Mechanic’s Liens: What They Are and How They’re Used

Chances are that you’ve hired a contractor to work on your house or brought your car into an auto mechanic’s garage to be repaired. Contractors and mechanics are just like any other worker in that they want to be paid in full, on time. They don’t want to have to chase anyone down to pay the bill.

Mechanics, general contractors, subcontractors, material suppliers, builders, and design professionals are able to use a mechanic’s lien to help them get paid promptly and in full. In this article, we’ll discuss what a mechanic’s lien is, how it’s used, and how you can avoid them.

What Is a Mechanic’s Lien?

A mechanic’s lien, also known as an artisan’s lien or a materialman’s lien, is a statutory lien used in the construction industry. It’s called a statutory lien because it happens automatically under state law in certain situations and relationships. Once work is done on your car or your house, for example, the lien immediately attaches to the property worked on or repaired. A mechanic’s lien may be used in building or construction projects and repair jobs. It’s a way to hold the property owner accountable for the payment of these services.

Mechanic’s liens help prevent non-payment.

A mechanic’s lien is a legal claim that helps prevent nonpayment. It’s a tool to guarantee that builders, contractors, construction firms, and materials suppliers are paid for the work they do and the materials they use. A property owner usually has to acknowledge and agree when they sign the construction contract that a mechanic’s lien will be obtained by the contractor in order to book construction help on most types of projects. A contractor will typically require a mechanic’s lien, an upfront cash payment, or a large retainer before they’ll actually start on a project.

A mechanic’s lien is a way for subcontractors and suppliers to get paid for the improvements they have made to the property, whether real property like a house and land or personal property like a car, electronics, jewelry, etc. This ensures that workmen are paid before any other parties like a bank, credit union, or mortgage lender in case of a foreclosure and subsequent sheriff’s sale of the property. A mechanic’s lien would also ensure that an auto mechanic is paid before an auto lender if the borrower defaulted on the auto loan and there’s a repossession and public auction.

A mechanic’s lien can also be used when a general contractor hasn’t paid subcontractors, laborers, or suppliers. The homeowner is ultimately responsible for payment. If the homeowner pays the general contractor but the general contractor hasn’t paid the subcontractors, the homeowner may have to get involved to make sure the subcontractors get paid. Otherwise, the homeowner will have to deal with the mechanic’s lien. If the matter is cleared up, the homeowner will have a free and clear title to the property, unencumbered by a statutory lien like a mechanic’s lien. 

How long will the lien last?

As mentioned earlier, mechanic’s liens, like all statutory liens, occur automatically by law. The lien is effective until the project is completed and all workers have been paid in full. A lien is typically recorded at the county recorder’s office. It’s public record and will show up in a title search. If contractors and repairmen are not paid promptly and in full, they can enforce the mechanic’s lien to foreclose on your real estate or personal property. The contractor can force a foreclosure and sheriff’s sale (in the case of a home) or a repossession and public auction (in the case of a vehicle) to get paid.

Some property has multiple liens against it. In this case, a mechanic’s lien usually gets higher priority than other liens. That means if there’s a foreclosure or repossession and the property is sold to recoup costs, the contractor or laborer will be paid before other creditors that the property owner also owes. For example, say you have a house with a first and second mortgage that you have renovated by a general contractor who puts a mechanic’s lien on the property. Then the first mortgage lender forecloses on the home. The contractor who has the mechanic’s lien will likely get first priority in benign repaid, before the first or second mortgage holder. 

How Are Mechanic’s Liens Used?

A lien claimant is someone who can enforce a lien if they’re not paid. For a mechanic’s lien, it’s usually a subcontractor or supplier. The lien claimant must notify the property owner of any work or supplies they’ve contributed to the project, usually within 20-30 days. The exact timeline depends on state law. Mechanic’s lien laws vary from state to state and that can affect the process, the notice requirements, and the time limits for a mechanic’s lien.

When the lien claimant is not paid, they must generally file a “claim of mechanic’s lien” and an affidavit. This will be filed in the county where the property is located or where the work was done. Filing the claim allows them to enforce their lien rights. Then, the lienholder has 2-6 months (again, depending on state law) to come to a solution with the property owner regarding payment. If they can’t come to an agreement, the lien claimant can file a lawsuit to force payment.

In most states, if the lienholder doesn’t file a lawsuit within the legal time frame, the mechanic’s lien can’t be put into effect. Even so, the property owner should still get a court order to get a lien release. That will prevent headaches later when the owner wants to sell, transfer, or otherwise get rid of the property. To sell property successfully, it’ll need to have a clean title.

How Can You Avoid Having a Lien Claim Placed Against Your Property?

As the property owner, you’ll want to avoid a mechanic’s lien being placed against your property. One way to do this is by paying the general contractor, subcontractors, and suppliers with joint checks. This means that the checks can only be cashed if all parties endorse them.

Another way you can avoid a lien is by getting a lien waiver provision in the construction contract. This will shift payment responsibility to the general contractor instead of you as the property owner. In several states, the general contractor must give the property owner a lien waiver for all work and supplies contributed by subcontractors and supplies before accepting additional payment on the project. Some states allow lien waivers before payment is made.

You could also make direct payments to the subcontractors and suppliers, and subtract those amounts from the general contractor’s payment. This isn’t always a good idea because it can shift liability and make it look like you’re an employer. Being an employer makes you liable for taxes, personal injury, and workers’ compensation. It’s typically better to have the general contractor assume this risk.

You’ll want to keep a file of the paperwork, notices, and receipts you receive from the workers on the project, especially subcontractors. Stay in contact with the contractors during and after the project is completed. Check to see if subcontractors have been paid. Get lien waivers if you can. 

Let’s Summarize…

A mechanic’s lien is a legal tool to ensure that tradespeople are paid for the work they do and the supplies they contribute to a project. They’re usually necessary to book construction help. While a mechanic’s lien provides payment protection for workers, it can make things complicated for property owners. If subcontractors on your project aren’t getting paid, they can hold you accountable with the lien. It can put your property at risk. To avoid this, stay ahead of things by getting a lien waiver provision and/or keeping track of who’s contributed what and when each person is paid.