The mechanics lien is one of the most powerful tools for contractors, subcontractors, and material suppliers working in the construction industry. Payment disputes often come up in this business, and filing a mechanics lien can be your best recourse to recover the payment that you have duly earned.
Say, for example, that you’ve been working as a subcontractor for a commercial construction project and your general contractor bailed on the payment and failed to honor your contract. If you file a mechanics lien, you attach a claim to this commercial property which could prompt its owners to settle and give you your money.
However, recording a mechanics lien may not be as simple as it seems. The smallest mistakes could cost you your paycheck, and the rules and requirements are not always the same per state. These different requirements often cause confusion among construction parties looking to file a mechanics lien.
This guide seeks to help construction professionals who are looking to familiarize themselves with the mechanics lien. It will tackle everything you should know about a mechanics lien, from what it means to how it works, all the way to the best practices that you must keep in mind when filing a mechanics lien.
- What is a mechanics lien?
- How does a mechanics lien work?
- Who can file a mechanics lien?
- When to file a mechanics lien?
- Where to file a mechanics lien?
- How to file a mechanics lien?
- Best practices in filing a mechanics lien
What is a mechanics lien?
A mechanics lien is a legal document filed by a construction participant who is seeking payment for the work that they did in the construction or improvement of a property. The document is known by other names in different states, such as property lien, claim of lien, contractors lien, laborers lien, suppliers lien, etc.
A mechanics lien basically helps you receive your payment for the labor, materials, or any type of construction service that you provided to a property. It is a legal right for all qualified construction professionals, and this right is exclusive to the construction industry, where payment disputes happen so often.
Private projects vs. public works
One important limitation of a mechanics lien is that it applies only to private construction projects. When you’re working on public projects, you will have to file a bond claim instead.
This is because a mechanics lien is essentially an involuntary security interest, which means that it is legally mandatory for every private property owner to enable their property as an alternative payment option in case they are not able to settle the outstanding debts related to the building or remodeling of their property.
If you filed a mechanics lien against a private residential property, for example, and the owners still failed to produce your payment, you may file a foreclosure action against that property and recover payment through an auction. Public properties, as you probably already know, may not be auctioned off.
How does a mechanics lien work?
A mechanics lien is one of the most effective ways to get you paid, and here are just some of the reasons why.
1. A mechanics lien is attached to a property’s public records.
At this point, you already know that a mechanics lien is a claim that is filed by a construction party that did not get paid. This legal claim, consequently, is attached to the public records of the property worked on, which means that every potential buyer or financier who is doing research on that property could find out that there are outstanding debts associated with it.
No buyer or financier will want to deal with a property that has existing debts to its contractors, subcontractors, or material suppliers. When a mechanics lien is filed against a property, this property becomes very difficult to sell or refinance for, say, an improvement project.
In effect, property owners are often forced to settle the unpaid construction parties once a mechanics lien has been recorded against their property.
2. A mechanics lien calls the attention of property owners.
As mentioned above, property owners are not enthused whenever a mechanics lien is filed against their property. However, sometimes they are not even aware that certain parties have not been paid yet, so a mechanics lien is a good way to let them know about your situation.
Large-scale projects are notorious for this issue. Property owners are not always aware of all the contractors and materialmen working for them, especially the lower-tier parties whose direct contracts are with sub-sub-subcontractors. This sometimes results in having some of these parties ignored when payments are handed out.
Filing a mechanics lien can be enough to sort this concern. By letting the owners know that you are willing to exercise your lien rights to receive your payment, you are able to catch their attention and encourage them to produce payment.
3. A mechanics lien can force other stakeholders to settle another party’s debt.
When you file a mechanics lien against a property, you will often be required to notify other higher-tier parties to let them know that you have just attached a lien to the property’s records.
If a subcontractor owes you payment, for example, and you filed a lien to secure that payment, you will have to notify not just the subcontractor but also the general contractor, the property owner, and even the lender.
This scenario could prompt property owners or general contractors to cover the subcontractor’s debt, or other stakeholders may pool their money just to pay you so you can have your lien canceled from the records.
4. A mechanics lien forces a property owner to settle debts sooner.
It is not always financial insufficiency that causes payment delays in construction — sometimes the bookkeepers are simply taking their time to get all the invoices paid.
However, most lenders and financiers require a property to be clear of any mechanics liens before said property can be sold or re-financed. A property owner will then have more reason to settle outstanding payments because of their obligation to the lender.
This condition applies even before a property is put up for sale, which means that property owners must produce the payments even before a potential buyer is in the picture. By filing a mechanics lien, you are able to put pressure on the property owner so they can pay up right away.
5. A mechanics lien sends a clear message to property owners.
If you are serious about securing the payment for the service that you have performed on a project, there is no clearer way to communicate this intention than filing a mechanics lien.
A mechanics lien is legal right that may be exercised by qualified construction parties. When you file a mechanics lien, it delivers a message to the property owners and other higher-tier parties that you are willing to go through the legal process to recover the payment that you deserve.
