Lien Release from Contractors

People frequently use liens to secure payment in various industries and situations. To buy high-priced items such as homes or vehicles, liens are a financing option for individuals.

When the driver purchases a car, the dealership holds a lien on the vehicle until the driver pays all the bills. It gives the dealership legal recourse if the driver stops paying and can repossess the vehicle.

In the construction industry and other industries, liens help to ensure all workers receive their wages. To ensure all workers get paid appropriately, large construction projects often use special lien waivers and release of liens.

The subcontractor would then file a lien waiver or a claim against the property, which is collateral. Subcontractors can seek foreclosure in court to collect their wages if the contractor does not pay them what is due.

Definition of a Lien

A tradesperson wants to ensure payment when working on a house (carpenter, plumber, etc.). The subcontractor may not work directly with the homeowner but may work for or with a general contractor.

If they do not receive payment, what recourse do they have? We can file a mechanic’s lien against the property if the contractor fails to pay them.

In other words, a lien uses the real property as a security for the lien holder (the subcontractor). Liens promise that the property will repay the owner. It can cloud the title if the lien goes on record with the county, which should happen to make it official.

There is no guarantee that the homeowner knows that the general contractor did not pay the tradesperson; however, the tradesperson improved the property, so the claim is valid.

There is a real problem when a tradesperson requests payment from the homeowner. If the homeowner cannot, or will not, the subcontractor can go to court and get the money by foreclosing.

Types of Lien Releases

In some industries and certain property types, lien releases may need different information and supplementary materials. Here are four examples:

• The contractor’s or mechanic’s lien release:

This applies to vehicle mechanics or construction industry members awaiting payment after completing a project.

• IRS lien release form 12277:

You can use this form to ask the IRS to release property debt after the owner has made their final payment.

• Mortgage lien release:

After making all mortgage payments, the homeowner may file a lien release.

• Partial release of lien:

Payment of small amounts towards the full amount needed to file a partial release of lien. Subcontractor/contractor relationships often need this type of contract.

Conditional vs. Unconditional

The lien’s release forms are usually produced before a project begins and filed after completion. The release of lien forms can either be unconditional or conditional, greatly impacting their value.

Conditional: The lien rights will waive once we pay the entire amount. As long as all conditions in the contract are the same, conditional release of lien forms is a good idea.

Unconditional: These contracts take effect immediately upon signing, regardless of the payment status. Unconditional forms release the lien claim even if the signer still needs to receive full payment.

In general, contractors and subcontractors agree to one of four payment schemes, waivers of liens, and lien release form arrangements:

• Indemnity Waiver and Release: This form is only valid upon fulfilling all payment conditions. As recipients receive regular payouts, they will often sign multiple forms.
• Release and Waiver upon Progress Payment: Once signed, the waiver and release become valid, regardless of whether payments have yet to come in. Subcontractors usually receive significantly more than once during each pay cycle, as they receive them with each pay cycle.
• Release and Waiver upon Final Payment: This form becomes valid once all conditions are met. Along with your final payment, you will receive it once.
• Unconditional Waiver and Release upon Final Payment: The signature on this form automatically makes it valid. Typically, it comes with the final payment at the end of a project.

Protect Yourself By receiving Lien Release.

This is why it is important to use Lien Waivers (also known as release of lien forms, mechanic’s lien release forms, and mechanic’s lien waivers) to prevent this problem from occurring.

You can print and use a Lien Waiver we provide immediately. Fortunately, there isn’t much to do. It’s similar to a receipt. This form essentially says that you’ve paid the subcontractor what they’re due, they’ve accepted your payment in full, and they waive the right to impose a lien on your property.

Just present it to them with your payment and ask them to sign it. Remember to get their signature!

When Should You Use a Lien Waiver?

It would help if you insisted that all workers sign a Lien Waiver as soon as they receive payment, whether you hire them directly or through a general contractor. To avoid getting a lien on your property as a contractor getting paid for your services, or if you intend to pay a mechanic and avoid getting a lien, use a Mechanic’s Lien Waiver.

In most cases, General Contractors are supposed to collect Lien Waivers and pass them on to you whenever payments occur. Still, you must be attentive to ensure the general contractor does so.

Other situations, such as divorces, may also result in lien filings, where a person who has moved out of a property may still have a claim against the equity. We can also file a lien against the property of the person who owes child support, either by the court or by the spouse who owes the child support.

