Mechanics' liens are one of the most important legal tools at the disposal of contractors, subcontractors, and suppliers of the goods they use. Liens are relatively quick and easy legal mechanisms to secure your rights to recover money for the work, labor, materials, or services performed in order to repair or improve a piece of real property. Whether you are a large general contractor or a one-person specialty subcontractor, you should be aware of the role that liens can play in making sure you collect the money you're owed.
Imagine that you are hired by a homeowner to construct a new garage next to a two-story house. The contract is for $20,000, payable in installments. You finish the project per the agreement with the homeowner and, at the end, send them your final invoice for the last $5,000. She never pays. What can you do?
Don't file a lien just yet. First, try to seek payment amicably. Contact the homeowner by whatever methods she seemed most responsive to before (such as phone, text, or email). Follow up by sending a formal demand letter, either on your corporate letterhead or from your attorney. These types of letters will put the homeowner on notice that you are still owed money, and that you intend to pursue your legal remedies. (They also could show a judge that you tried to resolve the dispute in good faith before rushing into a lawsuit.)
If none of these options result in payment, you might assume that the homeowner has simply decided to stiff you. At this stage, you can file a lawsuit for breach of contract, as well as other damages such as quantum meruit. But the lien law gives you an additional remedy: You can file a mechanic's lien.
A mechanic's lien is a short standard-form document, typically just a few pages long. While the specific requirements vary from one jurisdiction to the next, the lien will ordinarily require you to state the name of your company, the name of the homeowner, the address, the services performed or materials provided, and the amount of money still due and owing.
You must publicly record the lien by taking it to the county clerk where the property is located. Also, you will need to formally serve it on all other contractors or entities with a legal interest in the property, as well as the homeowner.
The lien becomes a cloud on the owner's home title, meaning that the title is subject to your company's interest in it. This will make it difficult for the homeowner to sell the property or refinance it through a bank or other institutional lender. In other words, the lien can incentivize the homeowner to settle with you in order to get you to remove the lien.
As mentioned, mechanic's liens are not only for general contractors. Subcontractors and suppliers are also able to file liens, even if they did not have a contract with the homeowner. Subcontractors and suppliers normally have a contract with only the general contractor. But this does not affect the ability of the subcontractor or supplier to file a lien against the property.
First, consider the message that it sends when you file a mechanic's lien. Homeowners can easily perceive it as an aggressive action. It might put them on the defensive, and encourage them to get lawyers involved, or to retaliate by publicly claiming that you did shoddy work. Perhaps this is the direction that you need to take, unfortunately, if the homeowner is refusing to pay.
The single most important legal consideration when considering your ability to file a lien is time. Each state has a specific statute of limitations limiting the time within which a contractor can file a lien. Sometimes, this limitations period is only a few months. Often, the period depends on whether the property is public or private, or whether it is commercial or residential. The time limitation for filing a lien is far more limited than the time for filing a lawsuit (which is sometimes as much as three to six years).
Finally, before filing a lien, you must consider the specific requirements of local lien laws. Each state, and indeed each county, has its own peculiarities with the technical aspects of filing a lien. What information must be included? What pages need to be notarized? Who needs to be served with the document?
In other words, there are many technical and procedural issues to consider. For this reason, it often makes sense to consult a construction attorney with experience in the county where the real property is located. A bit of advice can go a long way towards making sure that your lien rights are preserved and not precluded based on a mere technicality.