Many have heard the term “mechanic’s lien,” but they may not understand what it truly means when trying to buy or sell a property. In short, a mechanic’s lien is a legal claim placed against a property for money owed to the lienor. If the seller does not admit to the lien or is unaware of it (unlikely), the buyer finds out when they do a title search to confirm ownership by the entity selling the property. The mechanic’s lien often involves a building materials supplier or subcontractor working on the property not getting paid for services rendered.
The reason for not paying the bill may be the owner, contractor or developer does not have the money. Or, it could be a dispute over work performed or the quality of the materials provided. Even when a paid contractor does not pay a subcontractor, the lien is still against the property. Whatever the basis of the lien, the real property can’t be bought or sold until resolving the mechanic’s lien.
How to get rid of it
The owner will typically try to get rid of it to sell the property, but a proactive buyer can get involved so the deal can move forward. Typical resolutions are:
- Vacate the lien: This involves going to court to resolve the matter. The lienor must make their case for why they are owed money. The owner or contractor may argue at this time that they don’t owe the money.
- Negotiate: It may be faster and less hassle to negotiate with the lienor directly or pay them regardless of where the dispute stands. The two parties can then negotiate fair payment.
- Use a lien discharge bond: Getting a bond to discharge the lien is complex, but the owner can purchase one from an insurance company. The lien will then get attached to the bond.
Proceed with caution
A buyer who gets involved in a property with a lien needs to be especially careful. The purchase agreement should have a stated outcome, price, transfer of title, and other details specific to the purchase. The proper contract can help avoid the seller’s subsequent attempt to renegotiate or void the deal.
