Q: I am in the process of renovating my house, and have been warned by several people to beware of mechanic's liens. I don't understand this and would like your comments.
A: Mechanic's liens can be quite troublesome for unsuspecting homeowners. A lien is an encumbrance on property, and can be a significant deterrent in selling or refinancing your property.
Mechanic's liens are a creature of legislatures. Unlike many of our real estate laws, the mechanic's lien laws have no historical basis in our English common law.
Indeed, the first mechanic's lien statute enacted in the country was passed by the Maryland legislature in 1791. It provided that contractors engaged in the construction of the new national capital should have a lien on the real property to secure payment by the government.
Today, most states have mechanic's lien statues to protect workers and insure payment for improvements made to property. The mechanic's lien law is not only limited to real property, however. If you bring your automobile to the garage, and do not pay your bill, for instance, the garage owner may be able to hang on to your car until the bill is paid.
Although the procedures for filing and enforcing these liens vary from state to state, there are a few principles to keep in mind:
A contractual relationship must exist between the mechanic and the owner at the time the claim arises.
The mechanic's efforts must have actually been used for the benefit of the owner.
The mechanic must have "substantially completed" his or her work before the lien can become operative. A mechanic cannot partially perform a contract and then claim the benefits of the mechanic's lien statute.
You want to consider the following protections when you are entering into a contract for renovation work with any contractor.
First, you must have a written contract with the contractor. Do not rely on good faith promises and a handshake. Those days are long gone.
Second, make sure that you have an agreement giving you the right to retain at least 10 to 15 percent of the total cost of the job until you are satisfied that the job is complete.
Third, include in the contract a provision giving you the right to terminate the contract, if you are not satisfied with the contractor's work. The burden will be on you to prove dissatisfaction, but the provision should be in your contract.
Finally, insist that your contractor sign a release of mechanic's lien form, and make sure that every subcontractor also signs that form. You can get the release form from many stationary stores or from your attorney. You must tell your contractor that until all of the mechanics have signed that release, you will not make the final payment on the contract.