Wondering what a mechanic’s lien is and what it means to you as a new home builder or house flipper? Then you’ve come to the right place! We’ll explain what a mechanic’s lien is and how it has the potential to affect your new project.
First off, let’s explain what a lien is. Simply put, it’s a claim to a property. It typically means money is owed.
The actual definition, according to Investopedia is: “a legal right granted by the owner of property, by a law or otherwise acquired by a creditor. A lien serves to guarantee an underlying obligation, such as the repayment of a loan. If the underlying obligation is not satisfied, the creditor may be able to seize the asset that is the subject of the lien.”
A lien typically secures payment.
It’s a publicly recorded interest in a piece of property — whenever someone has an interest in a piece of property, they will note that interest with a lien. Liens often secure funds or guarantee repayment of a loan.
A mechanic’s lien is very similar to a lien that goes on a property.
It’s filed after work has been completed on a property, or material has been supplied but has not compensated. This can be anything from demolition to installing cabinetry and everything in between.
Dictionary.com defines ‘Mechanic’s Lien’ as: “a lien secured on property, as an automobile, building, or the like, by the contractor who has repaired or built it, in order to ensure payment for labor and materials.”
If someone does work on a property, doesn’t get paid, and files a mechanic’s lien, they will typically have two to six months to resolve it.
This means they’ll have to figure out a solution with the owner; payment, negotiation, or another way to resolve the conflict. If not resolved, a lawsuit can be filed for repayment.
Mechanic’s liens are obviously a big deal. You can avoid these by asking your contractors to sign a release of mechanic’s lien waiver upon payment each time. This form simply acknowledges the completed, the contractors’ payment, and notes that they cannot file a mechanic’s lien at any point in the future for that work.
Loan Ranger Capital provides these forms, and we’re happy to protect your investment and help ensure that you are successful!