Waiving lien rights or releasing a lien… it can be easy to mix up these concepts. But when it comes to lien rights, it is extremely important to understand the distinctions. Lien waivers and lien releases are completely different. Here is a super-simple breakdown.
A lien waiver is used to preemptively waive lien rights. A lien waiver happens before a lien is actually filed. The party submitting a lien waiver is stating that they waive the right to lien against the project.
Generally, the party making payment will request that a subcontractor, supplier, or another party they have hired, sign a lien waiver in exchange for payment.
Lien waivers work a lot like receipts, and lien rights are waived for the amount of money set forth in the waiver. For example, a party receives $1000 in payment, and then they waive $1000 of lien rights.
The Waiver Types
There are 4 basic types of lien waivers. The two general types are “Conditional” or “Unconditional”, and under each of those categories are waivers for partial or progress payments, and waivers for final payments.
A conditional waiver for progress or partial payment should be used when future payments, beyond the one being exchanged for the waiver, are expected. Because the waiver is conditioned upon payment, the waiver isn’t effective until payment isn’t received.
A final conditional waiver works to waive all lien rights of the party submitting the waiver. But this is a conditional waiver. The lien waiver, therefore, can be given before payment is received, but will only be effective once payment is received. When the payment is received, the waiver becomes immediately effective.
Unconditional waivers carry much greater risk than conditional waivers. These waivers are effective and enforceable upon signing – it doesn’t matter if the payment has been received, or is ever received. If there is any reason the payment might fail (i.e. check hasn’t cleared, etc.) unconditional waivers can be risky.
Signing a partial unconditional waiver immediately waives the right to file a lien for the specific payment noted in the waiver document. An unconditional waiver for partial payment should only be used when the partial or progress payment has actually been made and received.
A final unconditional waiver should only be used when final payment for the project has been made & received. After the exchange of this waiver, no further payments are expected. Actual receipt of all payments should have already occurred. Be very careful when handling a final unconditional waiver.
Lien Release (aka Lien Cancellation)
A lien release is used to cancel a lien that has already been filed. If the claimant receives payment and wishes to cancel a previously filed lien, generally he or she will file a lien release (also known as a release of lien or cancellation of lien). This action releases the claim of lien from the property in question.
When to File a Lien Release
Most states strictly require that the lien claimant formally release the lien after payment has been received. Even if it is not required by your state, it is best practice to release the lien if you don’t intend to enforce your claim as soon as payment clears.
The deadlines for releasing a lien vary by state. Most states require that liens are released within 10-30 days of satisfaction or the date written request for release was received. Of course, there are exceptions. Maine provides a longer acceptable timeframe (60 days from satisfaction), while Washington’s statute says that a lien release is due immediately upon satisfaction or written request.
Failure to release a lien can result in penalties for the party who filed the lien. In Alabama, for example, failing to release a lien (or releasing it late) subjects the filing party to personal liability of $1000 and liability for actual damages. Many states have similar fines and financial penalties to discourage parties from failing to release liens within the mandated time period.
In addition to statutory penalties, non-compliant lien claimants might face a lawsuit from the property owner. The owner can allege that since the lien is still on record and has formally expired, it is “frivolous” and “slandering title.” These situations are unwanted and can be easily avoided by releasing the lien as soon as payment clears.