a mechanic’s lien. Anyone who performs work on your property that isn’t compensated has the right to do so, including plumbers, electricians, roofers, and other service providers. So, always pay your bills on time to avoid these types of disputes.
Having a mechanic’s lien on the title of your property can lead to many unwanted consequences. It will be a part of the public record, which means that anyone who does a title search can see that there is a claim against the property. As a result, it can be difficult to sell your home until the lien is paid off unless the buyer is willing to assume the debt.
But this typically only happens if you’re in foreclosure and an investor is willing to assume your debts in exchange for a discounted price on the home. Lenders may also be hesitant to let you refinance or borrow against the home with a lien on the title. Plus, just like a mortgage, your home will eventually go into foreclosure if you fail to pay it off.
It’s also important to note that the laws regarding mechanic’s liens are often county and state specific. So while the basic concept is the same no matter where you go, certain details vary from place to place.
For instance, some states set time limits on when a mechanic’s lien can be filed. In New York State, contractors have eight months to file a mechanic’s lien from the time the work was completed. Plus, individual counties have their own processes and system for how liens must be formatted and filed. While these differences may seem minuscule, they can significantly impact how mechanic’s liens are ultimately enforced in a given district.
A mechanic’s lien can have severe consequences for homeowners. So, if you hire someone to do work on your property, be sure you have the money to pay them. Also, make sure to vet the contractors you use and have a clear contract that outlines the terms and the costs. Otherwise, you may end up with an unwanted claim against your property.