A conditional contractor’s lien or a mechanic’s lien is a contractor’s protection or insurance package against non-paying or untimely paying clients or property owners. This lien is completely a legal claim against a home or other property and can only be issued by a state’s legislative arm.
This system allows subcontractors and suppliers to lay claim to your property until you do the needful. The only way to be cleared of a mechanic’s lien is to ensure you make timely payment and obtain a mechanic’s release form or waiver form which makes the property free of the lien. At this point, you can do whatever pleases you with your property.
Unlike most legal documents with similarities, mechanic’s liens differ significantly from state to state. This means every state employs a different format for acceptability’s sake. Each state also has standard limitation periods for when liens can be initiated. In some part, it varies based on the type of ownership (private or public).
Due to these major differences, it is very compulsory to get acquainted with the laws and practices that guide your state when it comes to filing a lien. Better still, consulting a local lawyer, especially one who specializes in construction law is not a bad idea.
A good thing about a lien is that it can be filed by anyone involved in the construction project. Hence, it is of no use paying the contract fee to the general contractor. If the general contractor fails to pay any of the subcontractors or suppliers, you liable to answer to a lien.
In the end, you may be forced to pay for the service rendered twice or sell the property involved. Therefore, it is important to understand how a lien form works.
How a Mechanic’s Lien Works – The Basics
Before filing a lien as a contractor or supplier, it is important to send a Preliminary Notice and Notice of Lien first.
A mechanic lien follows a preliminary notice. This waiver alerts the rightful owner, prospective buyers, and lenders that the property has been placed on a lien.
Depending on States, this release is time-specific (a through date) and because it is conditional, it will not take effect until all payment to the contractor is complete.
Why Do Contractor’s Claim Liens?
Every project employs a division of labor system. This chain includes the general contractor, subcontractor, supplier, and more. When things get complicated within these ranks, especially in terms of payment, a lien form or waiver is your way of ensuring balance as a contractor.
Because a subcontractor and a supplier can also file this form, it is compulsory to ensure all progress waivers are sorted down to the final waiver. These waivers at times, also serve as a measure of a project’s advancement.
Summarily, placing a lien alerts an owner or hastens his or her decision-making. Thanks to it you can get your unpaid sum or sue for a breach of contract. Either way, it is your insurance policy for payment.
Types of Lien Waivers
Take for example, in the US, four types of waivers exist:
- Conditional Waiver on Final Payment: Issued when the final payment has been made just awaiting confirmation.
- Conditional Waiver on Progress Payment: Issued when any of the preliminary payments has been made just awaiting confirmation.
- Unconditional Waiver on Final Payment: Issued when the final payment has been made and confirmed by the other party.
- Unconditional Waiver on Progress Payment: Issued when any of the preliminary payment has been made and confirmed.
It is important to note these differences and opt for the one which best suits your situation.
Receiving lien waivers
When making payments for a project to a contractor, subcontractor, or supplier, ensure to request a lien waiver. Receiving lien waivers is no big deal, the cumbersome portion of the whole process is the tracking, reviewing, and management of those documents.
Sending lien waivers
Lien waivers are exchanged in millions on different projects within a country annually. Hence, when you send a waiver and it looks like the payment is not forthcoming, this is because of the long administrative process a waiver undergoes.
To make things faster, contractors and suppliers can send lien waivers electronically. It is best to be patient when sending a waiver.
Steps in Completing a Lien Release
When completing a lien release, the following steps are necessary:
- Obtain and show an original copy of evidence of payment to the claimant. You can also include a copy of the payment with the release form for record sake.
- You must include the through date and other exceptions. This is because a release of lien form covers only the thorough date and excludes additional debts.
- Submit the original (completed) release of lien and waiver to all parties involved.
Free Forms & Templates
Let’s start with the basics. A filed lien means there is a form of a payment dispute. These documents are often exchanged at the point of payment to reduce the chance of dispute.
Also, you must understand that these documents are somewhat complicated. No thanks to the rules guiding them. Each state has its regulations. Hence, you must know the rules guiding your state and thread with caution.
Based on its function(s), everyone should use lien waivers.
Unfortunately, this is not the case. So, who needs these waivers? Well, if you execute construction projects (contractor, subcontractor, or supplier), you need waivers. This because you will be required to provide them at every instance of payment.
This depends on your:
State – Some states require specific waiver forms.
Type and status of payment – If it is related to final payment, a ‘final waiver’ form overrides all lien rights on the project. However, if it is one of those series payments, a ‘progress waiver’ is initiated and it clear you for payment for that particular period.
Request by a third party – Sometimes, a third party construction lender, general contractor, or property developer may request specific lien waiver forms. If this happens, the contractor and supplier have a huge task ahead of them.
Truth is, the lien waiver process is burdensome. This is because every point of payment has its specific waiver form.