A lien waiver and a lien release are two different documents. The terms are sometimes used interchangeably, but the purpose behind these documents and the state requirements surrounding their validity are vastly different.
This guide will walk you through the similarities and differences between a lien waiver and a lien release. You are not allowed to file one in place of the other, so it is very important that you understand how these two documents work, what they are for, and when you need them.
- What is a lien waiver?
- What is a lien release?
- Key similarities between a lien waiver and a lien release
- Key differences between a lien waiver and a lien release
What is a lien waiver?
A lien waiver is a legal document that forfeits the lien rights of the signing party. Once a contractor, subcontractor, or materials supplier has signed a lien waiver, it means that they are waiving their right to file a mechanics lien against a project title as a means of recovering a certain payment amount from that project.
Why sign a lien waiver?
Exchanging lien waivers is quite a common practice in the construction business. Property owners and general contractors typically prefer to have a lien waiver signed before they issue payment; they want the assurance that they will only pay once and will not be faced with an unexpected mechanics lien.
Lien waivers can, therefore, facilitate good business relationships as well as speed up the payment process. But while lien waivers are a simple document exchanged between construction stakeholders, there are many other details that you must get right for your lien waiver to be considered valid.
Which states require specific lien waiver forms?
States have varying requirements regarding lien waivers. In general, sending a lien waiver is not a strict requirement to protect a construction party’s lien rights. However, there are states that require you to use a statutory form for your lien waiver to be valid.
Signing a valid lien waiver is very important. If you end up using the wrong format for your lien waiver form, your waivers may be considered invalid and you may not be able to use it as evidence in case a legal dispute arises.
The states below have specific requirements on what a lien waiver form should look like. These requirements may be found in each state’s statutory laws. Using any other form or failing to include all mandatory statements and information will render your lien waiver invalid in the following states:
Who sends a lien waiver and to whom?
The process of exchanging a lien waiver depends on the established business practice in a project. A lien waiver may be handed out by a property owner via the general contractor, and it may also be voluntarily submitted by a contractor, subcontractor, or material supplier.
In either case, a lien waiver will be signed by a construction party with lien rights to a project and will be sent back to the property owner and/or the general contractor.
Note that a lien waiver is a document that is signed after a project has already started – it is not the same as a “no lien clause”, which also waives the signee’s lien rights but is typically buried in the original contract before a project has started/
Must a lien waiver be notarized?
A lien waiver must be notarized in Mississippi, Texas, and Wyoming. Other states do not require you to have your lien waiver notarized.
When must a lien waiver be sent?
Construction participants are generally encouraged to exchange conditional lien waivers before the release of payment. General contractors may ask the people working for them to submit a signed conditional lien waiver when they send their invoices.
Sometimes a property owner may require a lien waiver to be signed and delivered before they issue payment. In scenarios like this, you must sign a conditional lien waiver form, which is a specific type of lien waiver that only waives the signee’s right once payment has been received.
What are the types of lien waivers?
There are generally two types of lien waivers: conditional waiver and unconditional waiver. A conditional waiver only forfeits the lien rights of the signee once payment has been made, while an unconditional waiver waives the lien rights of the signee as soon as it is signed.
Unconditional waivers are pretty tricky and you must watch out for them. In states where there are no statutory lien waiver forms required, you should keep an eye out for a waiver that implies an unconditional forfeiture of your lien rights.
Both conditional and unconditional waivers may be issued for either progress or final payment. Progress payment means that waiver will only cover part of the work that a construction party has finished and has been paid for.
Final payment, on the other, implies that your work on a project is done and you are not expecting any more payment after your last pay.
To know which type of lien waiver you must sign, ask yourself these two things: 1) Have I been paid yet? 2) Will I be receiving more payment from this project?
What is a lien release?
A lien release is a document that cancels an existing mechanics lien. When a lien release is in consideration, it means that a mechanics lien has already been filed and it has been effective in prompting payment from a property.
Once a lien release has been filed, a property’s records are updated to show that a mechanics lien has been satisfied.
