A mechanic’s lien is a very particular type of encumbrance on a property that’s afforded credit and protection for a contractor or other builder that’s done work on the property. It is a process enacted usually by statute in a state where it protects contractors or builders for doing work on a property when they don’t get paid for it.
In many states a mechanic’s lien doesn’t even need to be filed as an official document in order to protect the general contractor. For example, if a contractor installs a new roof on a house and the property owner doesn’t pay the bill, a mechanic’s lien is in place even before any paperwork is filed. The person who completed the work on the property is thus covered for any forgone payment of their services.
Additionally, many states extend protection to subcontractors or companies that have delivered materials or provided labor to a project even if it was managed by a general contractor. If a property owner pays a general contractor for work done to their property and the general contractor doesn’t pay any subcontractors, even though the general contractor was paid in full by the property owner, that property may be encumbered by a lien placed by a subcontractor who didn’t get paid for his work.
However, this is not always the case; mechanic’s liens vary due to state laws. For example, in California there are certain filings that must be made for a mechanic’s lien to be valid. A subcontractor that wants to assert a mechanic’s lien must have previously served the owner, and original contractor or construction lender if necessary, with a “preliminary 20-day notice” stating what is being done on the property. Failure to properly serve a 20-day notice essentially renders any mechanic’s lien invalid. Once the project is complete contractors and subcontractors only have 90 days to file a mechanics lien. However, there are a couple exceptions to that 90 days rule. For instance, if the property owner files a Notice of Completion within 10 days of the project being finished it will shorten the time for a mechanics lien to be filed by a general contractor to 60 days and 30 days for subcontractors.
If you are a property owner and are doing any sort of remodeling, be sure to check what the laws are for mechanic’s liens in that state. In addition, if you are purchasing a property in a state which doesn’t require mechanic’s liens to be filed, you should see what work has been done on that property recently, make sure all contractors and subcontractors were paid and that no mechanic’s liens are in place. A standard title search on a property would indicate if there is a mechanic’s lien placed on the property, along with identifying any other current liens.