Although most construction projects go smoothly, there are often a few bumps in the road. One of the biggest potential problems is when a contractor or subcontractor doesn’t get paid for their work. If this happens, they have the legal right to file a construction lien against the property owner.
What is a construction lien?
A construction lien is a claim against a property that is being used as security for payment of a debt. The lien gives the creditor (the party to whom the debt is owed) the right to have the property sold in order to repay the debt. Construction liens are also sometimes called “mechanics’ liens” or “material men’s liens.”
Construction liens are governed by state law, so the specific rules vary from state to state. In general, though, there are four parties involved in a construction lien:
- The owner of the property on which the work was performed or supplied
- The contractor or subcontractor who did the work or supplied the materials
- The party who contracted with the owner to have the work performed, or the “general contractor”
- The person who loaned money to the owner to finance the project, or the “lender”
How can you make a construction lien?
If you’re a contractor or subcontractor, make sure you understand the lien laws in your state. Each state has different rules about when and how a lien can get filed. In some states, for example, you must give the property owner written notice before you file the lien; in others, you don’t have to give any notice at all.
Next, file the lien with the appropriate court or government agency. Again, the specific rules vary from state to state, but in general, you’ll need to fill out some paperwork and pay a filing fee.
The property owner may get notified of the lien. At this point, the owner has two choices: They can either pay the amount owed to the contractor, or they can try to get the lien released.
If the property owner doesn’t pay or get the lien released, the next step is for the contractor to file a lawsuit to foreclose on the property. This means that the property may get sold in order to repay the debt.
Construction liens are serious business, so you need to make sure you understand the laws in your state. As a contractor or subcontractor, you should know when and how to file a lien, and as a property owner, you should be aware of what your rights are if a contractor files a lien against your property.