Working in the construction industry requires hard work and persistence, especially when pursuing clients that fail to pay you for the services you have rendered.
Delinquent clients are unfortunately common in the construction sector so it is very important for contractors, subcontractors, and material suppliers to educate yourselves about the tools and the devices that you can use in order to ensure that you get compensated for all your hard work.
One such tool is the mechanics lien, arguably the most powerful instrument that any construction professional can use in order to protect your right to due compensation.
- Mechanics Lien Definition: what is a mechanics lien?
- Who can file a mechanics lien? Can I file a mechanics lien?
- Why must I file a mechanics lien? Is it absolutely necessary?
- How do I file a lien?
- What happens after filing a mechanics lien?
- Does a lien always work in producing payment from non-paying clients?
Mechanics Lien Definition: what is a mechanics lien?
Learning about the mechanics lien may initially seem intimidating because of the legal implications that come with it.
But in simple terms, the mechanics lien is basically a legal claim that you—a contractor or a supplier or as someone who has worked on building or improving a piece of property—can file against the property title if you don’t receive the agreed payment after a certain period of time. Mechanics liens work in many ways but it is primarily a legal tool.
Think of the mechanics lien as a security interest similar to a home mortgage. When you secure a loan for a new house, you and the lender agree that the house may be used as collateral until the debt is paid off.
In this scenario, the lender uses the house itself as a voluntary security blanket in the event that you are not able to pay your debt. Non-payment usually leads to the lender foreclosing your home, and this risk incentivizes you to pay your monthly mortgage on time.
The mechanics lien works in the same way, although it is an involuntary security interest. Unlike the mortgage in which you and the lender agree to have the house on collateral, the property owner or the direct contractor of a construction project does not have to consent to a mechanics lien agreement.
The right to file a mechanics lien is granted by the law in all 50 states to any construction participant who needs to secure payment in the event that the property owner or general contractor fails to honor their contractual obligation. Whether you’re an electrical subcontractor mostly working on home improvement projects or a concrete supplier for industrial construction, you have the right to lien.
Understanding the ins and outs of the mechanics lien—from the technical definitions to the process involved behind filing it—should be highly prioritized by any contractor or supplier who are working on any construction project, whether be it be residential or commercial, public or private.
Who can file a mechanics lien? Can I file a mechanics lien?
If you are a direct contractor, a subcontractor, or a material supplier to a construction project, then you definitely have the right to file a mechanics lien. The right to file a lien is also extended even to design professionals (e.g. architects and engineers), equipment lessors, and construction laborers.
Since the mechanics lien is a tool exclusive to the construction industry, it goes without saying that the parties who can file a lien claim are only the people who perform construction work. Doctors and teachers, for example, do not possess lien rights at all.
The construction professionals with lien rights are expected to provide something of value to the construction project, whether it be labor or materials or construction equipment. Note that until the materials are incorporated in the property or used on the job site, the material supplier generally does not yet have the right to file a lien.
Why must I file a mechanics lien? Is it absolutely necessary?
The idea behind the mechanics lien is to enable construction professionals in equipping themselves with the means to secure the payment that they have duly earned for their services. The mechanics lien is regarded by legal and other industry experts as the best remedy available to address your issues with non-paying clients. It is therefore a legal right that a contractor or a supplier must take advantage of in case of an issue of non-payment cropping up and avoid cash flow issues.
Interestingly, the mechanics lien is a right that is not exercised in every part of the world. It is available only in common law countries like the US and England, so it must therefore not be taken for granted. Not every construction professional in the world has the right pursue and secure payment from clients who fail to honor their obligation in paying their bills.
But keep in mind that filing a mechanics lien does not guarantee payment from the property owner. It does however nudge their attention and it increases your chance of getting your earned compensation. A lien is ideally an efficient way to address your difficulty in handling collections, assuming of course that you have filed your lien correctly.
How do I file a lien?
The steps on how to file a mechanics lien are different in each state so one must look into the guidelines in the specific state that they are working in. The key thing to remember, however, is that the lien process is not a one-stop solution—it is a multi-step process. Filing a lien follows a set of procedures that is ideally kick-started even before a project begins.
There are generally three major steps to follow:
- Step 1: Serve a Preliminary Notice
- Step 2: Serve a Notice of Intent
- Step 3: File a Mechanics Lien
In most states, securing your right to filing a mechanics lien in Step 3 depends on whether you have accordingly submitted the pre-lien notices in Steps 1 and 2.
Some states do not require the preliminary notice in Step 1 but it is generally good practice to notify the property owner of your diligence in protecting your lien rights. Serving the notice of intent is also another step that is not obligatory in each state, but it can sometimes be enough the nudge the property owner to finally pay up.
Once these notification requirements are met, the mechanics lien may be filed. There are other rules to be followed, from formatting guidelines to required supporting documentations. The rules on sending the paperwork for the mechanics lien also vary per state. Some states allow delivering the documents by hand while some require specific mailing methods, so make sure that you know the serving requirements in the state you are in. There are also requirements on which stakeholders you must inform about the lien that you are filing.
The deadlines on filing the mechanics lien may also be different depending on whether the project is publicly or privately funded. It is imperative that you know the specific requirements of the state where the project is being constructed. Missing a deadline or filing the lien incorrectly may result in wasting your resources and not being paid the amount that you should have otherwise earned.
Filing a mechanics lien online
Can you file a lien online? Yes. Handle can do it for you. The accuracy and timeliness of your mechanics lien are two very important factors that influence your ability to collect payment. By using a solution like Handle to simplify the tedious portions of sending out a lien, you can focus on your business knowing that your rights are protected. From filing out the form to recording the lien, you can do it all online through Handle.
What happens after filing a mechanics lien?
After being filed, the mechanics lien then comes with an expiration date. As with most concerns related to liens, the expiration date also varies in every stat. The time frame from filing to expiration date is yet another deadline that you must keep track of.
Does a lien always work in producing payment from non-paying clients?
In most cases, even tensioned ones, filing the lien is enough to produce payment from the client.
Sometimes, however, just sending the mechanics lien does not work in getting the client to pay up. There are still other options that you may explore to still get your payment, including foreclosing your lien within a specific time frame or filing a lawsuit to have the property be sold at an auction and earn from the proceeds.
But bear in mind that the mechanics lien is filed not against the property owner or the general contractor but against the property title. The claim to a lien is noted in land records and is listed under the title search of a property. It is therefore understood that when interested parties buy or accept a property that has a pending lien claim, they are doing so with full knowledge that they will also be taking over the responsibility in settling that claim.
In effect, the mechanics lien can stop a property from being sold in the market and freeze project funding. This consequently puts extra pressure on the original property owner to finally pay you for your services, and is still therefore worth filing.
In summary, these are the key concepts to remember about the mechanics lien:
- Contractors, suppliers, and other construction participants that provide labor, materials, and other valuable project contributions have the right to file a mechanics lien.
- The mechanics lien is the best available remedy to address non-paying clients, and it is filed against the title of the property and not the owner or the company.
- Filing a mechanics lien is a multi-step process, and the specific procedures and requirements vary in every state.
- There are strict deadlines, formatting guidelines, and delivery methods to follow in order to ensure that the lien is filed correctly.
- The mechanics lien has an expiration date once filed, and this expiry date also varies per state.
- In the event that the client still does not produce payment even after the lien has been filed, a foreclosure on the lien must be served.