Based on the name, you might think a mechanic’s lien has something to do with the person who does tune-ups on your car. Actually, this type of lien is most often used in the context of property renovation, to protect suppliers and subcontractors.
Let’s say, for example, you decide to remodel your kitchen. You hire a general contractor to manage the project, and he in turn hires a granite supplier to provide your new black granite countertops. You pay the general contractor for the job, who should then pay his supplier for their part of the work. But he doesn’t. Instead, he uses the money to take his family on a trip to Disney World. The supplier can now hold you responsible by placing a lien against your home to get his money. You could be forced to pay twice for the same work, or risk losing your house.
As a homeowner, this type of lien may strike you as unfair. You could, of course, sue the contractor, but this would be costly and time-consuming. Here are three proactive steps you can take to avoid a mechanic’s lien altogether:
- Pay with joint checks. In the “Payable to” line on your check, write the name of your contractor and his supplier. In order for the check to be cashed, it must be endorsed by both parties, which can help ensure the supplier gets paid. Note that you must include the word “and” between the two names.
- Get a lien waiver. You can make the contractor get a lien waiver for every subcontractor or supplier he hires. Note that in many states, you can get a mechanic’s lien waiver only after payment has been made.
- Pay each party directly. Making payments to each subcontractor and supplier individually is a way of guaranteeing everyone gets paid. However, this method also has its risks. Paying each worker directly could make you look like an employer, which could make you liable for such responsibilities as withholding money for taxes and Social Security.
When undergoing a home remodel, it pays to go the extra mile to ensure that all members of the project have been duly compensated for their work.