Filing a mechanics lien is one of the surefire ways to recover your payment from non-paying construction clients. It is very effective because it is the only method that limits the market value of a property.
When you file a mechanics lien, the record of your payment claim is visible to anyone who is looking into buying or investing in the property in question. Potential financiers would not want to invest in a property riddled with outstanding debts, so property owners often choose to settle a payment claim just to get rid of a mechanics lien.
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In Alabama, there are two kinds of mechanics liens: the Full Price Lien and the Unpaid Balance Lien. The Full Price Lien is a mechanics lien claim for the full price of your services, while the Unpaid Balance Lien is a mechanics lien that can claim an amount only to the extent of the payment that is yet to be disbursed by the owner to the party who hired the claimant.
This guide will explain everything you need to know about filing an Alabama Full Price Lien and an Alabama Unpaid Balance Lien.
- What’s the difference between an Alabama Full Price Lien and an Unpaid Balance Lien?
- Who can file a mechanics lien in Alabama?
- Preliminary notices in Alabama
- When do you file an Alabama mechanics lien?
- How to file a mechanics lien in Alabama
- Important deadlines to remember when filing a mechanics lien in Alabama
- Best practices when filing a mechanics lien in Alabama
What’s the difference between an Alabama Full Price Lien and an Unpaid Balance Lien?
As mentioned, the difference between the two Alabama mechanics liens is in the amount that is covered by the lien claim.
A Full Price Lien covers the entire worth of the services that you furnished to a project. If, for instance, you signed on for a contract that is worth $50,000, a Full Price Lien will allow you to recover all of that amount if you do not receive any portion of your payment.
An Unpaid Balance Lien, on the other hand, covers only the amount that is yet to be disbursed by the property owner. So if the property owner has already paid the general contractor $30,000 of the full $50,000 price, an Unpaid Balance Lien can only recover the remaining $20,000 payment.
Who can file a mechanics lien in Alabama?
The Full Price Lien in Alabama may be filed by the following parties:
The Unpaid Balance Lien, meanwhile, may be filed by the following parties:
Preliminary notices in Alabama
There are two preliminary notices in Alabama: the Notice to Owner and the Notice of Unpaid Lien. These preliminary notices are very important as they can determine the type of mechanics lien that you will be allowed to file.
Note that general contractors or parties who are in a direct contract with the owner are not required to serve either of the two Alabama preliminary notices.
Notice to Owner
Who must serve a Notice to Owner?
A Notice to Owner must be served by parties who have no direct contract with the property owner and who supply materials to a project. These parties are typically material suppliers or subcontractors who also provide both materials and labor.
What must be in the Notice to Owner form?
The Alabama Notice to Owner form must contain the following details:
- The name of the property owner
- The name of the party who hired you
- A description of the property location
The Notice to Owner may be in the following format, as prescribed by the Alabama statutes:
“To [owner or proprietor],
“Take notice, that the undersigned is about to furnish [contractor/subcontractor], certain material for the construction, or for the repairing, altering, or beautifying of a building or buildings, or improvement or improvements, on the following described property:_____________ and there will become due to the underside on account thereof the price of the material, for the payment of which the undersigned will claim a lien.”
When do you serve a Notice to Owner?
If you want to be able to file a Full Price Lien — that is, a mechanics lien that covers the full price of the materials that you provide — then you should serve the Notice to Owner prior to delivering the materials to the project.
There is no specific deadline or number of days to follow, so long as you hand the Notice to Owner before you supply the materials needed.
What happens if you do not serve a Notice to Owner?
If you do not serve a Notice to Owner when required, you will only be entitled to file an Unpaid Balance Lien and not a Full Price Lien.
Note, however, that the right to file an Unpaid Balance Lien must be preserved by also serving the other Alabama preliminary notice, the Notice of Unpaid Lien.
Notice of Unpaid Balance Lien
Who must serve a Notice of Unpaid Balance Lien?
A Notice of Unpaid Balance Lien must be served by any party who does not have a direct contractual relationship with the property owner. For those who are supplying materials, this preliminary notice is still required prior to filing your mechanics lien even if you already served a Notice to Owner.
What must be in the Notice of Unpaid Balance Lien form?
The Alabama Notice of Unpaid Balance Lien must have the following information:
- The name and address of the property owner
- The name and address of the party who hired you
- A description of the labor and materials that you provided
- A description of the location of the property
- The amount owed (or your contract amount)
- A statement saying that you a mechanics lien will be recorded if you do not get paid the right amount
When must you serve a Notice of Unpaid Balance Lien?
