Chances are most of us have never heard of a property lien. Yet in the world of remodeling and home building, a lien against someone’s property can be a common occurrence. And it usually leads to legal headaches and frustrating financial situations.
What is a lien?
Let’s start with a lien definition. A lien is a notice attached to your property informing everyone that you owe the creditor money.
Who can put a lien on your house?
A lien on property is a common way for contractors to make sure they get paid. Legally, an unpaid contractor, subcontractor or supplier can file a lien (sometimes called a mechanic's lien) that could eventually force the sale of your home in place of compensation. For example, you may face a property lien if:
- You refuse to pay your contractor for work done on your remodel, and the contractor files a lien on the house for services rendered.
- Conversely, if the contractor who worked on your project does not pay for materials, a supplier could place a lien on your property.
Why a lien can spell legal trouble
You definitely do not want a lien on your home. One of the primary reasons why is that a lien on your home makes your title unclear, also known as a “cloudy title.” Then, if you ever want to sell or refinance, you have to pay off the lien to clear up the title. Creditors know that putting a lien on your property is a cheap and almost guaranteed way of collecting the debt they're owed.
In some states, contractors and subcontractors must notify the property owner before filing a lien, but in other states property liens can be filed without any notice to the owner.
Steps to avoid a lien
So how do you protect yourself against property liens during your remodel? Here are three ways to help protect you and your investment:
- Make sure you have a list of all the subcontractors, laborers and material suppliers that your primary contractor will be using, and ask for proof that everyone has been paid before releasing your final payment — otherwise you could be held liable.
- Before making any partial or final payment to your contractor, ask for a Release of Lien and Affidavit (or Partial Release of Lien and Affidavit). These will either indicate that the contractor has paid all laborers or list out who is still owed money and how much. If you pay the subcontractors or laborers directly, make sure to get a release of lien.
- Even if your state doesn’t require a written agreement, ask for one. Also keep in mind that contract requirements vary by state. It should be clear and concise and include the who, what, where, when and cost of your project. It’s not a bad idea to have an attorney review the contract before you present one or sign one.
Finally, don’t make the final payment or sign an affidavit of final release until you’re satisfied with the work that has been completed. After all, you’ve probably spent a lot of money and time on this project — and chances are both you and any contractors want to walk away with a feeling of a job well done.
