A mechanic's lien is a legal device that protects contractors and subcontractors from payment issues following a construction contract. If those involved in construction work aren't paid in a timely manner, they can place a mechanic's lien against the property. This greatly increases the chance of payment by giving the lien holder priority over most other creditors, preventing the developer or owner from selling the property to a third party without the lien being released, and possibly forcing a foreclosure sale of the property to pay off any debts.
A mechanic's lien can be filed by any contractor or subcontractor who is owed money by the property owner for construction work. This includes money due for both funds and labor. However, the money must be due from the property owner. If a subcontractor is owed money from a contractor who was paid by the property owner, the subcontractor may not file a lien against the property and must instead take legal action against the contractor holding the funds.
A mechanic's lien's primary purpose is to place a hold on the title of the property on which the work was done. When a lien is in place, the property's title cannot be transferred until the lien is paid. This provides an almost guaranteed source of funding for the contractor or subcontractor to receive payment.
Once a lien is filed, the lien holder can also seek foreclosure on the property. If the owner still does not pay the amounts owed, a court will verify whether the lien and amount requested are valid and owed. If it finds that they are, the court will order the sale of the property and the proceeds will be used to repay the lien holders.
A lien must be filed in accordance with strict statutory requirements. Any deviation may invalidate the lien and significantly reduce a contractor or subcontractor's chance of recovering funds owed. The process is as follows:
Because of possible complications including having difficulty serving the required notices, the lien's validity being contested, and gathering the required documentation to validate the lien, it is important to begin the process as soon as possible and not wait until near the expiration of the deadlines. It is also advisable to involve a construction attorney to ensure that errors don't invalidate the lien and hinder collection efforts.