It’s an eco-friendly idea, but be aware how it affects your home’s financing, closing and future costs.
Mechanic’s lien is a money term you need to understand. Here’s what it means.
What is a mechanic’s lien?
A mechanic’s lien is a legal claim made against real estate by suppliers or contractors who have not been paid for the work they have performed or for materials they have been supplied. A mechanic’s lien can be filed by contractors, subcontractors or suppliers, and it’s valid even if the primary contractor has been paid in full.
Although the laws regarding mechanic’s liens vary from state to state, their principle remains the same. A mechanic’s lien allows a supplier or contractor who has not been paid to place a lien against a property.
The first step is to record the lien, and this must be followed by court action to enforce the lien within a prescribed period of time. If this isn’t done, the lien will lose its validity. Rules about when and how a mechanic’s lien should be filed vary from one jurisdiction to another.
If the homeowner doesn’t arrange for the payment of the outstanding amount, the lien holder can force foreclosure and sale of the property. Also, a lien that hasn’t been cleared will prevent the sale of the property as well as make it impossible for the homeowner to refinance the property.
While the mechanic’s lien protects subcontractors and suppliers who have not been paid, they prejudice a homeowner who has paid the primary contractor and who, in turn, has not paid suppliers.
Homeowners who are unable to get the primary contractor to pay up may well find themselves paying double and if they don’t, they could lose their homes. Homeowners can mitigate against this risk by:
- Paying contractors with checks made to both contractor and subcontractor.
- Obtaining a lien waiver.
- Paying subcontractors directly.
Mechanic’s lien example
Paul runs a roof repair business and is having difficulty getting paid for repairs to the roof of the home belonging to a local businessman. Although Paul was subcontracted to do the work by the primary contractor, he records a mechanic’s lien on the property, which prompts the property owner to pay the main contractor who then pays Paul. Once he is paid in full, Paul arranges for the lien to be removed.
Do you have a mechanic’s lien placed against your property? Here’s how you can get that lien removed.
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