Anyone who works in construction and on construction projects will deal with mechanic’s liens. Sometimes referred to as construction liens or property liens, mechanic’s liens are typically statutory creations designed to protect contractors, subcontractors and suppliers that have not been paid for work performed or materials supplied relating to work performed on a piece of real property. Here are five things to keep in mind when dealing with mechanic’s liens.
Knowing your mechanic’s lien rights as a contractor, supplier or property owner is critical. Mechanic’s liens are created by statute in every state. That means that mechanic’s lien rights and practice can vary — sometimes dramatically — between jurisdictions. It is essential to know and understand how a given jurisdiction interprets, applies and enforces mechanic’s liens.
Mechanic’s lien rights can be lost if not properly perfected. As statutory creations, most jurisdictions insist upon strict compliance with rules necessary to create or “perfect” a mechanic’s lien. When a lien must be perfected — and where and how to do that — are important issues and concerns. Once a lien is properly perfected, many states require the lienholder to file a claim in court to enforce the lien within an expedited timeframe (often a one-year deadline) or a properly perfected lien can expire.
When properly perfected, mechanic’s liens are a powerful tool for lienholders. Assuming that a lien has been properly perfected, it can afford substantial and valuable leverage for a lienholder to get paid. Many states award mandatory attorney’s fees for mechanic’s lien claims, for example. Taken to a final conclusion in a worst case-scenario for property owners, mechanic’s liens can be foreclosed against the property. This ultimately results in a judicial sale of the property. Property owners and potential lien claimants therefore need to attend closely to lien claims.
Mechanic’s lien disputes can be substantively quite complicated for all parties concerned. Efforts to enforce a mechanic’s lien or to defend against a mechanic’s lien can be quite involved, particularly if a substantial amount is at stake. Who has lien rights? Has the lien been properly perfected? What is the amount of damage that may be collected in lien claims? Was the lien claim filed in time? These are just some of the issues that can be disputed.
Mechanic’s lien statutes and the rights and obligations that flow from these statutes can change in important and substantive ways. For example, Texas just enacted new legislation affecting mechanic’s, contractor’s and materialmen’s liens. As with many jurisdictions, Texas mechanic’s lien statutes were originally promulgated more than 100 years ago. The new legislation will “modernize” these statutes in ways that in several instances impact the rights and obligations surrounding mechanic’s liens.
Effectively enforcing and defending mechanic’s lien rights claims is essential in today’s commercial market. Understanding and reacting to circumstances where lien rights are an issue can be the difference between a timely completed and profitable project and a project that experiences time delays, cost overruns and revenue shortfalls.