Mechanic’s liens can be a scary experience, but there is an easy fix. Downloading and using our Lien Waiver can help you avoid it.

Why are lien waivers necessary?

If a construction project does not pay for materials, labor, or services, those provided with these items may file a mechanics lien or bond claim. Nevertheless, those in charge or at the top of a project are highly motivated to complete the project without filing any liens or bond claims.

Why are lien waivers necessary?

These include the property owner, the lender, the construction manager, or the general contractor. Two parties interact in any construction project – the payor (the party who pays) and the payee (the party receiving the payment).

Waivers serve as a kind of “proof of payment.” A lien waiver is executed (signed) by the payee acknowledging receipt of the payment and promising not to file a lien for the same amount.

Payors (usually the general contractors) collect, track, and submit the lien waivers from subcontractors and suppliers on the job to owners. Lien waivers are important for a few reasons: They ensure the paying party doesn’t have to file a mechanic’s lien, and the payee gets paid what they’ve earned.

Basic Difference Between a Full and a Partial Release.

The lien represents the amount owed to the contractor. If we pay the full amount, the contractor files a full release of the lien, which removes the lien entirely.

Sometimes, the property owner may pay the contractor in installments throughout the project, depending on the contract. As the payment arrives, the contractor may release the lien in part. Despite the reduced amount of the lien, a partial release remains on the property.

Should we release the lien conditionally?

It is common for a property owner to wait to make a final payment until the lien is released. At the same time, a contractor may only release a lien once he receives the final payment. It may be possible to resolve this situation by releasing the lien conditionally.

A conditional release states that it is subject to payment clearing. If the check does not clear, the lien will reappear. Property owners who want to sell or mortgage their property may need a conditional release to inform potential buyers and lenders needing more investigation.

So, unconditional releases completely remove the lien from the property and prevent its reinstatement. It depends on the state’s law, whether the property owes money in full or part, and whether we need a lien release.

Common Mistakes

To ensure that your lien adequately protects you, take the following measures:

• As part of the initial contract, discuss the form of the release. Upon receipt of the final payment from a contractor, you agree to abide by the terms of the contract.
• Sign a conditional waiver. A conditional waiver is almost always the best choice since it maintains your lien rights until you receive payment. An unconditional waiver becomes effective once you sign it, regardless of the payment status.
• Establish an accurate through date. Ensure the through date is aligned with what you expect to earn in your contract. You could lose money when you miscalculate your earnings, even with a lien.
• Add exceptions to the release. Your release of lien should exclude delays, changes in materials costs or other wage-impacting situations to ensure you receive appropriate compensation.

How to Get a Release of Lien?

There are varying processes for obtaining a lien release from state to state and county to county. Generally, record offices follow similar procedures. Contact your local recorder’s office to make sure you know exactly what you need. Here are the general steps:

• They are preparing the appropriate form. Subcontractors need to complete this form by your initial contract.
• The county might provide you with a special form or template for vehicle owners. You’ll usually need information about the claimant, the property, the total amount paid, and the date it was paid.
• Obtaining signatures. It is usually necessary to sign along with the date of the release of the lien form for it to be valid.
• Notarizing the form. In some states, notarization is mandatory, so make sure that’s the case in your state.
• Filing the release of lien. To ensure your property records are current, you need to file a release of lien with your county recorder.

It is essential for both property owners and those working on the property to release lien documents. Before you sign your release of lien documents, ensure they are accurate, account for any exceptions, and pay you what you expect. If you need help creating a release of lien document, you may consider hiring a contract lawyer.

Bottom line

Contractors, subcontractors, and suppliers have recourse other than putting a construction lien on the property if a written contract is in place. Rather than relying on the provisions of the construction lien act in the appropriate jurisdiction in the event of a breach of contract, they can seek recourse through the court system to recover their monies owed to them.

To protect the property owner’s interests, they should consult an attorney before drafting or reviewing the contract. It is always important for property owners to sign a construction lien release form when a construction lien has come up and the contractor or supplier has been paid in full.

When the release documentation does not exist, the construction lien remains in place until it disappears from the title to the property. If this step does not take place, the property owner does not have a clear title to the property.

To manage your lien rights, it is crucial to distinguish between these two documents. Although their ultimate goal is the same, eradicating mechanics liens, the difference is important.

It’s still easy to confuse the two, and many states refer to their waivers as “mechanic lien waiver and release.” Whatever you call them, they’re not the same. Each has advantages and disadvantages, and mistakes made with either could be costly.