Protecting Your Home from a Mechanics Lien
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REMODELING? BEWARE OF THE MECHANICS LIEN!
MECHANICS LIEN DEFINED:
A contractor or material’s supplier files a Mechanics Lien as a security interest for non-payment of monies owed after working on your home. Just because you pay your Contractor does not mean that he is paying his subcontractors and material suppliers. The responsibility falls on you for payment to all material suppliers, subcontractors, and laborers who work on your house. This translates to you being responsible for work and supplies that you were not directly involved in ordering.
If you do not ask, you may not know all of the parties to whom you are indebted and those people hold some power over your home.
When selling your home, the surprise of a mechanics lien can be a real headache when it shows up on your Preliminary Title Report. It must be satisfied (paid off) or removed before clear title can be passed to the new homeowner. This involves valuable time, money and effort that can wreak havoc on a transaction.
POTENTIAL PROBLEMS OF MECHANICS LIEN
If a Mechanics Lien is filed against your property, you will face several potential problems:
1. Foreclosure in the event you are unable to pay
2. Double payment. You probably have paid your general contractor and now you have to pay again to the subcontractor.
3. You’ll acquire a “cloud on title” which will affect you borrowing against your property, refinancing or selling the property.
PROTECTION FROM A MECHANICS LIEN
You can take a few simple steps to keep a Mechanics Lien at bay:
- Track the Preliminary Notices from subcontractors/suppliers working on your home. Preliminary Notice must be given to you within 20 days of the delivery of materials or commencement of work. This discloses entitlement to the mechanic’s lien and is your alert to keep an eye out for a Lien Release from this party.
- Make sure your General Contractor is licensed. You can find license status at the Contractor’s State License Board.
- Always make sure you receive a “Lien Release” (written statement that removes the property from the threat of lien) from your contractor for all suppliers and subcontractors he has used prior to paying him.
- Make sure that the subcontractors and material suppliers used (to date) provide their Lien Releases PRIOR to giving any progress payment to them. At that time, also have your general contractor provide you with a signed Unconditional Waiver and Release. This is the only leverage you have to hold your contractor accountable.
- If the contractor is planning to pay the subcontractor/supplier from the progress payment, you can protect yourself by having the contractor provide a Conditional Waiver and Release.
- When the home improvement project is complete, you should file a “Notice of Completion” with the County Recorder’s Office. This will reduce the amount of time that a contractor has to file a mechanics lien. For subcontractors, the timeframe is shortened from 90 days to 60 days and for suppliers, it is shortened from 60 days to 30 days.
All forms can be obtained at the California Contractor’s State License Board
I know it sounds like a lot of effort but when it comes to protecting your family and your home investment, a little extra effort today can save a lot of time, money and headaches tomorrow.
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