Imagine that you own a large suburban home outside of Indianapolis, and decide that the unfinished basement needs significant upgrades. You identify a seemingly responsible local general contractor and agree that, for $25,000, his company will install carpeting, wallpaper, and a half-bathroom to make the basement into a usable space.
Unbeknownst to you, the general contractor hires several subcontractors. About a month after you thought your basement project was completed and paid off, you come home to find a legal document waiting for you: a mechanic’s lien filed on your property by an electrical contractor you’ve never heard of. It claims that the general contractor never paid it for the labor and materials it provided to your basement—and has therefore placed a mechanic’s lien on your home for $7,000.
Having already paid your general contractor, you’re furious. You did not realize that he had turned around and hired subcontractors, or that they were left unpaid. What is this legal document, what effect does it have on your home, and what can you do about the lien under Indiana law?
Your first reaction upon receiving a mechanic’s lien in the mail might be confusion. Most Indiana homeowners have likely never seen or heard of this document. Unlike lawsuits, liens are relatively obscure and do not garner much media attention or appear on many dramatic television shows. What exactly is this type of lien, and what does it mean for you?
A lien is a document that gets publicly filed with an Indiana county clerk’s office (also known as the Indiana County Recorder’s Office). As one example, you can see the Marion County Recorder’s website, complete with forms and instructions. These recorders’ offices are usually located in the same building (or near to) the county’s local District Court. The lien becomes a cloud on your property title, meaning your title is subject to the contractor’s stated financial interest in it.
In real terms, this means that a contractor or subcontractor (who believes you owe money for work on your home) filed the document in the county recorder’s where your home is located. In the example above, if the electrical subcontractor puts a lien on your home in the amount of $7,000, anyone who buys your property would buy it subject to owing the subcontractor that $7,000. This will make it difficult for you to sell the property (or to refinance it through a bank or other institutional lender). Contractors and subcontractors therefore use liens as a means of incentivizing property owners like you to settle with them.
Wondering what a lien looks actually like? It’s is a short document, typically just a few pages long. Here is a model example of the form. The Indiana lien form must, among other pieces of information, include the contractor’s name, the homeowner’s name, the location of the property, and the amount of money still allegedly due. The contractor must also describe the labor or materials provided (in other words, how did the contractor improve your property?). The improvement need not have been dramatic, like a full-scale renovation; it might merely be retiling a floor.
If the lienor is a subcontractor or supplier and worked for a general contractor that failed to pay, that sub must list the primary contractor’s name and address, too.
Disputes with contractors are always frustrating, partly because your home is so personal. Nevertheless, negotiation should always be your first step when faced with a payment dispute.
Why negotiation? Put yourself in your contractor’s shoes for a moment. If you thought you were owed money, you would not want to immediately initiate litigation or file a lien. More likely, you'd first try to obtain payment without resorting to the Indiana court system. Most contractors will approach problems similarly. Rather than filing a lien on your property out of nowhere, they ordinarily start by making repeated requests for payment.
Only if these requests are ignored or rejected will they be provoked into filing a lien or a lawsuit. In other words, when a payment dispute arises, consider the big picture. The best way to fight a lien is to avoid it altogether.
Simply put, this requires you to negotiate with a contractor prior to the filing. If your Indiana contractor asserts that he or she is owed an extra sum of money, do not just ignore the phone calls or invoices. This might be viewed as a sign of disrespect, as well as a sign that you have no intention of speaking in good faith. While you might think that this “tough” stance will convince your contractor to simply go away, the contractor is just as likely to become defensive by filing a lien, a lawsuit, or both.
You and the contractor may have a good faith disagreement about whether certain work was part of his contract, or about the quality of that work. Rather than ignoring it, have a frank discussion, or consider going to mediation.
In mediation, a third-party neutral (often an attorney or individual with experience in the construction industry) can help you and your Indiana contractor negotiate a fair settlement. In both negotiation and mediation, you should be open to clever settlement strategies. Rather than paying a lump sum, perhaps payments could be made over time. Rather than a monetary settlement, maybe you could offer the contractor a public endorsement or reference. Rather than fighting in court, you could offer the contractor discounted payment in exchange for a limited scope of ongoing work. The creative possibilities are up to you.
