Protect Your Home Against Mechanic's Liens
If you are going to undertake a major home renovation or addition, you need to know about mechanic’s liens and how you can protect yourself from them. Not understanding what a lien is or how it works could lead to you having to pay for the same work twice or even worse having to fight foreclosure on your home. Here’s a layman’s interpretation of how mechanics liens work and how you can protect yourself.
What’s a mechanic lien?
- A mechanic’s lien is legal remedy available to contractors, subcontractors and suppliers who don’t get paid in for supplies or work done in a real estate construction project – such as a home addition or renovation. When someone registers a mechanic’s lien against your property, it becomes an encumbrance on your property, making it impossible for your to sell your home and you could potentially even potentially lose it to the lien holder in a legal action.
Why should I care about mechanic's liens if I pay the contractor?
- It’s unlikely the prime contractor would register a lien against your property, but if he didn’t pay any of his subtrades or suppliers who worked on your project, they may well register a lien against you, even if you paid the contractor. In order remove the encumbrance you may be forced to pay the subcontractor or supplier for their work even though have already paid your contractor for their work. In other words you’ll be paying for the same job twice.
- Some states do have laws designed to protect the homeowner from a mechanics lien in cases when he has paid the main contractor, but unfortunately many don’t. Consider, if you and your contractor are in dispute and work on your project has stopped, it’s unlikely that all suppliers and subs will have been paid. You need to check with a lawyer to understand what the law is in your state.
Can I do anything to protect myself a mechanics lien?
Here are some things you can proactively do to ensure your home renovation doesn’t get bogged down with mechanic’s liens.
- Start by hiring a reliable, reputable contractor who has been in business for a number of years. While years in the business doesn’t mean your contractor can’t run into financial difficulty and abandon your job, it’s an indication he has gone through lean times before and has managed his way through them
- Use a written contract that sets out each stage of the job, lists the subcontractors and suppliers for each stage and outlines progress payments on completion of each stage.
- Write joint checks made out to both the principal contractor and the supplier or subtrade who is to be paid with the funds. Joint payee checks makes sure both the contractor and supplier/subcontractor need to endorse the check to cash it. By doing this you are helping ensure the subtrades are really being paid.
- You can get more protection by asking your contractor to provide lien wavers for suppliers and subtrades each time you make a progress payment. A lien waver should include a certification that the subs or suppliers have been paid and are an important requirement to include in the original contract of a major home renovation.
- Finally, actively supervise the project and ensure any changes to the original plan are included in the contract (along with progression payments).
Don’t let your dream renovation become a nightmare. Take the time to learn about mechanic’s liens and how they work in your state. Consult a lawyer on the best ways you can protect yourself during and after your renovation.