Understanding Mechanics Liens: A Contractor's Guide

A mechanics lien is a type of lien that is put on property by contractors and tradesmen. This type of lien originated with mechanics, but it has since become commonplace in the building industry as well. Here are the basics of the mechanics lien. 

Mechanics Lien

The mechanics lien is a powerful tool that can be used by a contractor. In the event that a customer does not pay, the contractor can put a mechanics lien on the piece of property that he or she improved. When this happens, the individual who owns the property will not be able to sell it until the mechanics lien has been lifted. This provides the mechanic with some type of leverage in financial transactions, and it ensures that he or she is eventually going to be paid.

Example

One of the most common areas in which mechanics liens are now used is the construction industry. For example, let's say that a general contractor agreed to build a multifamily development for a real estate developer. The real estate developer has to pay the contractor a certain amount of money once the building is completed. However, if the developer is unhappy with the project, he or she could potentially withhold payment. With this type of transaction, the builder is not going to be able to repossess the property that he or she installed for the client. It is in the form of a building, and it will remain there. 

If the real estate developer refused to make payment to the contractor, the contractor could then put a mechanic's lien on the piece of property. This lien would show up on the title to the property, and it would not be removed until the real estate developer paid the contractor. If the developer sold the property, the funds from the sale would go towards paying the mechanic's lien before going to anything else. 

Notice

Before the process of issuing a mechanic's lien can take place, the contractor must notify the individual in writing. In most states, the contractor has to provide this notice at least 20 days in advance of putting on the lien. Many times, the threat of having a mechanic's lien put on the property is enough to scare an individual into paying his or her bill.

Filing a Mechanic's Lien

The process of filing a mechanic's lien is going to be somewhat different in every area. However, in most areas, you will go through a similar process. The contractor is going to have to do a title search to make sure that the correct individual actually owns the property in question. Then he or she is going to have to go to the county clerk's office and file the proper paperwork. The contractor needs to provide a detailed bill and statement that outlines all of the services that were performed for the individual on the property in question. The contractor then usually has to wait for a court date and will present the case to the court. In some cases, the contractor does not have to present a case, and the lien is immediately issued.