Lien-Law

The following case history explains why consumers should know about liens:

Mr. Jones signed a contract with ABC contractors for the construction of an addition to his home. When the work was done, Jones paid the contracted price and started enjoying his new addition. A month later, he received a “Notice of Intent to File Claim for Lien” in the mail from the lumberyard where ABC Contractors obtained building materials.

What happened? Although Jones had paid his bill, ABC Contractors did not pay the lumberyard. The law allows a subcontractor or material supplier to place a lien on the property where the work was done, if the contractor does not pay the bills. This can happen even if the homeowner has paid the contract in full.

How Liens Work

Usually, having a lien recorded against your home means you can not sell it until the debt is paid. A lien on a car in the possession of a repair shop means you will not be able to have your car back until the debt is paid. Construction and Mechanics liens are remedies created by statute to ensure payment to contractors, subcontractors, tradesmen, laborers or material suppliers who have improved the property of others. Two of the most common types of liens are home improvement liens and motor vehicle repair liens. These liens provide home improvement contractors with a security interest in the homeowner’s property, and auto repair shops with a security interest in the car owner’s vehicle.

Get Lien Waivers

Lien waivers are important for consumers because they prevent subcontractors and material suppliers from trying to collect money from homeowners who have already paid. Prior to making a final payment on a home improvement contract, consumers need to get a lien waiver from the prime contractor and lien waivers from each subcontractor and material supplier. If payment is made in installments, consumers should get lien waivers for the proportionate amount of the contract covered by each partial payment.

Getting lien waivers will prevent a subcontractor or material supplier from putting a lien on your home if the contractor doesn’t pay the bills.

Most state laws require that consumers receive a lien waiver from a contractor when they make partial or final payments on a home improvement contract. Consumers, however, should know in advance to ask for a lien waiver if one is not offered. Lien waivers do not waive any contractual rights for the property owner or contractor.