After weeks of searching with a real estate agent and going through the closing process with your attorney by your side, you’ve finally settled into your new Chicagoland home. Now, it’s time to transform the property, and add improvements until it’s truly the home of your dreams.
So, what happens if you pay for home improvements, but then find yourself unable to pay the contractors and professionals who worked on your project? Or, worse, what if you keep up with payments for your general contractor — only for them to fail to pay their subcontractors and suppliers?
In these cases, your property could become the subject of a mechanic’s lien.
What Is a Mechanic’s Lien?
Broadly speaking, a mechanic’s lien is a claim made against a property by a contractor or similar professional who is seeking payment for materials or labor used for work on the property.
The term “mechanic’s lien” is often used interchangeably with “contractor’s lien” or “construction lien.” In any case, this common type of lien is intended to act as a safeguard, a way to ensure that people who are employed to work on a property will be properly compensated for their services and materials. It may be used by plumbers, painters, construction teams, carpenters, and mechanics, as well as general contractors and subcontractors; in some states around the country, architects, engineers, and surveyors may also be able to file liens for their services.
Broadly speaking, mechanic’s liens can be filed in two major types of circumstances.
In the first instance, they may be used by a contractor or vendor seeking unpaid compensation for parts and labor from the property owner. In this case, the contractor moves for a lien to be placed on the property, in order to pressure the property owner into making payments, or face going to court. So, for instance, if you hired a construction firm to build a new garage on your property, but then failed to pay them back for their time, materials, and services, they may be able to place a lien on your land, as a means of seeking compensation.
In the second instance, the property owner’s asset may be subject to a lien — even if they pay their contractors in full and on time. It’s incredibly important to keep in mind that a mechanic’s lien can also be filed by subcontractors and suppliers who are seeking proper compensation from a general contractor. This is often done as a way to exert pressure on the contractor.
To continue our example from earlier, if a homeowner hires a contractor to build a garage, that contractor may hire teams of subcontractors to pour a cement foundation, or add electrical wiring. If the homeowner pays the general contractor, but the contractor does not adequately pay the subcontractors, then the subcontractors may place a lien on the homeowner’s property.
Other Key Considerations
Having a lien attached to your property can have serious — and sometimes unexpected — effects. Mechanic’s liens appear on public property records, and are generally said to be attached to the property, meaning that the property would still be subject to the lien if you sold it to a new owner. This can make it very, very difficult to sell the piece of property, until the outstanding lien is resolved. Similarly, if your property is encumbered by a lien, banks and mortgage lenders may be unwilling to loan against the property, or permit you to attain refinancing.
So, with that being said, what protections do property owners have against mechanic’s liens? One proactive step that property owners may be able to take is to work with contractors who have all of their subcontractors waive their rights to a mechanic’s lien. Similarly, a property owner may be able to take some protective steps to ensure that subcontractors get paid, including making direct payments to subcontractors and suppliers, or maintaining close contact with their general contractor.
Finally, it’s important to keep in mind that the rules and requirements governing mechanic’s liens can vary wildly from state to state. Different jurisdictions can have very different laws governing the important specifics of mechanic’s liens, including timelines, notification requirements, lien formatting, deadlines, and so on. Different areas also treat mechanic’s liens differently if they are used for real property or personal property, or for residential versus commercial purposes. With this being said, it may prove incredibly important to talk to an experienced legal professional in your area if you have any more concerns about mechanic’s liens. A local attorney can help understand the specifics of your situation, and help you get a sense of the legal process for your state, whether you are a homeowner, or a contractor/subcontractor seeking compensation.
About the Gunderson Law Firm
If you have any more questions about liens or any other aspect of bankruptcy, real estate, or personal injury law, don’t hesitate to reach out to the attorneys and staff of the Gunderson Law Firm to keep the conversation going.
At the Gunderson Law Firm, our team possesses unparalleled expertise and insight, reinforced by years of experience and long-term connections throughout Chicago’s real estate, finance, and insurance industries. The Gunderson Law Firm represents a wide range of clients – individuals and companies, small and large, national and local — who turn to us for effective legal representation and informed, objective advice.