The Notice of Unpaid Balance Lien must be served on the owner and the construction lender before filing a mechanics lien.
Ideally, serve the Notice of Unpaid Balance Lien as early as possible, even before a payment dispute comes up. This is because the timing for serving your Notice of Unpaid Lien determines the maximum amount that you can recover via a mechanics lien.
In Alabama, property owners are expected to withhold the amount specified in a Notice of Unpaid Lien. This rule ensures that owners have enough funds to cover any payment claims should a general contractor not pay the lower-tier parties.
By serving your Notice of Unpaid Lien early, you are able to potentially protect the full price of your services.
What happens if you do not serve a Notice of Unpaid Lien?
If you do not have a direct contract with a property owner, then failing to serve the Notice of Unpaid Balance Lien will preclude you from filing a valid and enforceable mechanics lien.
When do you file an Alabama mechanics lien?
How to file a mechanics lien in Alabama
1. Prepare your Alabama mechanics lien form
The Alabama mechanics lien form — regardless of whether it is for a Full Price Lien or an Unpaid Balance Lien — must include the following details:
- County where the project is located
- Your name and address
- The name of the property owner
- Amount being claimed
- The day the debt was originally due
- A description of the property location sufficient for identification
An Alabama mechanics lien written in the following format will be sufficient, based on the Alabama statutes:
As implied in the form above, the Alabama mechanics lien has to be notarized before filing.
2. Record the Alabama mechanics liens
Recording the mechanics lien must be done in the office of the judge of probate in the same county where the property is located. You may personally visit the office and pay the recording fees in person, or mail your mechanics lien form together with the exact filing costs.
If you are mailing your Alabama mechanics lien, call the office of the judge to know how much exactly the filing costs are. A mechanics lien may get rejected if the parcel does not include the correct lien fees.
It is a good idea to bring or mail a second copy of the mechanics lien so you can have your own stamped copy. If you choose to mail a second copy, make sure that you also include a self-addressed envelope in your parcel so the office of the judge can mail you your copy.
Also, take note of the deadlines for filing a mechanics lien in Alabama, outlined above.
Failing to file your mechanics lien within the appropriate deadline will nullify your lien rights over the project. Ensure that you give yourself time to prepare the mechanics lien form and have it notarized before the deadline expires.
3. Enforce/release the mechanics lien
After filing your mechanics lien, the next step will depend on whether you get paid or not.
Most likely, the mechanics lien claim will be settled and you will receive your payment. Property owners will also typically demand you to acknowledge the satisfaction of the lien once you get paid.
Releasing the mechanics lien or acknowledging that it has been satisfied must be done within 30 days of receiving a written demand from the owner. It is done by filing an acknowledgment of satisfaction of the lien in the same office of the judge where the mechanics lien was filed.
If you do not receive your payment, you should enforce the lien instead of releasing it. Enforcing an Alabama mechanics lien means initiating a foreclosure lawsuit against the property owners. Once you win the lawsuit, you will be able to recover your payment through the foreclosure sale of the property.
Note that enforcing a mechanics lien must be done within 6 months of the day the debt starts to accrue. This is the due date of the payment that was missed by the hiring party. If you do not initiate a lawsuit within 6 months of this date, your mechanics lien will expire.
Before initiating a foreclosure suit, you may first want to serve a Notice of Intent to Foreclose. This notice is not required but it can let a property owner know about your impending lawsuit, which might finally get them to release your payment.
Important deadlines to remember when filing a mechanics lien in Alabama
Best practices when filing a mechanics lien in Alabama
1. Serve the required preliminary notices as early as you can
The Notice to Owner must be served before delivering the materials, while the Notice of Unpaid Balance Lien must be served as early as possible in the course of a project.
Serving the Notice to Owner when the materials have already been delivered will limit the amount that you can claim via a mechanics lien. The same applies if you serve the Notice of Unpaid Lien when most of the payment has already been disbursed to the original contractor.
The amount that you claim with an Alabama mechanics lien must be strictly related to the services that you furnished to the property. Attorney fees and lien-filing costs must not figure in the amount that you write on your Alabama mechanics lien form. Making a fraudulent claim will likely invalidate your mechanics lien altogether.
3. Serve a Notice of Intent to Foreclose before enforcing a mechanics lien
A foreclosure lawsuit will be expensive, so before initiating one, you should first serve a Notice of Intent to Foreclose on the property owner. If you warn them about the lawsuit, it might trigger them to finally settle the payment debt without having to go through a potentially complicated legal process.