Whenever you hire a contractor to work on your home, you can encounter problems with liens—especially if your general contractor subcontracts some of the work out to other companies. You see, you bear the ultimate responsibility to see that those subcontractors get paid. If your contractor slips up or runs into money problems and doesn't pay for the work, your property can be encumbered by a mechanic's lien.
Here's what you need to know about how a mechanic's lien works and what to do about removing one.
What is the effect of a mechanic's lien?
Essentially, it's a formal claim for payment for the services rendered to improve your property. Once it has been formally filed and recorded, you no longer have a clear title to your property. In practical terms, that means that you won't be able to borrow against its equity, refinance it for a better interest rate, sell it, or otherwise transfer the title until the lien is resolved.
What can you do if you're notified that a mechanic's lien is being filed?
In most states, a subcontractor has to give the homeowner a 20-day preliminary notice that a mechanic's lien is about to be placed on his or her property. Quite often, this step actually serves as a "warning shot" by a subcontractor who has gotten frustrated while waiting for payment from the general contractor you hired. It's designed to get your attention and make sure you know about the deficiency.
If work is still ongoing, a mechanic's lien from a subcontractor could put your general contractor in breach of contract, since most construction contracts require the parties to avoid liens. If you have made your scheduled payments to the general contractor timely, there's no excuse for letting a subcontractor wait on his or her money. Contact your contractor immediately and insist that he or she prioritize payment to the subcontractor before the 20-day period is up.
What can you do to remove an existing lien?
If there's already a mechanic's lien on your property, you can approach it several ways. Sometimes, the simplest method is to pay the subcontractor directly and then take legal action against your general contractor to recoup your money.
You can also challenge the validity of the lien. Subcontractors only have a limited amount of time after finishing work to file the preliminary notice. If the subcontractor waited too long, the lien can be invalidated. Similarly, if the actual lien wasn't recorded in a timely manner, it becomes invalid. You can also remove the lien if you can obtain proof that the subcontractor was finally paid.
Most homeowners need some legal help getting rid of a mechanic's lien—partially because you have to essentially either demand that the subcontractor remove the lien because it is invalid or already paid. If your demands are ignored, you may have to file a lawsuit to resolve the issue. For more information, talk to a real estate attorney near you.