Real Estate E-Newsletter

Construction Liens

A construction lien is a claim against real property that secures payment of a debt for improving the property. In practice, it tends to be an expensive but highly effective way to collect for past due construction-related work. A construction lien gives contractors, subcontractors, and material suppliers the ultimate right to foreclose on the real property if the property owner fails or refuses to pay for their construction work. Construction liens apply only to privately owned property, not property owned by the government. Construction liens in many states still go by the traditional name "mechanics' liens."

Example: Owen Owner contacts Paul Plumber about removing all the polybutelene plumbing in his home and replacing it with more reliable copper pipes. Paul agrees to take the job. Paul brings in all the copper piping needed for the job, completes the work, and bills Owen $5,612. Owen loses his job and can't pay Paul. Paul's construction lien gives Paul the right to sell Owen's house and take payment for the job from the proceeds of the sale.

To enforce a construction lien, the contractor or material supplier must strictly comply with procedures set out in the state statutes. Each state has its own unique procedure, but construction lien laws in most states do have a number of common features, most of which have strict statutory time limits that must be observed.

Who has lien rights. State law determines which particular parties are entitled to file and enforce construction liens against improved real property. The list may include architects, engineers, laborers, materialmen (those who sell materials for construction purposes), contractors, subcontractors, site preparation firms, and others.

Notice. The person or firm furnishing materials or services that improve real property must notify the owner of the potential lien if the owner fails to pay for the improvements. These notices have to be given within a limited time after starting or completing work on the property, as provided by state law.

Recording. A construction lien must be filed for recording in the public records of the county where the improved real estate is located. Again, state statutes allow a specific period of time for making this filing after the work is completed.

Foreclosure suit. State law sets out the procedures for enforcing the lien through foreclosure proceedings in state court.

Lawyers who practice in the area of construction law get to know lien laws and their attending procedures extremely well. Contractors who are faced with nonpayment would do well to obtain a construction lawyer's advice for enforcing payment using construction lien law techniques.

Homebuyers Financial Worksheet

To read and printout a copy of the Worksheet please click below.

Homebuyers Financial Worksheet

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