What is a Mechanic's Lien?
What is a Mechanic's Lien?
October 08, 2021
We get this question all the time. What exactly is a mechanic’s lien? Why is it important? And where do issues arise with them? They’re very common in construction law, but can get homeowners and business owners into some challenging situations. We’re covering what they are, how they work, and a few other good details to know.
What is a Mechanic’s Lien?
First, a lien is basically a security interest given over an item of property to ensure the payment of a debt or completion of some other obligation. Put simply, a lien is collateral for a debt.
A mechanic’s lien deals specifically with a piece of property, like a home, office building, or other facility. Business owners who are looking to hire a contractor for remodeling or renovations on a property should be aware of mechanic’s liens. Generally, anyone performing labor or furnishing materials or machinery on a construction project have lien rights.
If you own a piece of property and authorize work on it by a contractor, the contractor may file a lien against your property. A contractor, subcontractor, or anyone else who provides labor or materials to a construction project can file a lien to secure payment for their services. When you file a mechanic’s lien you gain a security interest in the property. Those furnishing materials or machinery on a construction project only have lien rights if the materials intended for use on a project are actually used. This normally isn’t a problem.
Having a lien on a property can “cloud” the real estate’s title, making it difficult to sell until the lien claim is paid.
What Happens When a Mechanic’s Lien is Filed?
To secure payment for work or materials provided, a contractor must file a lien within 90 days of the last day of work in the county where the real estate is located. This usually means ninety days from the completion of all work required by the contract, including extras, change orders, and punch-list items. If a business owner doesn’t accept the work until a contractor does certain things, he or she won’t be able to later argue those things weren’t part of the job. But once the 90 days to file the lien have expired, the contractor can’t revive the time period by doing some non-essential, incidental tax.
The lien must state the amount due, the name and address of the claimant, the owner’s name and address, the name and address of any third party who should be liened, a description of the structure being erected or improved, and the legal description of the real estate. The notice must also be signed and notarized by a company officer.
The notice is then recorded in the county where the property is located.
If the lien claim is satisfied, then the lien should be released to avoid further penalties to the property. If the hiring party still doesn’t pay, then the claimant can enforce the lien, which requires court action to foreclose on the property. The contractor has one year to start a foreclosure action.
In many lien cases, contractors can recover attorney’s fees and expenses.
What Else Should You Know
If you’re dealing with mechanic’s liens from a commercial standpoint, it’s important to note that contracts for construction, alteration, or repair of non-residential structures may not contain a “no-lien” provision. The provision won’t be enforceable.
Lien rights may not be waived before payment is made for the labor or materials furnished. Also, a contract provision under which any person agrees not to file a lien is void.
If the work involves subcontractors, the general contractor will usually include a contract provision stating it has no obligation to pay subcontractors until it receives payment from the owner. But that doesn’t limit a subcontractor’s right to file and foreclose a mechanic’s lien. In other words, a lien may still be recorded and a suit to foreclose the lien may be filed, even though payment is not yet due under the contract. The owner may not use the contract provision as a defense to the lien or claim that the contractual conditions must be fulfilled before lien rights are asserted.
The nuances of mechanic’s liens differ from state to state, so Indiana law must apply for work performed on property in Indiana. Whether you’re a business owner, homeowner, contractor, subcontractor, or are otherwise involved in a construction project, be sure to speak to an construction lawyer regarding mechanic’s liens in your state.
The experienced construction lawyers at Jones Obenchain can assist you with any construction law needs, including mechanic’s liens! Contact us to find out how we can help you, no matter what side you’re on.