What is mechanic’s lien?
This is a security interest which can be obtained in property by anyone who spends resources on that particular property. It can also be defined as security interest in a property’s title for the advantage of someone who has supplied resources (materials or labor) that lead to an improvement of that property.
Mechanics liens is applicable in the case of personal as well as real property. In the demesne of personal property, it is also known as artisan’s lien, whereas in real property, terms such as construction lien, designer’s professional lien, supplier’s lien or material’s lien are interchangeably used in it place.
How does it work?
A supplier or contractor must do the following in order to obtain mechanic’s lien:
1. Notify the property owner about the resource being contributed within a month of the contribution.
2. If the subcontractor/ supplier receive no payment, they ought to file a mechanic’s lien claim in the state/ country where the personal/ real the property is found.
3. Seek an out-of-court settlement with the owner of the property. If this isn’t possible, a lawsuit must be filed within reasonable time.
What is the rationale of mechanics liens?
Paying for the sins/ irresponsible behavior of the principal contractor may seem unfair. However, this isn’t the case. Essentially, if a comparison is made between the needs of a property owner and those of a supplier of materials, the latter’s needs are greater and are therefore given more preference.
Additionally, the law assumes that you (the property owner) will take legal action against the general contractor.
How to avoid mechanics liens
If you want to stay safe, consider paying with joint checks, making direct payments to suppliers/ subcontractors and/or waiving the lien.
1. Paying with joint checks
In order to ensure that the suppliers and subcontractors get their payments, write multiple checks that must be jointly cashed out by all the concerned parties. The checks should only be cashed out on condition that the other beneficiaries give endorsements.
2. Directly pay the suppliers and subcontractors
Consider making direct payments to the other concerned parties, even though most general contractors will hate you for doing this. However, this may make you look like their direct employer. As a result, you’ll be forced to take care of matters such as social security payments as well as income taxes.
3. Waive the mechanic’s lien clause
You can ask the principal contractor to obtain lien waivers from all prospective suppliers and subcontractors before commencement of the project.
As a property owner, you must take cognizance of the fact that if a supplier or subcontractor receives no payment from the principal contractor, the supplier/ subcontractor has the legal right to take up the matter with you, regardless of whether or not you paid the principal contractor in full.
Eventually, you may be compelled to dispose the property or make extra payments. Therefore, you ought to have a clear understanding of mechanic’s lien, how it works and how to stay safe.