Imagine that you bought a large suburban home outside of Philadelphia last year. You decide that the basement—which is totally unfinished—needs some significant work. After asking around, you identify a seemingly responsible local general contractor. You and the contractor agree that, for $15,000, his company will install carpeting, wallpaper, and a half-bathroom to make the basement into a livable 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 a company you’ve never heard of called ABC Plumbing, Inc. ABC claims that the general contractor never paid it for the pipes it installed into your new bathroom—and now it has placed a mechanic’s lien on your home for $5,000.
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 Pennsylvania law?
Your first reaction upon receiving a mechanic’s lien in the mail might be confusion. Most Pennsylvania 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 a Pennsylvania county clerk’s office. It becomes a cloud on your property title, meaning that 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 clerk’s office of the Pennsylvania county where your home is located. In the example above, if the plumbing subcontractor puts a lien on your home in the amount of $5,000, anyone who buys your property would buy it subject to owing the subcontractor that $5,000. 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.
You may wonder what a lien looks like, if your contractor has threatened to file one. A mechanic’s lien is a short document, generally just a few pages long. Here is a model example of the lien notice form. The form must, among other bits 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 material that was provided (in other words, how did the contractor improve your property?). Note that the improvement need not be dramatic, like a full-scale renovation; it might merely be retiling a floor.
Negotiation should always be your first step when faced with a payment dispute. Put yourself in your contractor’s shoes for a moment. If you thought you were owed money, you would not want to immediately file litigation or lien. More likely, you would instead try to obtain payment without resorting to lawyers and courts. Most contractors will approach problems in the same way. Rather than simply 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 filing is to avoid it altogether.
Simply put, this requires you to negotiate with a contractor prior to the filing. If your Pennsylvania 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 the disagreement, have a frank discussion about it, 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 Pennsylvania 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 the ways in which the laws in the Commonwealth give you remedies with which to fight a lien once it is 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 that you should keep 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 the need for attorneys.
Finally, if you have not yet signed a contract with your home improvement contractor, keep in mind that Pennsylvania is somewhat unusual in that its statute allows for contractors and subcontractors to waive their rights to file liens on residential construction projects. 49 P.S. § 1401 provides: “A contractor or subcontractor may waive his right to file a claim against residential property by a written instrument signed by him or by any conduct which operates equitably to estop such contractor from filing a claim.” Thus, as a homeowner, you should consider requiring such a waiver of any contractors that you hire. This waiver could become very useful protection.
If a lien is filed on your Pennsylvania home, you may find it useful to actually understand the Commonwealth’s legal framework on liens. Liens are governed by the Pennsylvania Mechanics’ Lien Law of 1963, codified as 49 P.S. §§ 1101-1902. You may find that the legislative language is somewhat dense.
Like with most states’ lien statutes, Pennsylvania’s lien law contains many rules and exceptions, depending on the type of property involved and the work performed. Nevertheless, there are some broader important concepts that may be helpful for you to understand.
First, know that Pennsylvania permits a wide range of different types of entities to file liens on private property. Under the law, several different types of entities can file liens: (i) general contractors with direct contracts with owners; (ii) subcontractors in contract with general contractors; (iii) third-tier subcontractors to subcontractors; and (iv) material suppliers with contracts with either the general contractor or a subcontractor.
Note that Pennsylvania limits the contractual “distance” within which a contractor is allowed to file a lien. For example, a company that is a subcontractor to a subcontractor to a subcontractor (a “third-tier”) would be too far removed from the owner to file a lien on the property. (That entity would need to file a normal breach of contract action to recover monies).
As discussed above, a mechanic’s lien can create problems for Pennsylvania 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 Pennsylvania Court of Common Pleas in your county) to remove the lien. Your grounds for removing the lien 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 a Pennsylvania lien is that it is filed too late. In most cases, an entity seeking to file a lien must do so within six months of the date that work was last performed or that materials were last supplied to the property. For example, if a plumbing subcontractor last performed work on January 1, he or she would have until July 1 to file your lien. After that date, any lien would be time-barred.
A general contractor need not provide you with any formal warnings before filing a lien. Subcontractors generally cannot file a lien without notice. Under the Pennsylvania Mechanic’s Lien Law, however, a subcontractor must give 30 days written notice to the homeowner of its intent to file a lien. The public policy goal is to give you time to negotiate or pressure the general contractor regarding payments to subcontractors. If a subcontractor files a lien on your property without this required notice, the lien is usually invalid.
There are still more deadlines that your contractor may fail to follow. Once a lien is filed with the county clerk, the contractor must serve a copy of the lien on you within 30 days through a formal process server. A subcontractor must serve the lien on the owner and the general contractor. After service, the contractor or subcontractor must file a copy of the affidavit of service within 20 days. Failure to perform this service in a timely manner, and file the required affidavit confirming the service, could invalidate their lien.
Busy contractors and subcontractors often will miss these technicalities. Fortunately for you as a homeowner, Pennsylvania 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, Pennsylvania law gives you a number of legal tools with which to remove the lien from your property record.