Definition of a Lien
When a tradesperson (carpenter or plumber, for example) does work on a home, they want to be sure they get paid. They may not be working directly with the homeowner, but have been hired by a general contractor to do the work. What recourse does this hardworking subcontractor have if they do the work but the contractor doesn't pay them? They can file what's known as a "mechanic's lien" against the property.
A lien gives the lien holder (the subcontractor) an assurance that they will get paid by giving them a claim against the real property. In other words, a lien uses the property as security. If the lien is recorded with the county, as it should be in order to make it official, it can cloud the title.
The homeowner may not even know that the tradesperson did not get paid by the general contractor; however, the property was improved by the efforts of this tradesperson, so the claim is legitimate. The real problem arises when the tradesperson asks the homeowner to pay the debt. If the homeowner can't, or won't, the subcontractor can go to court and ask the court to foreclose on the property in order to raise the money.
Protect Yourself With a Release of Lien (Lien Waiver)
In order to protect yourself against this troubling scenario, the best practice is to adopt the use of Lien Waivers (also known as release of lien, mechanic's lien release form, or Mechanic's Lien Waiver) and use them preemptively, before the problem arises. How do you do that?
We provide a Lien Waiver that you can print and use immediately. Fortunately, it's a simple process. A Lien Waiver is similar to a receipt. It basically states that you've paid the subcontractor what is owed, they accept the payment in full, and they waive the right to put a lien on your property. Simply present this form to the subcontractor with your payment and ask them to sign it. Make sure you get their signature!
When Should You Use a Lien Waiver?
Whether you hire tradespeople directly, or work through a general contractor, insist that every worker sign a Lien Waiver as they are paid. We suggest you use a Mechanic's Lien Waiver if you are a contractor getting paid for your services, and want to waive your right to a lien on said property, or if you are ready to pay a contracted mechanic, and want to avoid having a lien placed against your property. Conventionally, it's the general contractor's job to do this, but you need to be watchful to make sure that the general contractor collects Lien Waivers and passes them on to you every time you make a payment.
Liens can also be filed in other situations, such as in a divorce, where the person who has moved out of the home still has a claim against the equity in the home. It's also a possibility in cases that involve child support, where the court or other spouse can file a lien against the property of the person who owes child support.
While a scary scenario regarding mechanic's liens is possible, there is also an easy fix. Downloading and using our Lien Waiver may help prevent this from happening to you.
What is the difference between a Lien Waiver and Lien Release (aka Lien Cancellation)?
As described above, a lien waiver is used to renounce lien rights. The subcontractor would file a lien waiver before a lien is filed. By doing so, the subcontractor is giving up his or her right to a lien against the property. In comparison, a lien release (also known as release of lien, cancellation of lien, or a lien cancellation) would come into play after the filing of a lien. The subcontractor would utilize a lien release, resulting in the cancellation of any lien claims, after he or she receives payment.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.
