Mechanics and Materialman’s Liens

As always, the information contained here is for general informational and educational purposes only and should not be constituted as legal advice. Consult an attorney for specific guidance and counsel.

First off, what even is a lien?

A good, simple definition of a lien is, “a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation.” A mechanic’s lien is a way for a contractor or vendor providing labor or supplying materials in connection with improvements to real property to secure what they are owed for payment to the real property.

Most of the time when a lien is filed, there is a dispute over whether payment was due or received. Sometimes, owners are unaware of the lien filed until they attempt to sell the property, which puts them under a time crunch to get it resolved to close. If you think someone may have filed a lien on one of your properties, ask your favorite title company to search for liens prior to attempting to sell. What you don’t know can cost you time, money, and headaches. 

 A contractor filed a lien on my property – what should I do?

Well, in true attorney fashion, the answer is, “it depends.” The Tennessee mechanic’s lien statutes are lengthy and complicated. Some things to consider are what documentation you have, the amount of the lien, and whether it is valid, enforceable, and worth paying. As always, each situation is unique, and this article does not constitute legal advice. Consult an attorney for your specific situation.

What Documentation Do I Have? 

Many contractors file notices of lien with the Register of Deeds office improperly, but owners are unable to adequately prove the liens are invalid due to poor documentation.

The best way you can protect yourself is to obtain lien waivers during and at the completion of construction. Then, file a notice of completion as soon as the construction is complete, if possible. Also, keep detailed records of payments as well as project start and end dates. Timelines can be extremely important, as mechanic’s liens expire by statute if they are not perfected or enforced.

Amount of the Lien 

A second important factor to consider in the amount of the lien.

A contractor is only entitled to a lien for the contract amount – not for attorney fees or other associated costs.

If it’s a small amount, it may be less costly to pay the contractor for a release than to pay an attorney to dispute it or bond company to release it via bond. Also consider your holding costs during the amount of time it may take an attorney to dispute the lien.

Sometimes, a property owner find themselves in a situation where they unexpectedly find a mechanic’s lien on the title search when they are trying to sell the property. Without overwhelming documentation that the lien is invalid, it is unlikely the owner would be able to sell the property without some sort of resolution or release for the lien in order to clear title.

Is the Lien Even Valid? 

Consult an attorney to determine whether the lien is valid. Should you retain an attorney, you may see a demand letter sent first to the lien holder demanding a release be filed. Sometimes this alone will get the job done. From there, the attorney should work with you to create a plan given your goals, timeline, and budget for legal expense.

Common Reasons Liens May be Invalid:

·         The time to enforce or record the lien pursuant to the lien statute has passed.

·         The contractor was not properly licensed.

·         The amount of the lien is improper or incorrect.

·         The legal description is improper or encompasses more than the property that was improved.

·         The remote contractor did not properly provide a notice of non-payment.

Valid or not, sometimes a release of lien is impossible to secure in a short period of time without paying the lien holder. Which brings us to our next solution for liens – the mechanic’s lien bond.

Negotiating a Lien

Sometimes it’s worthwhile to speak directly with the lien filer and see if a resolution can be achieved. This can be done either with or without an attorney. Often, a lien claimant is not actually interested in pursuing their claim in court. They may be willing to negotiate the amount they are seeking in return for a lien release. This can be cheaper and faster, especially if the relationship is amicable or professional. It’s not unusual for lienholders to release liens for less than full payment. Sometimes, it makes sense for a lienholder to release their lien in return for a greatly discounted amount. Your attorney can advise you as to forms you should ask the lienholder to sign in exchange for payment. You will certainly want to obtain a final lien release signed by the lienholder that can be recorded with the register of deeds to release the lien and clear title. If possible, it is usually also advisable to have the lienholder sign a general release of all claims in connection with the construction.

Bonding Off the Lien

Another option may be a surety bond to release the mechanic’s lien. These too can be surprisingly expensive. Most commonly, you pay a bond premium to the insurance company, and then send the face value of the lien to the insurer for holding in escrow. There are other ways to secure a bond, but the above is most typical for investors. In exchange for the premium and with remittance of the bond amount, the insurer executed a bond releasing the mechanic’s lien and filed it with the register’s office. This document is public notice that the insurer is holding the lien amount, and the lien is effectively no longer attached to the property. The money is then released from the insurer at the resolution of action on court, or the expiration of the lien.