Lien releases and waivers can be music to a homeowner's ears after ongoing construction work is done
A construction lien gives contractors a legal claim to your property until your debt to them is paid.
Liens protect contractors and ensure they receive payment for their services.
A lien waiver is proof that you paid all or part of your bill.
A lien release removes the lien from the home’s title.
Homeowners who are hiring contractors or subcontractors for large-scale or expensive renovation projects may find themselves faced with a little real estate legalese, leaving them wondering, “What is a lien release in construction?” While this type of legal maneuver is common for everything from back taxes to unpaid garbage and sewer bills, liens put in place by those doing work on your home are a little bit different.
A lien is a legal claim tied to a property that results from unpaid debts. Mortgage companies, contractors, and property tax collectors, among others, can put a lien on a property when the homeowner owes them money for delinquent payments or services rendered. Liens show up on the home’s title, but the lien can be removed once the debt is repaid.
If there is a lien on a home, typically homeowners must pay it before they are able to sell the home. Rules and regulations regarding liens vary from state to state, so understanding how your state handles them is important if a contractor puts one on your home for their construction services.
Liens can protect contractors from being taken advantage of by homeowners who promise to pay a hefty sum for a massive construction process but fail to deliver payment, leaving the contractor on the hook for all of the supplies, materials, and work hours they have put in. So, whether you are building a steel frame home or taking on a major home renovation, understanding lien waivers and lien releases in construction can ensure that everyone comes out ahead.
Some contractors and subcontractors will preemptively put a lien on a property they are working on to guarantee they are paid in full for both the time and materials they use on the job. This can be done as part of an agreement, usually detailed in the paperwork your contractor provides, before work is set to start; or it could be something they do after the fact if they have upheld their end of the contract and completed the work, but the homeowner has yet to pay them.
A lien release means that the lien that was levied against a property has been released and the debts paid, ending the homeowner’s legal obligation and the contractor’s right to payment. The timing of when a lien is required to be released will depend on where you live, but in most states it is required within 10 days of the date the payment clears. The release of the lien also removes the lien from the public record, so it will not show up on the home’s title.
A lien waiver is like a receipt that the homeowner receives, showing that they have made all of their agreed-upon payments in full. A homeowner in possession of a lien waiver will be protected from future liens related to the project.
The contractor will typically give the homeowner a lien waiver when they receive payment in whole or in part. For instance, if the total project cost was $30,000, and you make a $5,000 payment, you may receive a lien waiver for $5,000. This means that the contractor will not pursue payment for that $5,000, and it will not be included in the lien against the property, but the remaining $25,000 can be.
Once the homeowner has paid for the services in full, the contractor will issue a lien release. A lien release releases the homeowner from any obligation to pay their contractor because they have already fulfilled their payment. It will also remove the lien from the public record and from the title of the home.
To avoid liens during your project and unexpected fees, consider including a lien waiver clause, or subcontractor lien waiver clause, in the project contract with the local general contractor you choose. This can protect you against claims from the contractor or their affiliates. This ensures that you will receive lien waivers when you make your payments.
Receiving a lien waiver can serve as proof that all of the debts have been paid as part of your home renovation project and prevent any future liens from being levied against your property. It acts not only as a proof of sale, but also as an added layer of protection, ensuring your property does not get tied up in any legal disputes between your contractor or their affiliates.
While both lien releases and lien waivers are incredibly common in the construction industry, they are still legally binding. These legal documents can be complicated, especially when dealing with large sums of money and a hefty renovation project.
For example, a less-than-noble contractor could conceivably use the construction lien to pass the cost of products and supplies onto the homeowner, while pocketing the money that the homeowner paid them upfront when signing their contract. This would leave unsuspecting homeowners on the hook for the supplies and materials used on the project, even if the homeowner had already made their payment in full to the contractor.
It can be beneficial for homeowners to talk to a licensed real estate attorney before agreeing to a construction or mechanics lien, especially if they have questions about what impact exactly the lien could have on their property.
The contractor is responsible for removing the lien to clear the title. Once the contractor receives payment, they will sign a lien waiver removing that amount from the possible lien total. Once the debt is paid in full, they will file a lien release stating the payment has been made and the homeowner no longer owes them money, which removes the lien from the title.
A construction lien results from unpaid services. For instance, if a homeowner hires a contractor to do a large renovation on their home and then fails to pay for the services and materials, the contractor can take out a lien on the property. This lien is a legal claim against the property for the amount of money owed. If the homeowner does not pay their debt, the lien may stay on the title until the homeowner tries to sell and cannot do so until the title is cleared.
