Although situated in Texas, the “We Did It Again Group” sells and lists property and property insurance in all 50 states, and even internationally. Last week, they posted an article on their blog titled “Mechanic’s Liens Can Mess Up A Real Estate Closing!”
The author is speaking to property owners who are interested in selling their property, wherein he discusses how a lien works and what effects it may have on someone interested in selling property.
Because of the way lien laws work in most states, the We Did It Again Group warns that a “homeowner may actually end up paying twice for the same work.”
The author of the blog post has a great explanation of what types of situations a homeowner may encounter if their property is liened and they want to move forward with a sale or refinance:
The theory is that the value of the property upon which the labor or materials have been bestowed has been increased by virtue of these efforts and the homeowner who has reaped this benefit is required in return to act as the ultimate guarantor of full payment to the persons responsible for this increase in value. In practice, a homeowner faced with a valid mechanics’ lien may be compelled to pay the lien claimant and then pursue conventional legal remedies against the contractor or subcontractor who initially failed to pay the lien claimant but who himself was paid by the homeowner. Another justification for this result relates to the relative financial strengths of the parties to a work of improvement. The law views the property owner as being in a better situation to absorb the financial setback occasioned by having to pay the amount of a valid mechanics’ lien, as opposed to a laborer or material man who is viewed as being less able to absorb the financial burdens occasioned by not being paid for services or materials provided in connection with a work of improvement.
Get more information by reading the blog post here.
What does this mean for contractors? As we’ve said before, when used properly, a construction or mechanics lien can be a very powerful collections tool. Learn more about how you can lien smarter with Zlien.