When hiring a contractor to work on that dream addition to your home, chances are good you will (and should) sign a contract. A good contract will ensure that your rights are protected – that the contractor will show up and do the work you want within the time frame you request. But you should know that such documents also give the contractor certain rights, and in some cases, may even allow the contractor to take your home should you fail to pay up!
A contractor’s legal right in your property is referred to as a mechanic’s lien. A “lien” is the legal term for a right a creditor has in a borrower’s property. A mechanic’s lien is a specific type that is created by law to protect contractors, home repair people, and home-building supply people. Other types of workers who may be eligible to receive a mechanic’s lien include subcontractors (the crew hired by your general contractors), electricians, architects, lumber yards, and plumbers.
Let’s look at an example. Perhaps your parents are at the time in their lives where they need care and you decide to build an addition onto your home to accommodate them. You call a local contractor and hire him to manage the project. Part of the contract includes a mechanic’s lien on your home. Prior to beginning the worked agreed upon, most states require him to “perfect” the lien in which he records the lien at the county recorder, gives you a copy of the lien, and states when he will start the project.
If the contactor “perfects” the lien, he now has the same rights to your property as a mortgage holder. If he concludes the job and you pay him according the contract, he must then clear the title to your home, meaning that he must release the lien. However, if you fail to pay the contractor, he could go to court. In an extreme case, he may ask the court to order a forced sale on your home in order to pay the debt you owe him.
It is important to note that, in some states, liens can not only be applied to real property (your home or land) but can also be applied to personal property (such as a washing machine or oven). For example, that repair person you hire to fix your oven can actually take out a mechanic’s lien interest in that same oven.
Chances are excellent that when you start a project, you have every intention to pay the contractor or service person as agreed upon. However, especially in these tough financial times, it is important to realize that things may not always go as planned. The level of service provided by the contractor may not meet your expectations. Your idea of “clean up the property” may not necessarily be your contractor’s idea.
It is important for you to understand the rights of contractors and others you hire might have to your property by virtue of a mechanic’s lien. When signing a contract with a contractor, like any other contract, make sure you understand each clause. Do not sign anything without clearly understanding the obligations of both parties. When in doubt, ask for clarification or talk to your lawyer.