Ten Ways a Mechanics Lien Gets You Paid
A mechanic’s lien is a security interest in the title of real property placed by those who supplied the materials or provided the labor to build or improve the property. This particular remedy is typically used by contractors and subcontractors as a defense against the nonpayment or the imperfection of tender for a construction contract.
Whether you have filed a mechanics lien that has or has not worked, or you are looking to file your first mechanics lien, every contractor or subcontractor wants to know if a mechanics lien will help them get paid. The lien process can be confusing and complex. However, mechanics liens have continued to be very popular because leveraging your lien rights works when attempting to receive payment. Below is a list describing how mechanics liens work and why they are so effective at getting contractors and suppliers paid.
Information Necessary to File a Mechanics Lien
Below is a list of information you must include when filing a mechanics lien.
- First, you need to include your contact information along with your business’s full registered name and the type of business (i.e. Inc, LLC).
- Second, you must provide the property owner’s contact information. If there are joint property owners, you must include the contact information for each owner.
- Next, include the general contractor’s information. In many contracts, the general contractor’s information may be left out. If this occurred in your situation, simply request the general contractor’s information directly.
- Fourth, you must state the amount claimed. The amount claimed is the total amount due under the contract. When deciding the amount claimed, take the project’s price and then subtract any payments that have already been made.
- Fifth, attach a legal description of the property. If a description of the property is not included in the contract, you can this information at the tax assessor’s office.
- Sixth, create a brief description of labor and the materials used in the project. Additionally, you must include the start and end date of the job. If the job is not completed yet, provide an estimated end date.
- Next, you must attach a photocopy of your contract license and certificate of good standing.
- Finally, you must sign and date the mechanic’s lien in front of a public notary.
Below is a list of ten ways that a mechanics lien can help you receive payments from your construction projects.
A Mechanics Lien Encumbers the Property
When you file a mechanics lien, the land records take this claim and the lien will appear on a title search of the property. Thus, if someone buys or receives property after you file your lien (and even before the recording is finalized in some states), the person who receives this property is subject to the claim. As a practical measure, a property with a mechanics lien cannot be sold, refinanced, or otherwise transferred without the mechanics lien being addressed or paid.
This distinction means that a mechanics lien encumbers a property. The reason for this is that if a contractor places a lien on a property, the buyer and seller of the property must pay the contractor and have the lien removed before executing the sale of the property.
It Gets the Construction Lender’s Attention
Additionally, many construction projects have a lender financing the construction. These lenders have money invested in the project and have a mortgage against the property to secure this claim. Thus, when you file a mechanics lien, you intervene in that security interest. Further, in certain states, you actually have priority over the lender when looking to receive payment. For these reasons, construction project lenders care if there is a mechanics lien on a project.
Another important note is that in certain states, a lender is the protector of the property owner. Thus, they will have a direct interest if a contractor files a mechanics lien. In either case, a mechanics lien poses major risks to construction lenders. Thus, when you file a mechanics lien, you get the attention of the lender who can step in and ensure that you receive payment.
It Gets the Owner’s Attention
When you file a mechanics lien, you are notifying the property owner of your non-payment situation. Property owners care about mechanics liens for a few main reasons including:
- First, if a contractor files a mechanics lien, a property owner cannot sell or transfer the property without taking care of this issue first.
- Next, when a contractor, subcontractor, or supplier files a mechanics lien, this may be a signal to the property owner that an issue on the project has occurred. In cases where a property owner hires a general contractor, the owner may not know about the payment or other issues on the projects. This is especially true if the general contractor hires a subcontractor or other supplier to work on the project.
- Most property owners take out a loan to complete a construction project. When a construction company files a mechanics lien against a property, it can complicate the loan process. Further, the owner may be in default and would not be able to convert the loan into a low-rate mortgage without removing the lien.
Because mechanics liens create major inconveniences for property owners, by filing a lien, you can get their attention quickly which will lead to you receiving compensation.
