Mechanic’s liens are legal claims against a property and its owner by contractors, subcontractors or suppliers not paid for labor or materials provided during construction or renovation. These liens ensure that those in the construction industry get paid for their work and materials. Understanding how mechanic’s liens work, how they can affect real estate transactions, and the steps involved in resolving payment disputes and foreclosing on a property is crucial for anyone involved in the construction or real estate sectors.
Mechanic’s liens place a cloud on the property
Mechanic’s liens can significantly impact real estate transactions. Once a contractor or business files a lien, it becomes “a cloud” on the property’s title, making it difficult for the owner to sell, refinance or transfer ownership of the property. Potential buyers and lenders typically require a clear title, free of encumbrances like a cloud, before proceeding with a transaction. In short, the owner must resolve a mechanic’s lien before any property sale or refinancing can occur. Resolutions often involve paying off the lien, negotiating a settlement or disputing the lien in court.
Resolving payment disputes through mechanic’s liens
If a contractor, subcontractor or supplier is not paid for their work or materials, filing a mechanic’s lien is an effective way to initiate payment or resolution. The process typically involves:
- Notice: Providing a preliminary notice to the property owner and other relevant parties, informing them of the intent to file a lien if payment is not received.
- Filing the lien: Submitting the lien to the appropriate county recorder or clerk’s office where the property is within the statutory deadline, which is 120 days in North Carolina.
- Enforcing the lien: If payment is still not received, the lienholder may file a lawsuit to enforce the lien, potentially leading to foreclosure on the property to satisfy the debt.
Foreclosing on property if the owner doesn’t pay
Once the contractor or business files the mechanic’s lien, the next step may involve foreclosing on the property. Foreclosure is a legal process where the lienholder seeks to force the sale of the property to recover the owed amount. The steps typically include:
- Filing a lawsuit: The lienholder files a lawsuit to foreclose the lien.
- Court proceedings: The court reviews the case, and if the lien is valid, it may order the sale of the property.
- Sale of property: The property is sold, often at a public auction, and the proceeds go toward paying off the lien and any other outstanding debts.
You’ve foreclosed on the property: Now what?
If you are the property owner and your property has been foreclosed due to a mechanic’s lien, it is essential to understand your options moving forward:
- Redeeming the property: There is a ten-day redemption period during which you can reclaim your property by paying the total amount owed, including any additional costs and fees.
- Consulting an attorney: Seek legal advice to understand your rights and any possible recourse. An attorney can help negotiate settlements with the lien holder or explore other legal options.
- Financial planning: Assess your financial situation and develop a plan to manage your debts and avoid future liens. It can involve budgeting, securing loans or seeking financial counseling.
Guidance makes good financial sense
Most real estate transactions involve hundreds of thousands or millions of dollars in assets. With this much money involved, it is especially smart for property owners and contractors to consult a real estate law attorney to discuss legal and financial options and find solutions. Guidance for understanding the process and determining the best options can help you navigate these challenges effectively.