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The Inner Workings of the Mechanics' Lien

If you've ever had a mechanics' lien placed on your property you know that it has nothing to do with your car or the mechanic that you use for auto repairs. But if you've never heard much about this particular legal maneuver, you'll agree with most of the people who find themselves in a similar position: the name is what makes the mechanics' lien so confusing; they are actually most often used by subcontractors and suppliers. It's a legal claim against a property that has been improved or remodeled in some way.

For example, you may decide to remodel the entryway of your property, installing all new lighting, raising the ceiling, knocking out a wall, adding an arch, installing a skylight and replacing the flooring. You hire a contractor to handle the job. He, in turn, hires subcontractors to handle parts of the job that he isn't handling himself. He may hire an outside electrician, he orders the lighting fixtures from a supply house, the flooring is subcontracted to a local company, etc. If the contractor fails to pay one of the subcontractors hired for the job, a lien can be placed on the house to enable them to recover the funds.

Many property owners find it surprising that a mechanics' lien can be placed on their property for "nonpayment" when they actually paid the contractor for the job in full. The law states that if a subcontractor on a job is not paid, even if the contractor on the job is paid in full, the subcontractor has the right to come after the owner of the property and the property on which the improvement was made. This is why it's so important to understand the "mechanics" of the mechanics' lien. You don't want to end up forced to pay for the work twice - or worse, forced to sell your house in order to get out from underneath a mechanics' lien.

How is that fair? If you don't see the logic behind the mechanics' lien there are two matters that you probably aren't taking into consideration. First, at a fundamental level, the law assumes that between the person who ordered all new lighting for their house and the electrician who placed the order and fronted the cash, the electrician's need to be paid is probably greater. Second, the law presumes that you as the owner who paid the contractor for the job in full can simply respond to this situation by suing the general contractor. This is true, but there's still a big problem to deal with immediately. When a mechanics' lien is placed, you may have days or months to pay what is owed the subcontractor or the property can be sold to satisfy the debt. In comparison, you can sue the general contractor, but obtaining the money from this direction will probably be a long process.

How can you avoid the problems that come with mechanics' liens?

Pay for the work being done with joint checks. Offering a series of checks made out jointly to the general contractor and subcontractors working on the job is a good way to ensure that everyone gets paid. Joint checks can only be cashed if the "ultimate" beneficiary endorses it, which helps ensure that subcontractors and suppliers are paid.

Obtain a lien waiver. You can instruct your general contractor to obtain lien waivers from all suppliers and subcontractors working on the job and that the general contractor will be responsible for paying.

Pay the subcontractors and suppliers directly. This may be the best option in most cases. You can simply make payment for services rendered directly to the subcontractor and/or supplier due the funds. This avoids the potential for mechanics' liens entirely as long as you don't hold back payment for any who worked on the job. The downside of this method is that you would then appear to be the employer which would make you responsible for little details like withholding income for taxes and Social Security, etc. These details can snowball quickly into a big problem, so many experienced attorneys will recommend you try the first two methods before considering option 3.

If you need additional advice on how to avoid mechanics' liens, please get in touch with the southern California business lawyers at The Law Office of Retz & Aldover LLP.

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Palos Verdes Estates, CA 90274

Phone: 424-282-3467
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