This also lets the property owners know that you are willing to enforce a mechanics lien if you do not receive the payment you are expecting. Enforcing a lien involves filing a lawsuit and recovering payment through the real estate sale of the property — most property owners will want to avoid this, unless they have sufficient basis to counter your claim.
Put simply, filing a mechanics lien comes with a very high guarantee that you will get paid.
Who can file a mechanics lien?
Generally speaking, all construction professionals who provide construction services for building or improving a property have the legal right to file a mechanics lien. This means that if you’re a contractor, subcontractor, or material supplier, you are likely to have lien rights.
Other parties that have lien rights are architects, surveyors, planners, designers, equipment lessors, and other similar construction professionals that provide work towards the construction or improvement of a real estate structure.
However, the parties who are entitled to file a mechanics lien are not always the same per state. Some states have different requirements which may exclude certain parties from having lien rights.
In Nevada, for example, there is a minimum of $500 worth of work before a party can file a mechanics lien. Most states also require contractors to meet local licensing requirements before they can be qualified to record a valid mechanics lien. These states include Nevada, Arizona, and Oregon.
There are also special cases when different types of liens may be filed depending on a party’s role in a project. Utah, for instance, has a preconstruction lien for parties who do work prior to the actual construction (e.g. engineers, designers, architects) and a regular mechanics lien for parties involved in the construction (e.g. material suppliers, equipment lessors).
When to file a mechanics lien?
A mechanics lien is filed after you have performed work on a project and you have not received due compensation for such work. A payment dispute must have arisen for a mechanics lien to be necessary.
The specific deadlines vary per state, but you are generally given at least 60 days after your last day of work to file your mechanics lien.
Washington and Mississippi both have a 90-day time frame after the last day of furnishing labor or materials to a project. California also has the same 90-day time range, but if a Notice of Completion or a Notice of Cessation is filed by a property owner, the deadline is reduced to 60 days after the date stated in the notice.
Utah also has different mechanics lien due dates depending on whether a Notice of Completion has been filed or not. Without a Notice of Completion, Utah construction parties have 180 days after the last day of work to file a lien. If a Notice of Completion has been recorded, the due date is reduced to within 90 days of the notice recordation date.
Regardless of which state you are working in, you are highly encouraged to file your mechanics lien way before the deadline.
Where to file a mechanics lien?
A mechanics lien is filed in the local county recorder’s office in the same location as your project. This is true for all states.
There are different ways of filing your mechanics lien in a local county recorder’s office. You may mail your mechanics lien together with a money order that contains the lien fees, and you may do a walk-in visit to the office and file the mechanics lien yourself.
How to file a mechanics lien?
These are the general steps in filing a mechanics lien.
1. Determine if you have the right to file a mechanics lien.
2. Prepare your mechanics lien form.
3. File the mechanics lien in the county recorder’s office.
4. Enforce/release the mechanics lien.
1. Determine if you have the right to file a mechanics lien.
Determining whether you have lien rights comes in two parts. First, you must know if your role in the construction project allows you to file a mechanics lien in the state you are working in. Second, you must file the necessary pre-lien notices that protect your lien rights.
Generally there are two important pre-lien notices to keep in mind: the preliminary notice and the notice of intent to lien.
A preliminary notice is a document that is served by any potential lien claimant on a property owner, general contractor (if applicable), lender (if applicable), and other higher-tier parties.
This notice intends to inform the property owner of your participation in a project and to let them know that you are aware of your lien rights in case a payment issue comes up in the future.
The different states have different preliminary notice requirements. In Texas, for example, general contractors are not required to serve a preliminary notice, also known as the fund-trapping notice. All other construction participants, however, must serve this notice within the 15th day of the second and/or third month for every month that they worked on a project and did not get paid.
Arizona, on the other hand, requires every construction party, regardless of their role in a project, to send a preliminary notice within 20 days of the first day of furnishing labor or materials to a project.
Failing to serve a preliminary notice when required by law can be fatal to one’s lien rights. If you do not serve a valid preliminary notice on or before the due date, you may completely lose your rights to file a mechanics lien.
Notice of Intent to Lien
A notice of intent to lien is another pre-lien notice that is required in certain states, including Colorado, Louisiana, and Wisconsin.
Unlike a preliminary notice, however, a notice of intent to lien is sent to a property owner or a general contractor after a payment dispute has already come up. This implies that you are already about to a file a mechanics lien and you are simply giving a property owner an ultimatum before you officially record your lien.
You are typically required to serve a notice of intent to lien 10 or 30 days before recording a mechanics lien. If you are required to do so and you fail to serve this notice, you could potentially lose your lien rights.
2. Prepare your mechanics lien form.
Preparing a mechanics lien form involves doing some research and requires due diligence and patience. A minor error in the form may invalidate your lien so you should know the specific state requirements that must be included on your lien document.
