Lien:
A legal claim against property that can be used as collateral to repay a debt.
“Do you know the various Real Estate Liens?”
That was the question recently posed in an email from our friends at Hunter Law Group. They reminded us of the importance of reaching out to a real estate attorney to ensure our rights are protected if a lien is placed on our home.
Some of the different liens they addressed:
- Tax lien
- Mortgage lien
- Mechanic’s lien
- Junior lien
We will focus on the Mechanic’s lien–
What is a Mechanic’s Lien?
As you start on the road to homeownership, you will likely have to remodel, renovate, or conduct a complete fixer-upper to get your new home looking the way you want it. When starting any large construction project, you hire contractors and builders to help you get the work done. Like any job, workers must be paid on time and correctly.
To ensure labor workers are paid, laws such as a mechanic’s lien are enforced in each state to keep homeowners accountable.
Before starting a large construction or renovation project, it is crucial to understand worker and homeowner laws to keep everyone safe, liable, and getting what they are owed from each side of the contract. Mechanic’s lien is just one of the many statutes set in place, but as you get ready to hire workers for your home, it is an essential law to remember.
Understanding a mechanic’s lien
A mechanic’s lien is a legal claim against a property. A mechanic’s lien is used mainly by subcontractors and builders to ensure they get paid for their work. Even if one payment is missed by you, or the general contractor who hired the subcontractor, a mechanic’s lien can be enforced to get their owed payment.
In many cases, it is a subcontractor executing a mechanic’s lien. You might have hired the general contractor to redo your bathroom, but they might have hired a subcontractor to bring in tile or other materials. If that subcontractor is not paid by the general contractor as promised, a mechanic’s lien can be implemented and be given to you as the homeowner. Meaning, that while you were not the one to hire the subcontractor directly, you are responsible for them not getting paid.
Generally, a mechanic’s lien has a higher priority than other forms of debt within the property project. While it may not seem right that the accountability is on you to ensure payment is appropriately handed out, each state will have its own stipulations set in place, and there are ways to prevent this lien from occurring.
Kansas mechanic’s lien laws
The mechanic’s lien laws in Kansas allow only contractors, subcontractors, and suppliers to be eligible for mechanic’s lien rights. A contractor must have produced labor and materials directly under the contract. At the same time, a subcontractor is labeled as a worker who assumed a smaller portion of the agreement under the general contractor. For a supplier to count, the materials supplied must have been used in the project, not just delivered.
To file a mechanic’s lien, generally, it must be delivered within four months of the contractor’s last day of labor. Then, for a subcontractor, it must be within three months of their work underneath the general contractor’s last date of work.
Missouri mechanic’s lien laws
Under the mechanic’s lien laws in Missouri, general contractors, laborers, suppliers of material, equipment lessors, registered architects, surveyors, and general engineers are all eligible. This can also include landscaping contractors when applicable.
For most of these titles, a lien must be enforced within six months of the last date of labor. However, for an equipment lessor, it has to be done within 60 days of the removal day.
Avoiding a mechanic’s lien
To ensure that your workers and possible subcontractors are paid accordingly, there are many steps you can take to keep the project running smoothly.
First, pay with joint checks. By writing checks out to the general contractor and the subcontractor, you can ensure that both parties are paid for their labor by the end of the job. Another consideration would be to pay the subcontractors yourself. While this may be pricey, it can be a smart way to keep everything together, but it may also lead you to be responsible for things such as withholding income for taxes or Social Security.
A leading way to ensure that you are not tied with any subcontractors used is to sign a lien waiver with your current contractors. By including this clause within the construction contract, you as the homeowner will no longer be liable for the payment of subcontractors or anyone brought in by general contractors through the project.
With the numerous responsibilities that go into building, renovating, or buying a new home, it is crucial to understand what is necessary from you as the homeowner. Simple remodeling projects can have many clauses within them, and by the time it is done, you want to be enjoying your new home, not gathering receipts. To better understand what you need as a homeowner, your rights, or general questions you may have, reach out to the team at Hunter Law Group.
Reposted with permission; @Hunter Law Group 7/20/22
Mechanic’s Lien and Bankruptcy
So, what does this mean for your bankruptcy case? We also see mechanic’s liens on vehicles for work done.
As mentioned above, a mechanic’s lien is a secured property right owned by a contractor, subcontractor, or material provider in a house or other property. If you are considering filing for bankruptcy and have a mechanic’s lien, it is important to consult with an experienced attorney.
Can you Discharge a Mechanic’s Lien?
The only way you will be able to discharge a mechanic’s lien is if the lien has not been perfected. That means the lien was not properly recorded and may be counted as unsecured debt.
If the lien has been perfected, it will not be discharged, as it is secured debt. If you file a Chapter 7 Bankruptcy case, the lien will survive the case and you will eventually need to make payments on it – either when you have other liens paid in full or you go to sell the property.
If you decide to file a Chapter 13 Bankruptcy case, you may be able to pay a lesser amount on the lien. This is done through an adversary process and depends on the value of the property vs the total lien(s) on the property.