What Is a Construction Lien?
A construction lien is a claim made against a property by a contractor or subcontractor who has not been paid for work done on that property. Construction liens are designed to protect professionals from the risk of not being paid for services rendered.
A construction lien makes it difficult or impossible to sell or refinance a property because it makes its title unclear. In a worst-case scenario, it can force a sale of the house to provide the compensation.
- A contractor or subcontractor can file a construction lien against a property if the owner has not paid for work done on it.
- A lien makes it difficult or impossible to sell or refinance a property.
- If you are dissatisfied with the quality of work done, it’s your responsibility to seek a resolution.
The laws regarding construction liens vary from state to state. In some laws, it may be referred to as a mechanic’s lien.
Construction Lien Explained
If a property owner is dissatisfied with the work done by a contractor or other professional, simply not paying the bill does not resolve the issue. If the contractor has used subcontractors and has not paid them, the homeowner could be on the hook for the payment, and a lien could be used to ensure payment is made.
A property owner who is dissatisfied should discuss the quality of the work with the contractor and seek an agreement to rectify any issues.
A successful resolution concludes with a so-called release of lien, which is a document canceling the lien.
General Rules for Construction Liens
Although state laws vary, a construction lien can usually be filed only if there is a written contract describing the nature of the work to be done, the materials to be used, and the agreed price for the work. Some states have different laws for liens against residential and commercial properties.
New York State law, for example, allows construction liens to be filed by contractors, subcontractors, and others who perform labor or furnish material to improve real property. A lien may be filed at any point while construction work is underway or up to eight months after the completion of the project. A copy of the lien must be sent to the owner of the property in question. This copy must be sent up to five days before the notice of lien is filed or up to 30 days afterwards.
Once put into effect, the lien is in place for up to one year under New York law.
The law is different in New Jersey. There, a construction lien on a commercial project must be filed with a county clerk within 90 days of the last day services or materials were provided. Filing a construction lien on residential projects requires filing a Notice of Unpaid Balance and Right to File Lien within 90 days of the last day of service. The homeowner must also get a copy of that notice within 10 days of its filing. The next step for a residential property facing a construction lien would be an arbitration hearing.
Avoiding a Construction Lien
If you’re having remodeling work done, make sure it’s on a professional business footing from the start:
- Make sure you have a written agreement in place with the general contractor describing the work to be done, the materials to be used, the subcontractors and other workers to be hired, with a breakdown of the cost.
- Require proof that those subcontractors and others have been paid before you make your final payment to the general contractor. (Alternately, you could require a written list of what each subcontractor is owed.)
If you’re entering into a costly remodeling effort, it’s a good idea to consult an attorney about your state’s laws regarding payment for services.
View more information: https://www.investopedia.com/terms/c/construction-lien.asp