The typical pieces of information required to appear in a mechanics lien form are the following:
- Names and addresses of the claimant, the property owner, the general contractor, and the party that hired the claimant
- General description of the work the claimant performed on the property
- A description of the property that is sufficient for identification
- The amount being claimed
- The first and last days of furnishing labor or materials to the project
Some states have statutory forms that you must use for your mechanics lien to be considered valid. These states include California, Florida, and Utah. Using your own customized form is not allowed in these states. You must follow the required formatting and you must also include statements that are specified in each state’s statutory lien laws.
Some states also require their mechanics lien forms to be notarized while others don’t. Having a mechanics lien notarized is not required in California, but it is in Oregon and Nevada.
3. File the mechanics lien in the county recorder’s office.
Once you have your mechanics lien form ready, the next step is to file it in the recorder’s office in the county where the project is located. Filing a mechanics lien in the wrong recorder’s office may result in having your lien denied, so take note of the location in which you have to legally file your lien.
A mechanics lien may be filed by mailing it to the recorder’s office or it may also be brought directly to the office. Another option is filing it online via Handle, so you are guaranteed that all necessary forms are filled out accurately and all your paperwork is properly documented.
Most states will also require you to serve copies of the recorded mechanics lien on the property owner and the general contractor. In Oregon, you have 20 days after filing the lien to serve copies of the lien on the property owner, while in Wisconsin you are given 30 days after the recordation date.
4. Enforce/release the mechanics lien.
Your finals steps will depend on whether you get paid or not after you have filed your mechanics lien. If a property owner fails to produce payment, you will have to enforce a mechanics lien by filing a foreclosure lawsuit.
A foreclosure lawsuit implies that you seek to have the property foreclosed and recover your payment through an auction. However, a foreclosure action will only be valid if initiated before a lien has expired.
The key point here is that mechanics liens are not enforceable forever. They have expiration dates, which also vary per state. An Oregon mechanics lien is enforceable within 120 days of your last day of work while a Utah mechanics lien is valid for 180 days after your last day of work.
Make sure that you enforce a mechanics lien before it expires; otherwise, you lose your chance of recovering payment through this process.
On the other hand, if your mechanics lien was successful in prompting payment, you will have to release the mechanics lien. Releasing or cancelling a lien means filing a lien release in the same county recorder’s office where you initially filed your mechanics lien.
When you release or cancel a lien, you are updating the property’s records so it reflects the fact that the mechanics lien has been satisfied. Some states require a lien release to be filed after a certain number of days after a lien has been satisfied or upon written request from an owner.
It is very important, however, that you only release a mechanics lien when you have verified that payment is on hand. A cheque may bounce or a credit card transaction may be rejected. Unless you have cleared the cheque or money order in the bank, you should not release a mechanics lien.
Best practices in filing a mechanics lien
In order for your mechanics lien to be valid and effective, you have to perfect it. Here’s how you can ensure that.
1. Keep track of the notice requirements and lien rules in your state.
The rules on how to file a valid mechanics lien vary per state, so you must be familiar with the specific requirements that apply to the state you are working in.
Some states enforce strict rules on what information and what sentences must be included in your mechanics lien forms, and some states require certain notices to be sent before you are allowed to file a mechanics lien.
Knowing what these requirements are and when to file them is very important in making sure that you are exercising your lien rights properly. It will be very frustrating if you completely lose your lien rights over a minor spelling error or a simple technicality.
2. File your documents and serve your notices well in advance.
It is in your best interest to never wait until the last minute to file the necessary pre-lien notices and the mechanics lien itself. Preparing your notices in advance helps, and collecting all the necessary information for your mechanics lien will also help you in the long run.
When you start working on your mechanics lien closer to the deadline, you might end up entering the wrong information or rushing through the details of your claim. A mechanics lien is your best course of action to secure unpaid compensation, and you do not want to have it revoked just because you did not pay enough attention to the details.
Be proactive when it comes to protecting your lien rights. Do not wait until a payment issue arises before you start worrying about what information to find and where to find it.
You also should not wait until a lien is about to expire before enforcing it. Always be ready for the next plan. While waiting for payment, ready yourself for the possibility of filing a lawsuit and prepare all the necessary evidence that you may have to present in court.
3. Organize all your paperwork and keep track of all invoices and receipts.
Organizing all your invoices, shipping and delivery documents, and other important paperwork is important not only in running a business but also in filing a proper mechanics lien.
Filing a mechanics lien requires some research, especially because you have to make a strong claim that you have done all this work and you did not get paid for it. If you have all your unpaid invoices recorded and you have the documents to back your claim, you also have a stronger lien claim.
This practice extends to keeping track of all your lien-related documents. Make sure that you track your attorney fees and other lien costs — in some cases you may recover these costs if you win a foreclosure action.
You must also track all your mailing documents, stamps, and other receipts. Compliance with the notice deadlines and requirements must also be proven, so you must have all these potential documentary proof in case your compliance with the lien rules is questioned.