Why file a lien release?
Filing a lien release is important because it effectively removes a lien from a property’s public records. When a mechanics lien is recorded against a property, this mechanics lien becomes viewable to all searching parties, including buyers and financiers. Property owners, therefore, want their properties to be clear of any records on outstanding debts.
Some states also require a lien release as soon as payment has been satisfied or as soon as a written request has been sent by a property owner. In this regard, filing a lien release becomes a legal obligation that you must not disobey.
What information must appear in a lien release?
The following information must be in your mechanics lien release:
· The project address and its legal tax information
· The name(s) of the property owner(s)
· The name of the mechanics lien claimant
· The reference information from the original mechanics lien, e.g. book number, page number, date of filing, etc.
When should lien release be filed?
It is highly recommended for you to file a lien release as soon as you verify that payment has been received. Otherwise, the deadlines for releasing a lien vary per state, usually ranging from 10 to 60 days.
How should a lien release be filed?
A lien release is filed in the county recorder’s office where the mechanics lien was originally recorded. You must send them two copies of a completed lien release form.
Sending the forms may be done via registered or certified mail, return receipt requested. The forms must come with a money order that covers the lien release fees, which you can find out by directly calling your clerk recorder’s office.
Once a lien release form has been successfully filed, you will receive the second copy of the form that is marked “filed” or “recorded.” Send copies of this marked document to the property owner, general contractor, lender, and other relevant stakeholders to let them know that the mechanics lien has successfully been canceled.
Key similarities between a lien waiver and a lien release
1. Both a lien waiver and a lien release aims to take a mechanics lien out of the picture.
The purpose of each document is different, but they essentially aim to get the mechanics lien out of the picture. A lien waiver revokes the right of a signee to file a mechanics lien in the future, while a lien release cancels an already filed mechanics lien.
If used properly and correctly, both documents can also facilitate good business relationships among construction stakeholders.
2. Both a lien waiver and a lien release are sent after a project has started.
Neither a lien waiver nor a lien release may be sent prior to your first day of work. These two documents are not the same as a “no lien” clause, which is sometimes included in the original contract to stop construction participants from filing a mechanics lien in the future.
3. Both a lien waiver and a lien release may result in hefty costs and penalties if not properly used.
If you issue a wrong type of lien waiver, you may end up losing your lien rights and not getting paid. If you fail to release a lien that has already been satisfied, a property owner may file a lawsuit against you for failing to clear an already sorted mechanics lien.
These are just some examples on how you might end up losing money if you do not properly use a lien waiver or a lien release.
Key differences between a lien waiver and a lien release
1. A lien waiver is filed before a mechanics lien is recorded, while a lien release is filed after a mechanics lien has been recorded.
This is the key difference that one must keep in mind when deciding whether to sign a lien waiver or file a release: Has a payment dispute already occurred? Is there an existing mechanics lien for the work that you are seeking payment for?
A lien waiver is signed before a payment conflict has even arisen, while a lien release is filed when a mechanics lien has already been recorded against a property.
2. A lien waiver revokes your right to file a lien, while a lien release removes the effectivity of your existing mechanics lien.
A lien waiver only touches upon your right to file a mechanics lien. Once you sign a waiver, you forego your option to record a mechanics lien should a payment dispute arise down the line.
A lien release, on the other hand, does not prohibit you from filing a mechanics lien precisely because a lien has already been filed. Your rights to file a mechanics lien are kept intact, although the actual mechanics lien that has been recorded will be discharged.
3. A lien release is mandatory in some states, while a lien waiver is not a strict requirement in any state.
There are states like Texas and Wyoming that require a lien release once a mechanics lien has been satisfied. On the other hand, no specific state requires a lien waiver as a prerequisite in filing a mechanics lien.
However, there are 12 states, as stated above, that require a construction party to use specific statutory lien waiver forms. These forms have the clear and explicit language requirements which disallow vague provisions that construction professionals may unwittingly sign and agree to.