Short answer. If you’re unpaid on a construction project, a Mechanic’s Lien is an effective way to get paid. In most states, the filing of a mechanics lien prevents the owner from selling, refinancing or transferring property. Further, and perhaps more importantly, a lien claimant who is originally allowed to file suit only against the party who contracted with it, will be allowed to sue every party up the contracting chain if a mechanic lien is filed.
Long Answer. It’s unfortunate, but the construction industry’s most effective collection tool is often misunderstood on a grand scale. Here are some popular myths and misconceptions about mechanic’s liens, and my response to each one.
MYTH : A construction lien will be useless on a project since the bank and other lien claimants already have priority claims over ours.
The mechanic’s lien is a special instrument that has a number of legal effects, and it may offer your company a benefit even when the underlying property is over-mortgaged or has claims exceeding its equity. In many states, for example, a properly filed mechanic’s lien gives claimants (you) an ability to file suit directly against the property owner, when you otherwise would be limited to suing only the party who contracted you to do the work.
Plus, just because a property is over-mortgaged doesn’t mean the property owner is going to lose it. Many times, the property owner and lending institutions will broker last minute deals, forbearance agreements, or other solutions so that
the property owner retains title and lien claims are paid. You’ll never be part of any such deal, however, if you don’t file your lien.
MYTH : Once I file my mechanic’s lien, it restricts the property forever.
Unfortunately, this is not true. Mechanic liens remain valid for only a limited time. In some states (like California ), they last for only 90 days! In other states, the period is a longer, such as in Illinois where the period is 2 years. If you don’t file a lawsuit to enforce your mechanic’s lien within this time period, the lien will expire.
MYTH : A mechanic’s lien is useless because anyone can just bond it off.
A lien can certainly be bonded off in most states by any interested party to the project (i.e. lenders, owners, prime contractors). However, contrary to popular belief, having a lien bonded off is a very good thing.
When a lien is bonded, the lien bond takes the place of your lien. So, while your lien is no longer restricting the transfer or sale of the property, you have the best security for payment there is: the surety company. When the lien is bonded, the surety company is guarantying payment of your claim if you prevail in court enforcing the claim. It’s better than a lien because enforcement of the lien requires the property be sold and all superior claimants be paid, while the bond guarantees your payment immediately after winning the enforcement action.