Table of Contents
- Download a Mechanic’s Lien Template
- The Basics: What is a Mechanic’s Lien?
- When Do I Need One?
- The Most Common Situations for Using One
- What Should Be Included?
1. Download a Mechanic’s Lien Template
2. The Basics: What is a Mechanic’s Lien?
A mechanic’s lien is a formal notice, filed with a court of appropriate jurisdiction, indicating a financial interest in property. Sometimes referred to as a contractor’s lien or a construction lien, this form details money owed to the contractor for either services rendered or materials provided on a construction or home or building improvement project.
First sponsored in the United States by Thomas Jefferson to encourage construction in the new capital city of Washington, the ability to file one provides some security to builders and artisans. Without one, they may otherwise find themselves without recourse, should the property owner fail to pay their bill.
Practically speaking, a builder or artisan cannot go back to a property and remove the structure they built or the paint they applied to the walls if they don’t get paid. A mechanic’s lien on the property, however, preserves their claim for payment.
If the owner doesn’t pay the bill before they sell the property, the lien will be addressed at the time the property is sold. Additionally, a lien owner may force the sale of the home to satisfy the lien.
3. When Do I Need One?
First, you must have provided goods or services in the construction or improvement of real property. Different states have different rules about what constitutes appropriate work for a mechanic’s lien, however, generally speaking, the following work and contractors, if gone unpaid, may qualify for one:
- The provision of goods, such as lumber, plumbing supply, or electrical equipment;
- Labor, such as carpenters, plumbers, electricians, laborer’s, mechanical/HVAC contractors, etc.;
- Designers such as civil engineers and architects who were involved in the plans and specifications of the work; and
- Fabricators of specialty items later installed or incorporated into the project.
Second, the work must be unpaid. If you have provided goods or services to enhance real property, and your bill has not been paid, this form is an appropriate remedy.
4. The Consequences of Not Having One
Without one, a contractor runs the risk of not being paid for work performed or services provided. When a property owner doesn’t pay a bill for work done on the property, the mechanic’s lien gives the contractor a security interest in the property and preserves the claim for payment.
When the property is sold, the proceeds will be divided among the various security interest holders, including first and second mortgages, tax liens, Homeowners Association (HOA) dues and other construction liens, in the order of priority.
Any money over and above those debts will go to the property owner. However, without this form, the contractor will have no claim to the proceeds of the sale, and there is no guarantee the funds due and owing will ever be paid.
Contractors should be cautious not to fall into a false sense of security about a mechanic’s lien. For a lien to be legal, it must be perfected. Each state has their own requirements for how to perfect a construction lien. However, generally, the following steps must be taken for a contractor’s lien to be valid:
- First, in some states, the contractor must provide notice to the property owner that money is owed;
- Some states also require notices about the beginning of the work on the property and/or a public notice of the intention to file the lien if it remains unpaid;
- Next, all states require a notice or claim of the lien to be filed in the requisite public records office. This notice must be filed within a specific period after either the work was completed or the materials were supplied;
- Finally, the contractor must file suit to foreclose the lien within a specific period of time as dictated by state law.
5. The Most Common Situations for Using One
This form is designed to protect contractors who, by their products or services, enhance the value of property. Consequently, they are most commonly used in new construction or improvements to property.
Of note, not every cost associated with a project is subject to this form. For example, a contractor may bring in laborers to replace the roof of a home. The contractor is entitled to a mechanic’s lien for the cost of the shingles and other building materials, as well as the labor costs for the workers who tear off the old roof and install the new roof.
However, the cost of the rental of a portable latrine, or the installation and removal of a security fence, while perhaps necessary for the comfort and safety of the workers, may not be subjected to a mechanic’s lien. This is because the latter does not increase the value of the property, while the new roof does.
Of course, there are exceptions to the “first in time” rule. For example, a tax lien typically takes precedence over a mechanic’s lien. Additionally, Homeowner’s Association assessment liens may take precedence. Similarly, this lien may take precedence over some other, previously recorded liens, depending on the state.
6. What Should Be Included?
As each state has their own mechanic’s lien laws, there will be some variation in what should be included in a lien. However, the table below seeks to address each topic contemplated by all the states, for ease of use.
|What should be included||Further information|
|Notice to the property owner||Some states require notice directly to the property owner. The notice should detail the work performed, the goods supplied, or both as applicable, with as much detail as possible. Include the dates the work started and was completed.|
|Notices about the beginning of the work||
Depending on the state, this may be referred to as a Notice of Commencement, a Notice of Project Commencement, or an Affidavit of Commencement. This document details the start date of the project and is sent right before or immediately after the work begins. The notice should include the actual start date. Florida, Georgia, Iowa, and Ohio, for example, require this, where other states, such as South Carolina, South Dakota and Texas allow this as optional protection.
|Public notice of intention to file||Before filing a lien, many states require the contractor file a Notice of Intent to Lien. This notice to the owner, given before the actual filing a lien, details the amount due, as well as the identity of the person or business planning to file the lien.
The form of acceptable delivery of the notice is dictated by the state.
|Notice of claim of lien filed||Notice must be provided to the homeowner that a lien has been filed. In some states, contractors above the filer within the chain of contractors working on the project must also be notified. Additionally, some states’ laws, such as the Illinois Mechanics Lien Act, require notice to other lien holders, such as the mortgagee.
Depending on the jurisdiction, notice may be by mail, certified mail, registered mail, or served by the sheriff or a process server.
The claimant must file an action with the relevant court within a specified time frame. In some states, this is referred to as a Lien Affidavit.
In some states, such as Utah, the action must be served on the owner, along with instructions regarding the owner’s rights under the Residence Lien Restriction and Lien Recovery Fund Act, and an affidavit detailing how the homeowner may exercise their rights under the Act.