Mechanic’s liens are legal claims meant to protect contractors and subcontractors from not getting paid on construction projects. The nature and rules of mechanic's liens can be complicated and confusing. Subcontractors often have a lot of questions about how these liens work, when their company should use them, and if they’re effective at securing payments.
This article will cover everything you need to know about mechanic’s liens, including:
In the simplest terms, a mechanic's lien is a legal tool used by contractors and subcontractors to make sure they get paid for work completed on a construction project.
Filing a mechanic’s lien says that:
Mechanic’s liens are essentially a security interest in the title of the property. But they’re not like most security interests where the debtor offers up the title as collateral on a loan. The debtor (i.e., property owner) doesn’t have to agree to a mechanic’s lien at all. They don’t even get notified of the lien filing until after it’s granted. This is why some people refer to it as an “involuntary security interest.”
Once a mechanic’s lien is filed, the property owner can’t sell or refinance the property until the debt is settled.
When you file it, you’re stating that if you don’t receive payment, you will proceed with litigation. You effectively have the right to force the sale of a property to get paid.
Mechanic’s liens exist in every state, but each state has different legal requirements. They apply to almost any commercial or residential construction project. They do not apply to public projects, and requirements vary when it comes to multi-unit housing projects.
Nearly everyone involved in a construction project can file a mechanic’s lien if they don’t get paid for services, labor, or supplies they provided for the project.
Contractors and subcontractors, architects and engineers, and even material suppliers and equipment lessors can all file liens when they follow the state requirements where the property is located. (Although when a supplier files the lien, it’s often called a materialman’s lien; when a design professional files one, it may be called an artisan’s lien.)
So it doesn’t matter if you pour foundations, install the electrical wiring or plumbing, or are responsible for the finishing touches—you have lien rights to ensure you get paid for your work.
Unfortunately, it can take a long time to get paid in construction—and subcontractors are often lower on the priority list. It’s not uncommon for payments to take months to arrive.
As a subcontractor, you can take a few approaches to collect money owed. You can continue sending demand letters. You can file a breach of contract claim and try to resolve it through collections, arbitration, or litigation. You can negotiate joint check agreements, promissory notes, or personal guarantees. Or you can take the most effective route and file a mechanic’s lien.
There are a few big reasons mechanic’s liens are so successful at collecting payments.
Before we get into how to file a mechanic’s lien, there are a few general tips to keep in mind.
As we said in the beginning, mechanic’s liens can be complicated. There are several steps you must take to be able to file a mechanic’s lien. (Keep in mind that the first two steps aren’t last-resort actions. We recommend you incorporate them into your standard billing practices.)
1. Preliminary Notice: Sometimes referred to as a notice to the owner or a notice of furnishing, depending on your state.
You should always send a preliminary notice at the start of the project to inform the property owner, GC, or any other parties with financial interest in the property, that you’re involved in the project and you have a right to file a lien if you’re not paid for the services you provide. This is an essential step in securing your right to payment.
Thirty-four states require subcontractors to send a preliminary notice to keep their lien rights. Some states only require it for certain types of projects or contracts exceeding a certain amount. (This 2017 resource from LevelSet provides an overview of the states that require a preliminary notice, but double-check your state’s official statutes for the most up-to-date requirements.)
2. Notice of Intent to Lien (NOI): Sometimes called an intent notice or notice of non-payment.
This is your final warning before filing a lien. Filing an NOI says you intend to place a lien on a property if you don’t receive payment within a specific number of days. They work similarly to a demand letter but catch the attention of property owners.
Only a handful of states require an NOI, but they can be an effective way to generate payment without actually filing a lien. Making this a standard part of your accounting processes for past due payments can help with your accounts receivables.
3. Mechanic’s Lien: If you file a NOI to demand payment and you still don’t have your money once the deadline passes, then you can file a mechanic’s lien.
First, make sure you have the right to file the lien. If you don’t meet all of the requirements and file a mechanic’s lien anyway, it could be deemed a frivolous lien and result in costly consequences. Make sure you answer:
As with any legal document, filling out the mechanic’s lien form requires complete and accurate information. Start by finding the correct form for your state. Every state’s form is different. If you download the form from a free legal form provider, double-check that it meets all of your state’s requirements.
There are three important sections on every mechanic’s lien form:
Once you’ve completed the mechanic’s lien form, the next step is to file it with the county clerk or recorder where the job site is located. This is an important note. Do not file it where your business, the GC, or the property owner are located.
It can be a good idea to contact the county recorder’s office to check their filing requirements.
A mechanic’s lien doesn’t enforce itself. You need to inform everyone that it exists and then follow up to collect payment.
Remember: your lien will expire. So don’t wait too long before you follow through with these actions.
We’ve heard from subcontractors that they wind up getting paid at least half the time a lien is involved. If your lien is effective in securing payment, you’ll need to file a lien release or lien cancellation with the same office where you filed your original lien paperwork.
But if your outreach doesn’t prompt a payment within a couple of weeks, it may be time to take the next steps.
Mechanic’s liens have the highest success rate when it comes to collecting past-due payments. So it’s important to preserve your lien rights in the event you need to use this powerful tool. This gets complicated when most GCs require you to submit a lien waiver (i.e., a document surrendering your lien rights) if you want to get paid.
Lien waiver management can be tricky. You need to send the right forms to the right people at the right time to avoid putting your company at risk. This delicate balancing act is a big reason subcontractors use Siteline’s construction billing software. Our system makes tracking and managing lien waivers simple, helping our customers avoid payment delays and get paid an average of three weeks faster. Check out a demo to see how it can streamline payments and eliminate headaches.