Mechanics lien rules and requirements tend to be very confusing. Because of this, there’s a lot of misinformation out in the world about how mechanics liens work. There are many different aspects of mechanics liens that are misunderstood across the board, and one of those aspects is the mechanics lien release. Please read on for a discussion of 4 mechanics lien release myths that contractors need to know.
But First: When & Why Should Liens Be Released?
Filing a mechanics lien is one of the last steps a construction company can take in order to get paid the money they’ve earned on a project. If filing a lien results in payment, then the claimant (the “claimant” is the party that filed the lien) should release the lien, once the payment is in hand. Not only is this the right thing to do, in most states it’s actually required (see #1 below).
Another example is that every so often after filing a mechanics lien claim, the lien claimant may decide not to pursue the claim after all. In these cases, after the decision not to pursue has been made, lien claimants should formally release the lien just like they would have done if they had received payment. Simply letting the mechanics lien expire is not the same thing as releasing the lien (see #3 below).
4 Myths About Mechanics Lien Releases
1. Lien Release Is Not Required – False
Releasing a lien once the payment has cleared will always be the right thing to do. However, in the majority of states, it’s also the required thing to do. In these states, the deadline to release the lien ranges from within 10 days of receiving payment up to 60 days. In some other states, the deadline to release the lien is triggered by the written request of the payer to release it after payment has been made.
Read this article for more information: Is Filing a Lien Release Required?
2. Lien Releases Are Always Accepted by County Recorders – False
We’ve written quite a few times about the peculiarities of county recorders and their potential impact on successfully filing a mechanics lien. Well, that potential impact also extends to successfully filing mechanics lien releases.
One of the most common mistakes that can lead to a lien release’s rejection is providing incorrect or incomplete reference information to the original lien. It’s important to include the instrument or case number of the originally filed lien, as well as the book and page (if there is one), and a reference to the date the lien was originally filed.
You can usually find this information on the the lien itself, but it may be necessary to contact the recorder’s office if your lien copy doesn’t have this info (or if it’s illegible).
3. Letting the Mechanics Lien Expire Means You Don’t Have to Release the Lien – False
For #3, we return to our old friends the county recorders. This may be surprising to many people, but letting a mechanics lien expire does not automatically “un record” the mechanics lien from the county’s property records. As zlien CEO Scott Wolfe Jr. likes to say, “County recorders record. Rarely do they un-record.” In fact, a lien release is just another recording, not an un-recording.
Anyone doing a title search on the property will stumble upon the mechanics lien filing, even if it is expired. (For more on this, please see #4 below.) And even though the lien claim may be expired, the title searcher will likely not feel comfortable with the existence of the lien unless a release is recorded. So if you get paid, or if you have another, valid reason to release the mechanics lien, you should go ahead and do it.
4. Lien Releases Erase the Original Mechanics Lien from Existence- False
Canceling a mechanics lien does not erase the lien from existence as if it was never filed in the first place. While releasing a lien may have that exact legal effect, the original lien will likely still to be found in the county property records even after it’s formally released. In fact, in many cases the release is recorded on the original lien itself as a notation.
If the underlying payment issue that led to filing a mechanics lien in the first place gets resolved, then releasing the lien is the proper thing to do. As discussed above, a recorded mechanics lien will “always be there,” so, the property owner will – at some point or another – need that lien release to be recorded.
If you don’t release a mechanics lien that should be released – either on your own or upon the property owners request – the property owner may have to file a lawsuit against you (the claimant) to get the lien released. And, the property owner will almost certainly win that lawsuit, exposing you to costs, penalties, and fees that could’ve easily been avoided.
Visit the zlien website to learn just about everything there is to know concerning every aspect of mechanics liens, including the subject matter at hand, mechanics lien releases. And you may follow this link for construction payment resources and FAQs for all 50 states.