Common questions and answers about Construction Liens
Every owner with a construction or remodeling project of any size or scope undertaken on their property should know about lien laws and how they may impact the project. For most jobs, initial lien laws procedures are simply a state required formality for consumer and contractor protection. But, serious consequences can arise if lien rights are disregarded.
Construction Liens are an early American legal innovation Thomas Jefferson and James Madison first created in 1791 to encourage building in Washington D.C., and since that time, virtually every state has enacted some kind of lien statutes. These laws were enacted to help protect honest workmen and material suppliers who, for one reason or another don’t receive payment. Lien laws are designed to prevent a property owner from getting the benefit of the work or materials without paying for them.
A construction lien is a legal instrument and public record that states there is a valid, unpaid debt against the specific real estate named. The possibility of a lien arises whenever improvements are made to real estate in the course of construction or remodeling projects.
The Preliminary Notice is usually the first requirement of a Construction lien. If proper payment is not received, then a warning letter, Notice of Intent to Lien, must be provided to the property owner before a Construction lien can be recorded. (Editor’s note: Some states do not require a warning Notice before a lien is recorded).
Anyone that supplies labor, material or expertise onto your property and doesn’t get properly paid. This includes the builder, electrician, plumber, excavator, carpenter, drywaller, mason, painter, roofer, architect, landscaper, etc., and their suppliers.
Make sure you get lien waivers from your contractor and his subs and material suppliers for all monies you pay out in the course of your project.
A lien waiver states that the party signing the document waives or releases their lien rights against the property. These waivers can be partial or full waivers of lien rights depending on the amount they received and the value of their contribution to the project.
It is your contractor’s legal responsibility to see that his Subcontractors and material suppliers are paid with monies you give him. Also, if you are financing the project your lender or Title company may help track your payouts and answer questions.
A lien is a serious threat to your property title. Aside from the embarrassment and immediate cloud to your title, the party placing the construction lien can petition the court to sell your property at public auction, i.e. Foreclosure, to satisfy the lien.
Yes. Non-payment, payment delays, lost use of money due, filing fees, inconvenience and the cost of collecting monies rightfully owed to a contractor or material supplier can get pricey. However, construction professionals often stand firm in recovery of the expenses of action in perfecting a lien by simply adding-in these costs before removing a lien or providing a "Satisfaction of Lien".
It is not likely that a lien will be released or "Satisfied" without payment to the lien holder. Upon payment and acceptance of the amount due, the owner has the right to demand a "lien satisfaction" from the lien claimant.
In many states, yes. Anyone who has not been paid for labor, material, equipment or services on your project and has followed other statutory requirements has the right to a construction Lien.