If you are thinking about hiring a contractor to build or remodel your home, you need to be aware of the risk of mechanic’s liens. Normally home owners or buyers hire a general contractor, and the general contractor will order materials and hire subcontractors, like electricians, carpenters, lumber, etc. If you pay your general contractor, and he/she does not pay all the labor or material suppliers, they may be able file a lien against your property and try to take possession of your home if they are not paid.
There are ways to avoid liens or determine if a lien is valid and enforceable. If you are building a new house on a new lot that will be closing at the same time, you can purchase Title Insurance to provide mechanic’s lien coverage for work done prior to closing. The title company will work with the builder and collect lien waivers as payments are made.
Minnesota Law states: Within 10 days of starting work, the contractor to give you a lien notice. The notice must explain that subcontractors and suppliers may also have a lien on your property if they are not paid, even though they do not have a contract directly with you. The notice must state that Minnesota law allows you to either: pay any subcontractor directly and deduct that amount from the contract price; or withhold from the contractor for 120 days after all work is completed as much of the contract price as is necessary to pay those subcontractors directly unless the contractor has given you lien waivers signed by the subcontractors. A lien waiver is a written statement signed by a subcontractor giving up the subcontractor’s right to file a lien against your property.
Subcontractors, including materials suppliers, must also give you a specific notice in order to protect their right to file a lien if they are not paid by the contractor. The notice must give the name and address of the subcontractor, the name of the contractor who hired the subcontractor, and the type of service or material provided and its estimated value. The subcontractor’s notice must be given to you within 45 days of the time the subcontractor first furnishes labor or materials, or it is not enforceable.
To protect yourself from having liens filed against your property, you should have the contractor list in the contract the names of all anticipated subcontractors and material suppliers. In addition, keep track of any subcontractor notices you may receive before your final payment, since some subcontractors may not be listed in the contract. Then, before making final payment, be certain you receive lien waivers signed by each of the subcontractors.
It is wise to consult with an attorney if you are concerned about a mechanic’s lien on your property.
Ask the Real Estate Agent is a weekly column by Cheryl Kempenich of Coldwell Banker Burnet, who lives and offices in the Chisago Lakes Area. Submit your questions to firstname.lastname@example.org. All information is deemed reliable but not guaranteed. For legal assistance consult an attorney.