What Is a Mechanic's Lien?
A mechanic's lien is a legal process which seeks to guarantee payment for contracted services rendered on an improved piece of property. Depending on the laws of a particular state, contractors, subcontractors and suppliers can file a mechanic's lien within a certain amount of time after the work has been completed and payment has not been received. A mechanic's lien extends to both the structure and the land beneath it. Until the debt is paid, the landowner does not own a clear title.
Originally, a mechanic's lien was almost exclusively sought out by an actual mechanic. If an owner of an automobile contracted for repair services and failed to pay the bill, the mechanic could place a lien on the car's title. This meant filing a claim in a local magistrate's office. In essence, a mechanic's lien meant that the owner of the car must pay off the debt before the title could be transferred cleanly to a third party. If the owner decides to pay the bill voluntarily, the mechanic's lien is lifted.
This practice eventually found its way into the construction world. A property owner might seek out a contractor to construct an apartment complex, for example. A project like this would require licensed subcontractors such as carpenters, masons, general laborers and landscapers. All of these workers would require supplies from outside vendors.
The assumption is that the owner of the property will eventually pay the contractor, who will in turn pay all of the subcontractors, and so on. However, construction projects are often started and finished without such guarantees, which gives the property owner much more leverage over the contractor. If the property owner doesn't feel like paying, it's not as if the workers can just remove the building and sell it elsewhere.
It is this inequality during the contracting and construction phase that makes a mechanic's lien so appealing to contractors and vendors. Instead of finishing a project and hoping the property owner is a scrupulous business person, the very threat of a mechanic's lien can guarantee payment. In fact, many states require that any contractor or vendor must first file a 20 day notice before pursuing an official mechanic's lien. Some property owners may dread receiving this 20 day notice, but the contractor must file it in order to qualify for the actual lien.
A mechanic's lien is not a fast cure for money woes, but it does offer more legal protection than not filing one. Some contractors view a mechanic's lien as a last resort, since they usually want to establish a good working relationship with property owners whenever possible.
Written by Michael Pollick
