Mechanics Liens

There are multiple types of liens that exist in the United States. Liens are legal steps that individuals and entities can initiate against assets that belong to a person or entity that owes them a debt. When a lien is placed on property, the owner has a difficult time selling or retaining it until they settle the debt that triggered the lien. Liens therefore help resolve debt issues and provide an additional layer of accountability for the debtor.

Overview

Mechanics’ liens (also known as artisans' liens or materialmen's liens) are a common way that builders, contractors, and construction firms have a guarantee of payment when they are hired to build or repair structures. Building projects go on for extended periods of time, and payment terms vary greatly from project to project. Should a building or repair plan get disrupted, a mechanics’ lien ensures that the workers are paid before anyone else in the event of liquidation.Mechanic's liens also cover suppliers of materials,and subcontractors.

The mechanics’ lien is a very old and established lien type in the U.S. It was introduced by Thomas Jefferson, who intended to create a landed gentry in the United States.The U.S. had ample stretches of available land, and a mechanic's lien helped citizens build farms. The name of this lien type is somewhat misleading - it’s called a mechanics’ lien because builders used to be referred to as mechanics in those days.

Lien laws vary by state,so specific types of costs that can be included in a claim will vary depending upon where the lien is filed.A property cannot be sold or liquidated while a mechanics’ lien is in effect. Mechanic's liens usually have a higher priority than other forms of debt, so when there is a foreclosure or bankruptcy, having this type of lien could mean the lien holder gets paid faster than other entities.

How Mechanics’ Liens Work

When mechanics’ liens are filed, the documents are recorded with the land records. These appear on title property searches. Anyone who buys or accepts the property after a lien is filed, accepts it as a condition of the transaction. This means that the property becomes much harder to sell, as most buyers do not want to deal with this type of hurdle. A property will not be sold, refinanced or otherwise transferred without the mechanic’s lien claim being resolved.

The process of filing a mechanic's lien differs depending on area. These liens are available to nearly anyone who contributes labor, services, or materials to a real estate project. If the lien holder that is owed money goes unpaid, he or she can extract payment out of the real estate itself and, if necessary, go to court to have the property sold at auction.A mechanic's lien must be filed at the appropriate local or state office in the county in which the project is taking place. The contractor filing a lien must be licensed, and lien laws are only available to parties providing supplies or services to the project directly, as opposed to vendors working on the project.