Perhaps your home remodeling project started well, but now you are noticing issues. Perhaps the doors to the new cabinets won't close and stay closed, or that the old paint wasn't completely scraped off before the new paint went on. You refuse to make the last payment due until the contractor gets it right. The contractor, in turn, slaps a mechanics' lien on your home. Now what?
When a contractor files a mechanics' (construction) lien, it makes your home into what's called "security" for an outstanding debt, which the contractor claims is due and unpaid for services or materials. The practical result is that, after a period of time, the contractor can (in the extreme case) attempt to collect that debt by forcing a sale of your home.
Mechanics' liens are creatures of statute; that is, laws passed by your state legislature. Although the idea behind them is straightforward; a contractor or a builder needs protection against the wrongful refusal to pay for work done; how, exactly, that is legally achieved varies state by state.
Each state has its own mechanics' lien system on the books. The details can vary significantly. For example, in California, mechanics' liens expire within 90 days if not perfected (sued on), whereas in most other states, the laws provide longer expiration dates. It's one year in New York, by contrast.
Check with a lawyer familiar with how mechanics' liens work in your state.
To establish a valid lien, the contractor typically must comply with a number of statutory requirements:
If any of the above conditions are not met, the lien is invalid. You can easily check this for yourself; but if you conclude that you'll need to go to court, you might wish to have an attorney review your work.
In most states, the law applicable to mechanics' liens on residential property afford more protection against involuntary sale than liens filed against commercial property. Even so, if the lien is valid, if the contractor's lawsuit is successful and no alternative to foreclosure is available, the contractor could potentially force a sale of your home to collect the debt.
A mechanics' lien, once recorded, creates a title problem that must be dealt with before you can sell or refinance your home. If, after investigation, you are persuaded that the lien is invalid, you will have to go to the county courthouse or registrar of deeds to remove it.
If the lien appears to be valid, try resolving the underlying conflict with the contractor. Once the lien is filed, both you and the contractor have an even stronger financial incentive to reach agreement before you get to the courthouse. The contractor has already borne some expense in filing the lien, and would incur much more by filing a lawsuit to collect the debt.
For you, the resulting lawsuit and the additional title issues make it worthwhile to resolve the issue quickly. Consider mediation or, if the amounts involved are substantial, binding arbitration.
Prior to negotiations with the contractor or before mediation, you will want to marshal all of the documentation that serves your defense (invoices, letters, photographs, logs of telephone calls, witnesses to the shoddiness or absence of the work or materials, and anything else that supports your position).
Also see, How to Handle Disputes With Home Contractors.
Once the underlying issue is resolved, the contractor can voluntarily file a withdrawal of the lien.
If the contractor refuses to settle, or to engage in mediation or arbitration, you can either contest the filing of the lien immediately after it happens or you can wait until the contractor brings a suit for unpaid materials or uncompensated time. In either case, you'll want your documentation at hand, even if your claim is a statutory one (for instance, the contractor didn't provide you with a preliminary notice of lien) and be prepared and dissolve the lien.
If you intend to sell or refinance your house in the near future, time is an issue: you might want to see the lien dissolved quickly, even if you could negotiate a better financial solution with more time.