Mechanics Lien

Mechanics Lien Placed On Homes By General Contractors

Gustan Cho Associates are mortgage brokers licensed in 48 states

This BLOG On Mechanics Lien Placed On Homes By General Contractors Was UPDATED And PUBLISHED On March 12th, 2020

A mechanics lien on a property is when a contractor, sub-contractor, or supplier places a lien on a property. The lien is placed on the property they did work on or provided materials to and the homeowner of the property did not pay for their services or supplies as agreed.

  • Depending on the county and state where the property is located at, contractors, sub-contractors, or suppliers of material can file a mechanics lien on a property
  • Mechanics liens can be placed on the property if the property owner refuses to pay for their services
  • A general contractor often times have multiple sub-contractors and suppliers
  • The he property owner normally pays the general contractor
  • The general contractor then pays his sub-contractors and suppliers
  • If a property owner pays the general contractor and does not pay his sub-contractors and suppliers, the sub-contractors and suppliers can place a mechanics lien on the subject property
  • Subcontractors can place mechanics liens even though the property owner has paid the contractor in full for his services and materials

In this article, we will discuss and cover Mechanics Lien Placed On Homes By General Contractors.

How To Avoid Mechanics Liens

Homeowner planning on doing an extensive remodeling project like a room addition or complete gut rehab and hires a general contractor, make sure to get a list of all sub-contractors and material suppliers. FHA 203k Loans require that all waiver of liens by subcontractors and material suppliers by attached along with the draw request before the title company will disburse any funds to the general contractor.

  • Before making the final payment, homeowners need to get lien waivers from all subcontractors and material suppliers who have done work on the home and supplied materials
  • A lien waiver, or waiver of lien, is documentation that the contractor, sub-contractor, or material supplier has been paid in full for the services that were performed
  • There are many instances where the homeowner pays the general contractor in full for the work done on the homeowner’s property
  • But the contractor does not pay his subcontractors and suppliers
  • The homeowner ends up with a bunch of mechanics liens from subcontractors and suppliers

Even though the homeowner has paid the general contractor in full, the homeowner can get stuck with mechanics liens on his property if they have not paid his sub-contractors and suppliers.

What Happens If A Homeowner Has Mechanics Lien? Can Homeowner Still Sell Property?

What Happens If A Homeowner Has Mechanics Lien? Can Homeowner Still Sell Property?

A mechanics lien on a property is attached to the title of the home. This can create a problem when it is time to sell the home.

  • However, there are ways around it where homeowners can have a mechanics lien and still sell home
  • Title companies normally will override a mechanic’s lien if they can escrow the amount of lien in escrow
  • The seller will need to put up the amount of the mechanic’s lien in an escrow account with the title company until the mechanic’s lien is resolved
  • Lender-approval is required
  • If there is no merit with the mechanics’ lien after the fact, the home seller will get his money back
  • If the amount is negotiated with the vendor who placed a mechanic’s lien, then the settlement will be paid for by the title company holding the lien escrow and the balance will be returned to the seller

The best way to avoid having a mechanics lien file on a homeowner’s property is to make sure that no funds are disbursed to general contractors unless the homeowner gets lien waivers by all subcontractors and material providers. Depending on the county and state, it is very easy to place mechanics liens on properties. General Contractors, subcontractors, and material suppliers do not need to go to court or obtain a court judgment to place liens. Some states like Illinois only requires contractors to pay a fee to record a lien on any property. They do not care whether or not the lien is legitimate and the proof is not required.

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  1. In CA FHA 203(K) Contractor, who performed $120k on an improper permit, failed to list 6-permit required tasks, failed to have work inspection, contractor filed mechanic’s lien and demand in arbitration. Should the homeowner lose in arbitration can contractor enforce mechanic’ s lien. HUD is investigating for fraud.

    1. The contractor should not be getting paid. You can file a claim against your contractor. He would not have gotten approved if he was not licensed, insured, and bonded. File a claim against his bond and insurance company. The homeowner should win 100%.

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