Tuesday, December 26, 2006

Mechanic's Liens and the Homeowner

When a contractor files a lien on a property, the first thing the homeowner frequently does is panic. This is generally because the contractor is now telling the whole world that the homeowner owes him money, and the homeowner is most likely embarrassed and humiliated. The reality, however, is usually not that bad.

What does a lien do? A lien, in practice, will only affect the homeowner if he or she is trying to refinance, convey the property, borrow money or switch from temporary to permanent financing. If the homeowner has no intention of doing these things in the near future, then the lien can just stay there until the matter is resolved.

If the homeowner is trying to do any of the above, then he has a couple of choices. By statute, the homeowner can post a bond to satisfy the amount of the lien, and then the lien can be dissolved. The bond does cost money, but it is perhaps the most straightforward way of getting rid of the lien.

Another option is to call the contractor and negotiate. If the homeowner believes that the lien was placed on the property unfairly, she may be able to work out a deal with the contractor that will settle the matter. Getting involved in protracted litigation is usually not the best choice unless the homeowner is advised that he has such a strong case that he will probably win, and hopefully be able to get attorney's fees back.

There are many instances in which the lien is not good, or "perfected." The homeowner should seek the advice of an attorney to find out his rights in that situation. In addition, in Massachusetts, although subcontractors have the right to place liens, they do not have the right to collect directly from the homeowner if their contract is with the general contractor.

Liens can be scary, but they simply provide the contractor with a security interest in one's property. The underlying dispute needs to be resolved before one's collateral is actually threatened. The best thing for the homeowner to do is to handle disputes before contractors actually place liens. In addition, when a project is finished, they should request lien waivers from the contractors.

As with most disagreements in construction jobs, a good contract, written change orders and good communication help to prevent the placement of a mechanic's lien on one's property.

Monday, December 18, 2006

The Difference Between Mechanic's Liens and Real Estate Attachments

Someone recently searched the web about the difference between mechanic's liens and real estate attachments. The effect of both is the same. The lien or attachment gives the holder a secured interest in property that protects the party if a judgment is obtained. The difference, however, is the means used to obtain the lien.

A mechanic's lien is an automatic right that a contractor has that is afforded by statute. As long as a contractor who has worked at a property complies with the procedure, the lien can be filed on the property for the amount owed.

A real estate attachment is not automatic. In Massachusetts, a party must demonstrate a likelihood of success on the merits of his or her case, and show that the defendant does not have liability insurance to satisfy a potential judgment against him. If the attachment is obtained "ex parte," without notice to the other side, then he must show that there is a likelihood that the property is going to be conveyed or the property is beyond the jurisdiction of the court.

So, mechanic's liens are much easier to obtain than real estate attachments. From the perspective of the property owner, however, the result is exactly the same. More on liens to come...

Wednesday, December 06, 2006

The Mystery of the Mechanic's Lien

For some reason, mechanic's liens seem to be shrouded in mystery. Although contractors have the right to lien property for money owed, they frequently seem not to do it correctly, and lose their opportunity to have security for a debt.

The Massachusetts Continuing Legal Education book describes a mechanic's lien as follows:

"A mechanic's lien is a claim upon real estate to secure payment for work or labor performed on or materials furnished for buildings or other improvements. The labor or material must have been provided at the request of the owner of the real estate."

Under Massachusetts law, the creation of a lien occurs by recording a notice in the registry of deeds which must include a date by which the particular contract is to be completed. After creating a lien, the lienor must then record its statement containing the amount claimed due subject to "all just credits", and this statement must be filed within thirty days following the completion date previously set forth in the notice of lien. The claimant must file a civil action within sixty days after filing the statement, and failure to file such an action in a timely manner results in the dissolution of the lien.

The law itself states the following, "Such person may file or record the notice of contract at any time after execution of the written contract whether or not the date for performance stated in such written contract has passed and whether or not the work under such written contract has been performed, but not later than the earliest of: (i) sixty days after filing or recording of the notice of substantial completion under section two A; or (ii) ninety days after filing or recording of the notice of termination under section two B; or (iii) ninety days after such person or any person by, through or under him last performed or furnished labor or materials or both labor and materials."

It's no wonder that this is all confusing. Although contractors would be better off to leave the filing to attorneys, they should understand what the lien does for them. It gives them an interest in the property when their bills are not paid. The homeowner then either has to post a bond to dissolve the lien, or litigate or settle the case with the contractor if he or she wants to have clear title to refinance or convey the property. The contractor therefore has some leverage when attempting to get paid.