When Liens Are Filed, They Cause Contracts to Get Breached
In most cases, a single construction project will include multiple different contracts. Further, the property owner typically has a main contract with the general contractor and then the general contractor creates agreements with other entities. It is very common that each of these contracts requires the property to stay free and clear of liens. Thus, once a lien is on the property, these contract provisions put one party in breach. This puts pressure on the breaching party to quickly resolve the issue or risk having the entire project fall apart, which means the unpaid party is very likely to receive payment.
You Set a Firm Deadline for Payment
In certain cases, the problem is not that a property owner or general contractor is refusing to pay you. Instead, they are just constantly late with payments. Slow payments are a common issue within the construction industry. Further, many news outlets state that many construction companies receive payments 83 days after they submit an invoice. This is just the average payment time, and in some cases, it can take substantially longer to receive payment.
Filing a mechanics lien is useful during projects that are not paying you on time. The reason for this is that a mechanics lien sets a firm deadline for payments. If the company does not pay you on time, you can go to court and force them to pay you.
You Can Always Fall Back on the Property for Payment
One of the most common fears among creditors is that they will lend someone money, property, or services and not receive payment. This is even truer for contractors and suppliers who almost always have to complete work or give someone materials before they can receive compensation. This opens up the door for property owners or general contractors to not pay someone, paying them late, or only offer them a portion of the initially agreed upon fees.
A mechanics lien is one of the best ways to ensure that you receive payments. The reason for this is that if someone doesn’t pay you, you can actually collect money from the property. The real estate itself can be sold at auction to pay your claim to finance your claims if necessary.
Mechanics Liens Are Hard to Challenge
Another benefit to using a mechanics lien is that these claims are difficult to challenge. However, if the contractor, subcontractor, or material supplier did not follow their duties, the claim will likely be thrown out. Aside from this, mechanics leans are very difficult to overturn and if the property owner or general contractor loses their claim, they will be responsible for attorneys fees.
It Will Freeze Money Flow on the Project
Another obstacle to receiving payment on a construction project is that money has to be exchanged between multiple parties. This payment chain can tie money up with the sheer amount and complexity of documents, materials, specifications, invoices, pay applications, and dollars that must change between entities. This leads money to be misappropriated before it can ever get to you. The most common reason why these funds get lost is that contractors get overpaid or underpaid. However, other times it is simply just a cash flow issue.
When filing a mechanics lien, you can stop the flow of money so that you can get paid. The reason for this is that owners cannot pay other contractors or subcontractors until your claim is taken care of.
Mechanic Liens Escalate the Situation and Prioritize Your Debt
In some cases, you may need to push the owner or general contractor of the property to receive payment. This is especially true if cash flow becomes tight. In these scenarios, the property owner or general contractor will prioritize certain actors. If you are one of the entities that are not prioritized, a mechanics lien can escalate your collection efforts and makes the property owner or general contractor prioritize your payment.
Mechanics Liens Create Leverage
The final and most general way a mechanics lien gets you paid is because once you file the lien, you have leverage over the property owner or general contractor. Further, this leverage only increases as the number of actors on a job increases. This is true even if you are on small projects without a lender. The reason for this is that the property owner cannot sell or transfer the property until removing the lien. Additionally, mechanics liens create a breach of contract and are extremely difficult to remove. For each of these reasons, mechanics liens create leverage that can help you receive compensation.
Many contractors, subcontractors, and material suppliers will spend hours every week making phone calls, sending emails, and writing demand letters all with the aim to receive compensation for work they have already completed. However, these endeavors are unlikely to help and instead end up costing the company money and time.
Mechanics liens change this and give construction companies a tool that can allow them to receive compensation quickly. With over 20 years of experience, Antonoplos & Associates construction attorneys can help construction company owners, contractors, subcontractors, material suppliers, architects, and designers with a wide range of services before, during, and after a construction project in DC, Maryland, and Virginia.
Contact Our DC Law Office for More Information
Finally, for more on ten ways a mechanics lien gets you paid, contact us at 202-803-5676. You can also directly schedule a consultation with one of our skilled attorneys. Additionally, for general information regarding construction law, check out our blog.