Real estateReal Estate Law

Mechanic’s Lien Basics for Contractors

Mechanic’s liens are the easiest way for a contractor to collect from deadbeat customers. The legal process, however, is not easy. Below we’ll detail some of the requirements and give a practical overview of the process.

Why a mechanic’s lien?

A mechanic’s lien has the same effect as a mortgage on property. If you successfully file one against a property, you now have the right to foreclose on the property in order to collect the debt. If you don’t foreclose, you can simply wait until the owner sells the property, at which time they will have to pay you to clear the title to the property. Mechanic’s liens last six years unless the owner uses a special procedure to clear the lien from their title by demanding that you file a lawsuit within 60 days (more on this later).

Are you eligible?

Mechanic’s liens are only available to contractors and subcontractors who performed work or furnished materials to improve real property. Improve here means ‘constructing, erecting, altering, repainting, demolishing, or removing’ any building or structure, as well as drilling for oil and gas, landscaping, and any other physical act that improves the value of the real estate. The lien is available to those who “toil” on the job (yes, courts have actually said this). It generally does not apply to offsite professional service providers like architects, engineers, or lawyers.

One other note: there must be some kind of work-for-pay arrangement. Sweat equity in exchange for an ownership interest in the property won’t work. There doesn’t necessarily need to be a written contract, but there must be an agreement–you can’t simply do work on a property without a meeting of the minds with the owner and file the lien against them. Subcontractors and materials furnishers can file the lien too as long as they have an agreement with the general contractor.

The “owner” here can be a part-owner, lessee, or any other agent with a connection with the property owner or someone with the authority to contract to improve the property.

The process

The core document for asserting a mechanic’s lien is called an Affidavit for Mechanic’s Lien. There are specific things this document must contain and specific procedures for asserting it.

If a contractor wants to file a mechanic’s lien, the first thing we check is whether the owner recorded a Notice of Commencement. This is rarely done in repair projects but is often a requirement of bank-financed construction projects. If the owner filed the Notice, then different rules and timelines apply. The procedures are outside the scope of this article but will be discussed at a later time.

Assuming the owner has not filed a Notice of Commencement, some basic rules apply for filing the Affidavit of Mechanic’s Lien:

  1. There must be a contract for improvements to specific real property–as discussed above, it can be verbal.
  2. The owner must have breached the contract.
  3. The last day on the job must have been less than 60 days ago (for residential property), 75 days (for commercial property), or 120 days (for oil and gas work). Punchlist work can be counted as a single project, but warranty work will not extend the deadline.
  4. If the contract is for materials, they must have been delivered to the site.
  5. The affidavit must be recorded at the county recorder’s office and served on the owner.

A note on service

This is the part where most do-it-yourselfers fail to follow the procedure. If the lien is to stand up in court, you’ll need to prove that you properly served the owner with the lien. Once you record the lien, you have thirty days to complete service.

You have several options for serving the owner:

  1. Certified mail, return receipt requested
  2. Overnight delivery service
  3. Hand delivery
  4. Asking the sheriff to serve the affidavit
  5. Any other delivery method that includes written evidence of a receipt
  6. Any other delivery method if it can be proved that the owner actually received it.

Service is deemed complete upon receipt by the party being served. This is trickier than you might think–usually when someone is expecting to be sued, they try to avoid service. Certified mail takes a long time and most people don’t bother to pick it up. Sheriff service by posting at the owner’s residence is the most surefire way to get it done, but it often takes a long time and it’s expensive. We find that overnight delivery with a signature required by Fedex or UPS is the most effective way to serve someone since most people don’t expect a UPS package to contain legal documents. Keep in mind that they must sign for the package.

If you can’t attain service by the 30-day period, you have an additional 10 days to conspicuously post the affidavit at the property where the improvements were made.

Conclusion

Now, you can either sit back and wait until the owner pays you to get rid of the lien, or sue to foreclose on the property. Foreclosure can be expensive but it’s definitely the most effective way to get paid. Fear not, because the statute allows you to recover attorney’s fees from the owner!

Keep in mind that even if your mechanic’s lien is defective for any reason, you still have a breach-of-contract claim against the owner. The statute of limitations is a lot longer on these claims than the mechanic’s lien timeline.

If you need help filing mechanic’s liens, give us a call! We provide this service for a flat fee.

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