Every homeowner who is considering hiring a contractor to do some work in or around their house should become familiar with the mechanic’s lien laws in their home state.
Otherwise, if you have a beef with the person you hired -- poor workmanship, perhaps, or maybe they walk off the job before it's completed as promised -- and you decide not to pay, they could attach a lien to your house until a settlement is reached. And if you intend to put your home on the market anytime soon, that lien could stop you in your tracks.
Every state has a mechanic’s lien law granting tradespeople a way to protect themselves from those who fail to pay them their due. Here’s how Rusty Adams, a research attorney for the Texas Real Estate Research Center at Texas A&M University, explained liens in an edition of Tierra Grande, the center’s publication:
“A lien is a charge against property to secure payment of a debt or performance of an obligation. It is not (a) title to property, and a lienholder does not have ownership rights. Rather, it is an equitable interest that gives its holder the right to have satisfaction out of the property to secure the payment of a debt.
"Simply put," Adams continued, "a lien on the property is an encumbrance that the property owner must deal with."
Please note: None of what follows should be considered legal advice, but rather a broad overview of the topic. Consult with a real estate attorney regarding your specific situation.
Sometimes known as a materialman's lien, a mechanic's lien can be filed by anyone with a claim against the property. For example, a contractor can file if you fail to pay them. The company from which they get supplies -- roof shingles, for instance -- can also file against your house if the contractor doesn’t pay up. If there are subcontractors involved, they, too, can file against the house.
The specifics of these laws vary by state. Washington, D.C.-area attorney Harvey Jacobs tells me that the “very broad” law in Maryland “covers almost everything.” For example, if the developer does not pay the paving company hired to cover your cul-de-sac, the company can file a mechanic's lien against every house that touches that street. Ditto for the outfit hired to do the landscaping.
Fortunately, lien laws afford homeowners some protections against potential lien misuse. In some places, the amount owed must meet a stated minimum, or the lien must be filed within a certain number of days after the disputed job. Laws might also require that the property owner be notified of the lien within a specified time.
In Maryland, Jacobs says, the unpaid amount must be at least 15% of the property’s assessed value -- at least $30,000 for a house assessed at $200,000, for example. “Small jobs don’t count,” he said. In D.C., though, there is no minimum.
In Maryland, contractors must file a lien within 180 days of performing the work, but subcontractors only have 120 days. In D.C., the limit is 90 days for contractors, suppliers and subcontractors alike.
In Texas, contractors don’t have to provide a preliminary notice, but they are required to present a list of all subs and suppliers before starting work. On the other hand, subs and suppliers who have a contract with the original contractor must send notices to both the contractor and the homeowner by the 15th day of the second month.
As you can see, the rules can be complicated and tricky for non-lawyers to decipher. The best way to protect yourself is to require that the contractor provide lien releases: After you provide the down payment for the project, there will be no additional installments until the contractor certifies that everyone in their food chain has been paid.
A lien release is not the same as a lien waiver. While a release removes an existing lien, a waiver is an agreement that prohibits a contractor or supplier from placing a lien in the first place. (Some states don’t permit waivers at all.)
A release also differs from a lis pendens -- Latin for “suit pending” -- which is a written notice that a lawsuit has been filed with the county land records office involving either the title to the property or a claimed ownership interest in it. The notice alerts a potential purchaser or lender that the property’s title is in question, making it less attractive.
Once payment has been received, a contractor has a duty to remove the notice, or the lien itself, from the public records. Failure to do so allows the property owner to file a lawsuit against the contractor to compel the lien’s removal. To avoid that, Adams suggests making sure the release has been formally recorded.
Beyond this, it is incumbent upon any homeowner whose property is involved in any sort of lien to make certain the contractor, subcontractor and supplier have followed the rules of the road. So it's always wise to consult legal counsel.