The Mechanics of Mechanics’ Liens
One question my contractor clients often ask me is, “how can I ensure I get paid?” Unfortunately, there is nothing out there that can guarantee contractors will get paid. Many years ago, the legislature enacted the Mechanic’s and Materialmen’s Lien Statute as a means of providing contractors security from non-payment.
A mechanic’s lien is a means of securing a claim; it is not a claim in itself. Like a mortgage, it (usually) appears in the record and will prevent the owner from selling (or refinancing) the property without satisfying the debt. Consequently, liens often get the owner’s attention. This article will briefly discuss how a contractor goes about liening a property.
1. Property type. The first step is determining the type of property on which work was performed. The type of property may determine if there are any lien rights at all, or who has lien rights. For example, no one has lien rights on government projects. All remaining projects fall into one of two categories: residential or commercial. Residential projects are those buildings that hold anywhere from 1 to 4 dwelling units, provided that the owner intends to reside in one of those units as his primary residence. Any project not meeting this definition is considered commercial for lien purposes.
2. Relationship to owner. The next step is identifying the contractor’s relationship to the project. If the contractor’s contract was with the owner (or his agent), then he is considered a prime contractor. If the contractor contracted with anyone other than the owner (or his agent), then he is considered a remote contractor. A remote contractor does not have lien rights on residential property. A prime contractor has lien rights on both residential and commercial property. Thus, the contractor’s relationship to the owner will determine whether he has any lien rights.
3. Notice of nonpayment. For commercial property, a remote contractor must provide a notice of nonpayment to the prime contractor and to the owner. The notice must be sent within 90 days of each month the remote contractor performed work and was not paid. If the remote contractor fails to give the notice, he loses his lien rights. A prime contractor is not required to send a notice of nonpayment.
4. Notice of lien. For remote contractors, the next step is to record a notice of lien. For a remote contractor, the notice of lien must be recorded within 90 days of the project’s completion. A prime contractor may record his lien any time within one year of the project’s completion. But, in order to preserve lien rights against persons who may buy the property, the lien must be recorded within 90 days of the project’s completion.
5. Lawsuit. A remote contractor’s lien lasts only 90 days from recordation. A prime contractor’s lien lasts for one year from the project’s completion. But, if the contractor files a lawsuit within the appropriate time (90 days for remote contractor, 1 year for prime), the lien lasts until the lawsuit is completed. The contractor must also issue a writ of attachment, which prohibits the owner from disposing of the property.
6. Sale. If the contractor prevails in the lawsuit, he can then ask the court to sell the property to satisfy the judgment. Of course, if there is a mortgage, the mortgage might have to be paid from the sale proceeds first. Thus, a question of priority often arises in lien lawsuits. If there is no mortgage or the contractor has first priority, then the lien has served its purpose – it has afforded the contractor some security.
There are many pitfalls that can overcome a lien claimant. This article is merely an overview of liens. Tread carefully.