What is a Mechanic's Lien?
/Most people that we have come in contact with are unsure of what a mechanic's lien means but also are unaware of the dangers of having a mechanic's lien recorded on their property. First, a lien is a claim to a property to satisfy a debt, in simplest terms. There are many different forms of liens, but we will focus on what a mechanic's lien is and why it is important from a real estate investor's perspective to pay their contactors and suppliers timely and for the appropriate amount, but also require signed lien waivers from their contactors and suppliers.
If a contractor performs work on a property or supplies construction materials for that property but the owner doesn't pay the contractor for the work or the supplies, then that contractor can file a mechanic's lien on that property. There is also the ability to claim interest on the money that is owed to the contractor. There are time stipulations of when a contractor can record the lien from when the contractor wasn't paid.
So what does a mechanic's lien do when it is filed on a property? When a mechanic's lien is filed on a property it means that the owner of the property will not be able to sell or refinance their property until the lien has been paid off or a bond has been posted. That lien could turn into a court judgment and if the contractor wins the lawsuit then the contractor might be able to force the sale of the property.
As you can see, from a real estate investor's perspective (also any owner that is doing upgrades to their property) it is important that the real estate investor/owner pay the contractor for the work that they performed in a timely manner. Thus TABS, LLC for all construction loans that we provide, we require lien waivers. We require three different types of lien waivers:
- Conditional Lien Waiver
- Unconditional Lien Waiver
- Final Unconditional Lien Waiver
Hopefully it is clear that it is important for real estate investors that are doing renovation/upgrades on their property to pay their contractor(s) and supplier(s) for the work that they perform and the supplies that they provide.
This blog is intended as general information only, and not as legal advice for any specific situation. If you have a legal problem, you may want to check with an attorney.
