Understanding a Mechanic’s Lien

What It Means

The term mechanic’s lien, despite the name, has nothing to do with mechanics or car repair services. The term’s root can be traced back to the 18th century, when contractors and builders were regularly referred to as mechanics.

Therefore, mechanic’s lien is a guarantee of payment made by a homeowner to construction firms, builders, laborers, material suppliers, and subcontractors. It is a security that protects the interests of the workmen and suppliers of building materials in case of liquidation, foreclosure, or repossession of a home. The lien plays an important role in that it bears a higher payment priority than other forms of debts.

How the Lien Works

Although the mechanic’s lien relates to properties, it is often taken for individual houses. However, it is important for home owners to understand how a lien works. Paying a contractor for work that has been done, including house remodeling or repairs is not enough. If the general contractor does not pay the subcontractor or the suppliers, the mechanic’s lien could still apply.

This means that a homeowner may end up paying twice for the same job. Otherwise, the subcontractor can enforce the lien. This can lead to foreclosure and sale of the improved property to recover the money that is owed to him.

Why Is the Lien Allowed?

In the eyes of the law, the sub-contractor’s or the supplier’s need to get paid is much greater than that of the homeowner. In other words, the home owner is the one who has the ultimate responsibility to ensure all workers and suppliers get paid. He is the one who asked for the job to be done in the first place.

This may seem unfair, but the law works under the assumption that the homeowner has other options for recovering the unpaid money from the general contractor. For example, he can sue for recovery of such money or the sale of his property.

How to Avoid a Mechanic’s Lien

While it is possible to recover money paid to a rogue general contractor, it is a tedious and lengthy process. Therefore, the best way is to take precautions beforehand and avoid such an eventuality. There are three ways through which a homeowner can protect himself

a) Require A Lien Waiver From The Contractor

In this case, a homeowner should ask the contractor to provide lien waivers from everyone who has been subcontracted, including materials suppliers. This should be a pre-condition before any further payments are made by the homeowner. However, such a waiver is only possible when the initial payments have been made in most states.

b) Making Payments On Joint Checks

This is where the homeowner writes out checks in the name of both the general contractor and subcontractors or suppliers. Therefore, such a check can only be cashed out with the approval of all parties to the payment.

c) Paying The Sub-Contractors And Suppliers Directly

While this may sound easy, it can also be very tedious. This is because, by dealing with the subcontractors and suppliers directly, the homeowner also has to handle their withholding income tax and social security issues. It may be the least likeable option of the three.

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