A mechanic’s lien or construction lien is a claim against your property made by a contractor, subcontractor, or material supplier who feels he has not been paid in full. Liens were created to protect contractors and suppliers from not getting paid. The laws governing liens vary from state to state, but in all states a lien against your property is a problem. It creates a “cloud” on the title, making it difficult or impossible for you to get a mortgage or sell the property until the lien is lifted. At worst, you can end up paying for the work twice, once to the general contractor (who never paid his sub, for example) and again to the sub.
Who should sign? A lien waver is a document signed by the contractor, subcontractors, and suppliers stating that they have been paid in full and waive the right to slap a lien on your property. Even though you have paid the general contractor in full, he may fail to pay one of his subs or suppliers, giving them the right to file a lien against your property. As a general rule, it is wise to have the general contractor, key subcontractors, and major suppliers sign lien wavers before handing out the final check.
On a large project, some banks will require lien waivers before each progress payment is made. At a minimum, most will require a lien waiver from the general contractor before cutting the final check. They should also get waivers from key subcontractors and suppliers, but often do not. After all, it’s you on the hook for the lien, not the bank.
A time bomb. Until a title search is done – as when you go to sell the house ten years later – you may not even know that a lien has been filed, as there is no automatic notification in many states. To protect yourself, have your general contractor sign a lien waiver before handing over the final check, whether a bank requires it or not. You can also call the local town hall to see if any liens have been filed. It’s also not a bad idea to contact the subs and major supplier to see if they have been paid before cutting the final check.
In general, a lien waiver should contain:
- The name and address of the contractor or supplier
- The owner’s name
- The amount of money received
- A detailed description of the work, it’s location, and it’s current status
- Dated signature of the contractor, supplier, or an authorized representative
- Witness signature (good to have)
A lien waver is worded differently depending on whether it is signed along with a progress payment or the final payment, and whether you or your contractor has already paid the bill (an unconditional waver) or are about to pay (a conditional waver). A sample final-payment lien waiver is shown below.
Before making final payment to the general contractor, he should present the owner with final lien waivers from all major subs and suppliers on the job. However, since the laws and specific wording required vary from state to state, consult with a lawyer before proceeding.
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See also How to Fight A Mechanic’s Lien