It seems like an easy question, but alas, the mechanics lien is one of the most confusing legal instruments in the United States. Not only do mechanics liens confuse the hard-working folks in the construction industry, but they’re also quite a challenge for many licensed attorneys!
Here’s a basic look at the mechanics lien definition.
A Mechanics Lien Definition that Works
Here’s the practical definition for a mechanics lien:
A mechanics lien is an involuntary security interest granted by law to construction participants to secure payment for labor or materials furnished to improve property.
Sound a little too lawyerly? We thought so too. Let’s break the mechanics lien definition down further, phrase by phrase…
What does ‘involuntary security interest’ mean?
You’re probably already familiar with security interests. Perhaps the most common example is a mortgage on a house. When you get a home loan from your lender, that lender will require a security interest (mortgage) on the house until you pay off the debt. And we all know what happens when you don’t pay — the lender can foreclose and force a sale of the property to satisfy your debt.
But a home mortgage is an example of a voluntary security interest. You went to the lender and agreed to take a loan out on your house, and the lender agreed to lend with the house as collateral. And you signed (probably tons of) paperwork stating as much.
That’s a little different from an involuntary security interest. A mechanics lien exists without the property owner agreeing to it. There are loads of requirements that must be met in order to file a valid mechanics lien, but getting the owner’s permission is not one of them.
What does ‘construction participants’ mean?
To qualify for a mechanics lien right, generally, you must perform construction work. In other words, a doctor can’t file a mechanics lien against one of their patients that didn’t pay their bill. Mechanics liens are special rights reserved for the construction industry.
What does ‘secure payment’ mean?
We actually answered this earlier with the mortgage example. Security interests ‘secure’ payment because they serve as collateral on the debt. That’s the security – the right to payment is tied to the property.
What does ‘labor or materials furnished’ mean?
This one is pretty easy. In order to qualify for a mechanics lien, you must provide something of value — typically labor and/or materials — to a construction project. So, the food truck operator that swings by the job site can’t file a mechanics lien if he gets stiffed the money he’s owed for lunch.
What does ‘improve property’ mean?
This part can be tricky. For lien rights to arise, the labor or materials supplied must go towards improving a piece of real property. For material suppliers, the supplies they sell to a construction project generally must be incorporated into the property on the project in order for a lien right to be present.
Liens Attach to the Property, NOT to a Person or Company
Another important aspect of mechanics liens is that a valid lien attaches to the piece of property that’s being improved in the construction project. When you file a mechanics lien, the document is actually recorded with land records and appears on a title search of the property. Anyone who buys or accepts the property after the recording of your lien claim (and sometimes, in some states even before the recording), accepts it subject to the claim. As a practical measure, this means the property will not be sold, refinanced or otherwise transferred without the mechanics lien claim being paid or addressed.
This is somewhat counterintuitive because in many cases where a mechanics lien is filed, it’s not the property owner that owes the debt to the lien claimant. Using the illustration (right) as an example, let’s assume that the property owner pays the general contractor, and the GC pays the subcontractor, but then the subcontractor does not put the sub-subcontractor. If that sub-sub has a lien right and decides to file a mechanics lien, the lien is filed against the property owned by the property owner, even though the debt is owed by the subcontractor.
Why Mechanics Liens Are Important
Mechanics liens are only available to the American construction industry, and have been around since the 1790s! In fact, Founding Father Thomas Jefferson is credited with first bringing the mechanics lien concept to the United States. The remedy is unique to common law countries, like the US and England, but the rest of the world doesn’t really have this. It’s a very powerful remedy that is in contrast to the usual workings of the law. Attorneys and contractors alike call mechanics liens the most powerful tool available to contractors and suppliers to make sure that they get paid the money that they’ve earned on their construction projects and jobs.
Though the rules are different, a lien can be filed on most any private construction project, whether the project is residential (on the house itself) or a commercial project.
A Few Things to Keep in Mind
Here are some general theories to keep in mind when trying to understand construction or mechanics liens:
Liens attach to the property, not to a person or a company;
In general, those who perform labor or supply materials on a construction project will have the right to lien the project;
The method of filing a construction lien varies state-by-state;
In the majority of states, sending a preliminary notice is a required step in order to preserve your mechanics lien rights;
Your lien must be filed within a defined timeframe;
Once filed, a lien will expire, and in some states, they expire very quickly;
If filing your lien does not produce payment, you will need to “perfect” or foreclose on your lien within a defined time period.