The Expert Podcast

So, what is a mechanic's lien on a property in real estate, and how does it affect you as a contractor, a builder, or possibly as a property owner? Well, the mechanic's lien sounds like it has something to do with a car, like a car mechanic. Even though there is a similar process in the automotive industry that's a mechanic's lien that helps auto mechanics who worked on cars, a mechanic's lien is more often used as a term to describe a real estate transaction or a real estate event. And basically, what a mechanic's lien does for real estate is protect contractors and builders from not getting paid after they have done construction work on a piece of real estate.

Let’s suppose you are a builder and you build a house for somebody on their property, and they decide not to pay you for the repairs or the remodel or the addition, or just building a new house from scratch. Well, that person can't get away with it because by performing work on someone's property, you get an automatic lien position on their property. Now remember, we’re not attorneys, we’re not giving you legal advice, and the laws vary from state to state. We’re going to give you some of the basics on how this works.

So, let's say a contractor builds an addition on your house and they get done, and they say, "Hey, where’s my money?" and you say, "Heck with you, I’m not paying you." Well, they can go right down to the land records and file a lien against your property, just like a mortgage on your property, and that’s going to be there until you pay them. It’ll collect interest, it’ll collect penalties, and they can actually foreclose on that lien on your property, subject to the first mortgage. Sometimes it takes precedence over other types of claims, a mechanic’s lien.

So, the short story is, if somebody does work on your property, you do want to pay them because it will probably affect your clear title to your house. Now, where it gets more tricky is if you are a subcontractor. How does it protect you? Well, as you know, if you're in the building industry or construction industry, if you're a subcontractor, you have the same rights. So, let's say the same scenario: the builder builds a house on someone's property, and they hire an electrician to do the electrical work on that house, and the electrician doesn’t get paid. Well, the electrician can file a mechanic’s lien for their contribution to that house.

So, if the general contractor takes the money from the owner and doesn’t pay the subcontractor—the electrician, the plumber, the framer, the roofer—then that one subcontractor can file a lien for their portion of the build. Here’s where it gets even trickier. Let’s say you, the property owner, pay in full that general contractor for the whole job, but they don’t pay a subcontractor. The subcontractor can come back and file a lien for work that you paid for, but the money never got to the subcontractor.

So, there’s a process called a lien waiver. Any subcontractors that work on the house, you get waivers from them as they are paid, and maybe before you pay the general contractor. Many times, the construction manager will handle those lien waivers. It gets even more complicated: mechanic's liens also apply to companies that provide materials. So, let’s say if you call the lumberyard and they deliver a bunch of building materials—lumber, tub forts, framing, roofing, paint, whatever—and they’re not paid. If they delivered the materials to the job site, they also, in most states, have rights to a lien position. So, if they don’t get paid by the general contractor, they can lien your house. You want to get lien waivers from the materials.

In most states, it also includes providing equipment. So, if somebody rents an excavator or rents tools, and those tools are delivered to the job site, those can also have a lien position. Now, in most states, it only counts if they deliver to the property. If the builder goes to the lumberyard and picks up the materials, that does not count for lien position. So, as you know, if you're a builder, you want to make sure that you get your proper lien waivers from your subs, and you also want to get the proper form signed by the property owner because in most states, if you don’t have a valid signed contract and give notice to that property owner before you start the job, you may be waiving your right to a mechanic’s lien.

And in most states, any proposal for construction, additions, or building over a certain amount—like if you’re just fixing somebody’s lock on their house for 50 bucks, it doesn’t count. Most states have a threshold, $2,000 worth of work. You have to have a written contract and give that property owner notice that they may be subject to a lien if they don’t pay the balance. If you don’t get that signed contract and you don’t give that notice, you may be waiving your lien rights. And if the property owner does not pay, you have to exercise those rights within a certain period of time.

So, if you’re a builder, make sure that you’re getting those notices done properly and getting the right contract signed. How does the process work? Well, here’s a really good resource from, happens to be from North Carolina, lien law. Who’s entitled to a mechanic’s lien? Anybody who contracts with the owner, contracts with the general contractor, first-tier subcontractors, second-tier subcontractors. So even a second-tier subcontractor can order materials, get it delivered to the site, and that is a lien position. They have to give notice within 30 days of the building permit for that lien.

Here’s an example of the notice of contract, notice of subcontract. You have to have the address of the subcontractor filing a notice, which has to be done within a certain period of time. They give you examples of the wording to use for the notice of claim of lien funds for the subcontractor. It tells you it has to be done within 120 days of the last date that the materials were furnished, so you have a deadline. If you’re a lumberyard, you deliver your materials; if you’re not paid, you have to file it within that. Otherwise, you lose your rights. A lawsuit to foreclose on a lien must be filed within 180 days. So, you have 6 months, and you can sell the land to satisfy the lien.

Here’s the summary of the process: you make a notice, you notice the subcontract, you notice a claim of lien, you do the lien claim within 120 days, and then you can actually do a land sale on the property. This is an example of the mechanic’s lien form. This one happens to be for California, but most is about the same. It’s important for any party to construction, remodel, or major repairs on a house renovation to even be aware of what the rules are for a mechanic’s lien because if you’re a builder, you want to make sure you don’t lose your rights and not get paid. If you’re a property owner, you want to make sure you don’t have to pay twice—you pay the general contractor, and then those funds don’t get to where they’re supposed to go, and then you have to pay again to clear liens.

So, mechanic's liens are a valid and reasonable way for contractors and builders to protect their interests and get paid for work that they performed, but it’s also a way to protect the property owner because, look, if a builder wasn’t able to protect themselves and they didn’t have this mechanic’s lien, they would just make sure and get paid up front for anything so they don’t lose money. But if you have to pay up front, now the bill could just run away with your money and not do any work. So, this is a fair way to balance both sides. It’s been used for decades to protect quality, legitimate builders and contractors from not getting paid, but also to protect property owners from unscrupulous builders who would just run off with your money. So, having this mechanic’s lien process in place is good; you just have to make sure that it’s executed properly. If you’re a builder, do your paperwork right. If you are a property owner or lender, get your lien waivers so that you don’t end up with a property that has multiple liens on it for something that you already paid for.