Mechanic Liens

Home Building and Mechanic's Liens

What, you might be wondering, does your car mechanic have to do with the building of your new house. The answer is nothing! However, a type of lien commonly used in his occupation is applicable to and is used in the house building industry. That is the mechanic’s lien. A mechanic’s lien is a claim for payment put against your property by either laborers or material suppliers who have not been paid. But you say, I paid my builder so the builder owes these people money -- not me. True that is the way it should be. Unfortunately though, that is not the way it is! If your builder goes bankrupt or just refuses to pay one of his subcontractors or material suppliers, a mechanic’s lien can be filed against your property by those companies or individuals who have not been paid. And to settle such a claim you may have to pay those individuals, which amounts to paying twice for supplies or a service, if you have already paid your builder for this work.

Who can file a mechanic’s lien?
As it pertains to house building the answer is virtually anyone who works or supplies material for your house. It matters not whether this person is your builder, your builder's subcontractors, or your builder’s subcontractor’s subcontractors. The same is true for companies that supply material, and their subs. Whether or not any of these parties have a written contract with you is is largely irrelevant.

How is a mechanic’s lien filed?
A notice of lien is filed with the county clerk in the county where you house or property is located. There is a statue of limitations or a time limit during which such a lien can be filed. This differs state to state, but is usually a few months in duration.

Are there other problems that can arise from the filing of a mechanic’s lien?
In addition to the irritation of having to pay twice for goods or services, there is also the potential problem that mechanic’s liens cause at your bank, assuming you are financing your building project with a construction loan. Every time you request and installment or draw to be paid, the bank will normally check your property for liens. If a mechanic’s lien, or any other for that matter, show up the bank may refuse to issue the installment until the lien is satisfied.

How can I avoid the problem of a mechanic’s lien in my building process.?
Assuming you take the advice in the House Building Guide and hire a builder, rather than undertake the building process yourself as the GC, the best way to eliminate this problem is to put appropriate language in your building contract. Your building contract should have a clause that states the builder agrees not to file any liens against you or your property as they relate to the building of your new home. Furthermore, your builder should protect and indemnify you from any liens that may be filed by his suppliers, contractors, subcontractors, and materialmen, and further agree to settle or pay all such liens promptly.
Even such a clause in your contract is not ironclad. If your builder goes bankrupt and cannot pay his debts, his debts to these suppliers may be forgiven. Nothing would prohibit his suppliers or contractors from filing a mechanic’s lien against your property. To avoid this situation, one would have to have a list all suppliers, contractors, etc. that your builder is planning to use in the building of your house, and require that each of them sign an affidavit stating that will not file mechanic’s lien. While possible, the amount of effort to get this task done can become significant.

Probably the most important way to prevent mechanic’s liens from being filed is to hire a reputable builder or reputable contractors. The advice in the House Building Guide on hiring builders can go a long way toward helping you get that done.

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