Liens

Understanding Contractor Liens and Financing: Protecting Your Property

When working with contractors, understanding financing and liens is essential. A lien is a contractor’s legal claim against your property for unpaid work or materials. Failing to manage payments properly can result in a Mechanic’s Lien, which can affect your ability to sell or refinance your home. Below, we explain what liens are, how to avoid them, and what disclosures contractors must provide.

What is a Lien?

A lien is a legal claim against your property that ensures payment to a creditor, in this case, a contractor, subcontractor, or materials supplier. If the debt is not settled, the lien must be paid when the property is sold or refinanced.

What is a Mechanic’s Lien?

A Mechanic’s Lien is a contractor’s legal right to claim unpaid compensation for labor, services, or materials provided for a construction or renovation project.

  • Applies when a contractor, subcontractor, or supplier has not been paid for work exceeding $500.
  • The lien attaches to the property even if the homeowner already paid the contractor but the contractor failed to pay subcontractors or suppliers.
  • This can delay property sales, prevent refinancing, and lead to legal action.

How to Protect Yourself from Liens

1. Require a Contractor’s Affidavit of Final Release

Before making your final payment, request a:
✔ Contractor’s Affidavit of Final Release
✔ Final Waiver of Mechanic’s Lien

These documents confirm that all subcontractors and suppliers have been paid and protect you from unexpected claims.

2. Verify Subcontractor Payments

  • Request a list of subcontractors and suppliers from your contractor.
  • Check with them directly to confirm they’ve received payments.
  • Require lien waivers from all subcontractors and material suppliers before making final payments.

3. Make Payments in Installments

  • Never pay the full amount upfront. Instead, schedule payments based on completed milestones.
  • Withhold final payment until all work is completed, permits are cleared, and lien releases are provided.

Required Disclosures from Contractors

Before signing a contract, contractors are required to disclose certain information in writing. These disclosures apply to:

  • General Contractors
  • Residential Contractors
  • Swimming Pool and Spa Contractors

Disclosures include:
✔ Explanation of lien rights for subcontractors and suppliers
✔ Details of the contract terms and payment schedule
✔ Information on project timelines and expectations

Failure to provide these disclosures can be a red flag and may indicate lack of professionalism or compliance.

Final Thoughts: Protecting Your Investment

Avoiding Mechanic’s Liens requires careful financial management and clear documentation throughout your project.

  • Always verify that subcontractors and suppliers are paid before releasing final funds.
  • Never sign a contract without reviewing the contractor’s required disclosures.
  • Request lien waivers and ensure that payments are properly documented.

By taking these precautions, you can protect your property, avoid legal complications, and ensure a smooth home improvement process.