We will soon explore ways in which the laws in Indiana let you fight a lien once it's filed. However, as this discussion shows, you are likely to save both time and money if you find a way to settle the payment dispute with the contractor. This does not mean you need to give into all of the contractor’s demands, but it does mean keeping in mind the costs of legal action to fight a lien. It is likely in both your and the contractor’s interests for the payment dispute to be resolved quickly, without need for attorneys.
If a lien is filed on your Indiana home, you may find it useful to actually understand Indiana’s legal framework on liens. Liens are governed by Indiana Mechanic’s Lien Act, codified as Ind. Code Ann. § 32-28-3 et seq. Unfortunately, much of the language of your state's statute is somewhat dense. As with most lien statutes, Indiana’s contains many rules and exceptions, depending on the type of property involved and the work performed. But there are some important concepts for homeowners to remember:
To protect homeowners like you from situations where subcontractors you never hired suddenly file liens on your property, Indiana enacted Ind. Code Ann. § 32-28-3-1(h). That statute provides that any “person, firm, partnership, limited liability company, or corporation that sells… material, labor, or machinery for the alteration or repair of an owner occupied single or double family dwelling… [to] (1) a contractor, subcontractor, mechanic; or (2) anyone other than the occupying owner or the owner's legal representative… must furnish to the occupying owner of the parcel of land where the material, labor, or machinery is delivered a written notice of the delivery or work and of the existence of lien rights not later than thirty (30) days after the date of first delivery or labor performed. The furnishing of the notice is a condition precedent to the right of acquiring a lien upon the lot or parcel of land…”
Put differently, if an entity does not have a direct contract with you, but instead with a general contractor or other entity in the construction chain, then they must give you 30 days’ notice after beginning work on the project. This notice will ensure that there are no “surprises” if the subcontractor or supplier eventually needs to file a lien.
As discussed above, a mechanic’s lien can create problems for Indiana homeowners like yourself. There are several strategies to get the lien removed. The first, as mentioned, is to negotiate a resolution with your contractor.
A second option is to obtain what is known as a “lien bond” through a surety company. The bond essentially guarantees payment to the contractor in the amount of the lien, if the contractor is ultimately successful on the legal claims, but also removes the lien from your property record in the meantime.
Third, you can petition a court (specifically, the Indiana District Court in your area) to remove the lien. Your grounds for removal might include that the contractor never did the work that the lien claims, or that the work was already compensated; that is, if you have proof that you paid for that work.
You can also attack legal deficiencies in the lien. One of the single most common legal deficiencies in an Indiana lien is that it is filed too late. For residential properties, lienors generally have only 60 days from the date that they last provided labor or material to the project. Ind. Code Ann. § 32-28-3-3(b)(2) says that this short deadline applies to “Class 2 Structures,” which another relevant statute defines as including any “townhouse or a building or structure that is intended to contain or contains only one (1) dwelling unit or two (2) dwelling units.”
Once the lienor has successfully file a lien, there is another critical deadline by which the lienor must “foreclose,” or file a suit, on the lien. Under Ind. Code Ann. § 32-28-3-6, the person enforcing the lien will need to file a complaint in the appropriate court no later than one year after the lien was recorded. Lien that are not enforced within the appropriate time become void. (The lienor is not permitted to simply keep the lien on your property docket forever).
Keep careful calendar of these filing dates so that you can catch any errors by the leinor. Busy contractors and subcontractors often will miss these technical requirements. Fortunately for you as a homeowner, Indiana courts will usually enforce them fairly strictly, giving you useful arguments to invalidate faulty liens.
Liens can be frightening, since they are a somewhat obscure legal mechanism. Remain calm if you are served with a lien. Remember, few contractors are excited about the idea of prolonged, expensive litigation.
To the contrary, most would prefer to settle the dispute quickly, and move to other construction projects. But if there is no hope of coming to a reasonable middle ground between your position and the contractor’s, Indiana law gives you many legal tools with which to remove the lien from your property record.
Remember, the laws around liens are complex in Indiana, and it might make sense to hire an attorney with experience in real estate or construction law to provide you with personalized guidance. For more on retaining a lawyer, check out Nolo’s Guide to Finding an Excellent Attorney.