Protect Yourself with a Lien Waiver.
LawsOnline
September 01, 2024
What is a Lien? A Lien is a type of legal claim filed against another person’s property for money owed, which gives the Lien holder a right of possession. This includes right of possession to Real Property, such as homes and buildings.
Who can hold a Lien? The mortgage a bank holds on a property is a type of Lien. Other parties that can obtain Liens against property include: a government agency for unpaid taxes, a Plaintiff in a court proceeding, which results in a ruling against the property owner (Judgment Lien), a contractor for work performed on a property (Mechanic’s Lien), etc.
The most effective way to remove a Lien on property is to pay off the debt obligated to the Lien holder. This will usually require an accompanying written release document from the Lien holder to the property owner to remove the Lien. Your local Legal Counsel, found on Lawsonline.com, can help you with obtaining a written release. (See Lien Release sample to review with Legal Counsel)
The primary focus of this article will be to go over a specific type of Lien placed on property, which is the Mechanic’s Lien that a contractor may place on Real Property related to work done on the property but the owner of the property has not paid the contractor because of a dispute on work that was performed. The indebtedness that the owner faces can lead to a lien on the property
How do you prevent a Lien on Real Property by a contractor? The best solution is to use a Lien waiver. A lien waiver is a written agreement that is signed by the contractor and is given to the Property owner in which the contractor or Mechanic agrees to give up any future right to file a lien against the property in exchange for payment.
Why is this specific lien waiver so important to home owners?
In general, American homeowners spend about $7,560.00 a year on home improvements. Which means the size of the U.S. Home improvement market has reached to $537.9 Billion in the year 2021 alone. The reason for so much home improvement in the United States is that most homes are getting older. 92% of homes in the U.S. were built before the year 2000. Reference here https://www.zippia.com/advice/home-improvement-industry-statistics/
Out of all this money spent on home improvement projects 63% of Americans will higher a professional according to https://www.nerdwallet.com/article/mortgages/2020-home-improvement#:~:text=Homeowners%20DIY%2037%25%20of%20home,home%20repairs%20and%20improvements%20yourself.
So that is why a lien waiver is important for a home owner. If an owner of real property is trying to make any home improvements and will be needing the assistance of an independent contractor, then making sure there is some kind of written document between the home owner and the contractor to avoid a serious issues and prevent a possible lien on the home owners property is a necessity.
Even if you have a written contract or bid on a project, It is important to have a separate document dedicated to the lien wavier itself. This way you do not confuse specific obligations that are already present in a quote or contract.
If you are a contractor looking for protection through a Lien Waiver, the following sites may be of interest to you, and your local attorney.
https://www.levelset.com/blog/ultimate-guide-to-lien-waivers/
The Lien Waiver can be presented by either a home owner or the contractor.
It is also important to mindful of the state in which you are located. Some states have specific requirements that you must use specific lien waiver forms. Please check the following for state-specific requirements if your property is located in these states.
12 States with Specific Lien Waiver Requirements:
Arizona:
https://www.azleg.gov/ars/33/01008.htm
California:
2) https://www.cslb.ca.gov/resources/guidesandpublications/lienreleaseforms.pdf
Florida:
2) https://www.flsenate.gov/Laws/Statutes/2012/713.20
Georgia:
Massachusetts:
https://www.mass.gov/info-details/massachusetts-law-about-mechanics-liens
Michigan:
Missouri:
1) https://revisor.mo.gov/main/OneSection.aspx?section=429.080
2) https://revisor.mo.gov/main/OneSection.aspx?section=429.010
3) https://oa.mo.gov/facilities/vendor-links/contractor-forms
Mississippi:
https://law.justia.com/codes/mississippi/2014/title-85/chapter-7/article-21/section-85-7-433
Nevada:
1) https://www.leg.state.nv.us/nrs/nrs-108.html
2) https://law.justia.com/codes/nevada/2019/chapter-108/statute-108-2453/
Texas:
1) https://statutes.capitol.texas.gov/Docs/PR/htm/PR.53.htm
2) https://www.texcon.org/texcon/Lien_Waiver_Forms.asp
3) https://texreg.sos.state.tx.us/fids/201504405-21.pdf
Utah:
1) https://le.utah.gov/xcode/Title38/Chapter1a/C38-1a-S802_1800010118000101.pdf
2) https://utahhousingcorp.org/pdf/WaiverReleaseLien.pdf
Wyoming:
This article’s focus is related to those 38 states that do not have the same guidelines. However as always please seek independent legal assistance from a recognized law firm. Try Lawsonline.com to find a law firm near you. When talking with your legal professional they will also recommend the best place to get protection from a lien is at the beginning of the project. Preferable before the construction takes place. The sample of a lien waiver provided in this article can help begin your conversation with your legal professional.
There are usually 4 different kinds of written Lien Waivers. First You have 1 conditional lien waver on Partial Payment, 2 Conditional waiver on final payment, 3 Unconditional waiver on on progress of the project for partial payment and finally 4 Unconditional waiver for final payment. Just as a reminder Unconditional lien waivers are effective upon signing the agreement with or with out payment.
The focus for this presentation is on a conditional lien waiver presented by the home owner near the beginning of the project. The Sample that we are looking at is a form of conditional lien waiver. In which the Majority of payments on the project must be made in order for the contractor to agree to waive their right to put a lien on the property. However in this sample conditional lien waiver we are asking for the project to meet specific benchmarks in order for the contractor to reserve the right for a lien.
So what should a conditional Lien waiver look like : In general a conditional lein waiver should include the following information in the document.
- 1. Identity of the owner of the project, ( this is the name of the party who usually owns the property)
- 2. Physical address of the Project where the home or business is located that improvements or construction is taking place, and the location of a potential lien
- 3. Name of the contractor,
- 4. Definitions of the lien waiver such as the payment method and installments,
- 5. Goals of the project with specific deadlines, details on the materials and the objectives of the work performed. (It is important in this section of the goals to give a description of what is expected to be accomplished by the contractor) Also in these goals is should be identified the date that the project should be completed so that items do not drag out beyond this date. This is the section in which the conditions are set to make a conditional lein waiver
- 6. Language that defines that this is a complete waiver of any rights towards a lien on the property and agreement that a Lien will not take place if conditions are meet.
- 7. Signature of the contractor a witness signature of the owner is nice just to verify that the contractor signed
What happens Once a lien is filed on a property. At this point in time you will need to have a different agreement made between the property owner and the lien holder to release the lien. This will usually require negotiation and a form or document to release the lien on that property. The general first step in this process is the satisfaction by payment of that lien which could be more expensive the making the original payment to the mechanic or contractor because the lien holder can add interest and other charges such as court cost to make it even more expensive.
We are not going over the all the different forms of property lien waivers that can be applied for your project. Our Specific focus for a lien waiver was on a conditional lien waiver for construction or imrpovements on your home or business. In most cases the sample agreements we provide can be modified and a great starting point to begin a conversation with your attorney. Remember your personal attorney can help to create a lien waiver to meet almost any needs that may arise.
As always the help of an attorney on this matter will be beneficial and highly recommended to avoid future liability and potential leins on you title. When doing projects. To find an attorney quickly use lawsonline.com.
ADDITIONAL RESOURCES
https://www.investopedia.com/terms/l/lien-waiver.asp
https://rabbet.com/blog/the-basics-of-lien-waivers/
https://www.levelset.com/blog/ultimate-guide-to-lien-waivers/
https://vgtitle.com/know-your-options-steps-to-removing-a-property-lien/
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