Originally created for auto repair professionals, mechanic's liens have taken on a much stronger presence with real estate. Contractors, subcontractors, and suppliers can use this legal tool to help collect monies owed for work performed. Mechanic's liens help secure outstanding payments. Learning how to file this lien can help contractors and suppliers collect their payments due.
Examine all paperwork relating to the project to be completed. Be sure that it qualifies as a valid event under the state statute. Be aware that all states have their own mechanic's lien laws. While they are similar, components such as when to notify, when to file, how to file and which court is involved can vary widely. Learn the specific state laws that apply to the project.
Prepare a "preliminary notice", applicable in some states, advising the property owner that the work is eligible as the subject of a mechanic's lien. Some contractors and suppliers consider sending these notices even in jurisdictions that have no requirement. This notifies the property owner that even if subcontractors and suppliers (who have no contractual relationship to the property owner) are unpaid, mechanic's liens can be filed.
Prepare and file notices of the “commencement of work,” which are required in some states. These are filed as public records notifying the that work will proceed as of the specified date. This creates a legal paper trail that the contractor or supplier can use should the need arise in a mechanic's lien action.
Prepare and file required notices of the intent to file a mechanic’s lien if work goes unpaid. Be sure to file these documents in the proper offices, as they are also public records and lead to corresponding notices sent to property owners advising them that there are monies owed for completed work. This can be helpful to subcontractors and suppliers, as the property owner may have paid the general contractor, who has not paid the subcontractors or material suppliers yet.
File the notice of lien in the proper venue (such as the city hall or county seat). This can be confusing. States have different timing rules. Some jurisdictions specify a restricted time period from the completion of the work or installation of the materials, while others mandate that mechanic’s liens cannot be filed until all construction work is completed. While four to six months is the most common time frame, closely check the state regulations to file the lien notice properly.
Follow up to be sure the mechanic’s lien is recorded against the property. Mistakes can be made in recording offices. Keep close watch on all paperwork and written evidence of work performed and/or supplies used. These will be necessary should foreclosure action be necessary to enforce the lien. After filing and recording, the contractor or supplier will have a valid lien on the title to the property, making it very difficult, if not impossible for the owner to sell or otherwise transfer title to the real estate without paying all monies due.
If uncomfortable with the legal process, retain an experienced attorney to prepare and make timely, correct filings. Be prepared to continue the legal process to court and foreclosure if the debt is not satisfied as the lien itself does not generate monies owed.
Don't use state statutes if the work was performed on a federal construction project. Most state mechanic's lien laws don't apply. Federal regulations supersede state laws. Don't miss statute and filing dates; lien filing may be prohibited, making it impossible to secure the real estate.
- house under construction image by Jana Lumley from Fotolia.com