A mechanic’s lien (or a materialsmen lien) is a security interest in the title to property for the benefit of a person who has expended services, labor or materials to improve personal or real property. A mechanic’s lien arises by statute in 34 states. A mechanic’s lien is used to protect contractors.
Mechanic’s lien law creates a structured process for the prioritization and repayment of claims. Property that has a lien imposed upon it cannot be borrowed against, refinanced, or sold until the lien is satisfied. Thus, the property owner has a greater incentive to satisfy the debt.
How a Mechanic’s Lien is Created
A mechanic’s lien arises by operation of law, but the requirements for creating a lien depends upon whether real or personal property is involved. In some states, a preliminary notice must be given to the property owner that there is a right to place a lien on the property. Some states require the contractor to file a notice to commence work. Some states also require a contractor to file a notice of intent to file a lien for any unpaid work. Most states require a contractor to file a notice of lien within a certain period of time after the work has been performed or the materials supplied.
A potential lienholder must file notices and liens in the city or county public records office in which the property is located to ensure that the lien properly attaches to the property’s title.
While each state has lien statutes that have their own particular requirements, there are overall similarities. Real property liens are imposed when a person performs labors or supplies materials to improve real property. Persons who typically impose liens are laborers, carpenters, electricians, and plumbers. Types of businesses enforcing mechanic’s liens are electrical suppliers, lumber yards, architects, civil engineers, and offsite fabricators of specialty items.
A person providing a service, labor or materials for personal property, such as an automobile, may obtain a mechanic’s lien on the property. The place for recording such a lien will differ depending upon the type of property attached. For automobiles, a mechanic lien is usually recorded with the department of motor vehicles for the state in which the vehicle is registered.
A lien is enforced through a forced judicial sale, or foreclosure, of the asset. Before foreclosing, a court will determine the priority of the lien and whether the lienholder property complied with the applicable lien statute. The court will then force the sale of the property and distribute the proceeds from the sale in accordance with the priority of the liens.
People who perform services, labor or provide materials to improve personal or real property may obtain a security interest in the property. A foreclosure of the asset may occur if the property owner does not pay for the services, labor, or materials. Most states have specific statutory requirements that must be met for a lien to arise and for foreclosure to be granted.