What Is a Mechanic's Lien and How Does It Work?

Your home equity could help you fund those home repairs or improvements you've put off. And if you're not a DIY fan, you might hire a contractor to get the job done. 

But what happens if a project goes wrong? For example, say you and the contractor get into a dispute over the quality of the finished project. You don't want to pay for work you're not happy with, but the contractor could put a mechanic's lien on your home to collect what's owed. 

If you've gotten a notice of mechanic's lien, don't panic. It may be possible to remove it and protect your home. Let’s look at your options for debt relief and taking care of liens. 

What Is a Mechanic's Lien?

A mechanic's lien, also called a builder's lien, contractor's lien, or construction lien, is a legal claim against property to pay a debt. Contractors and subcontractors may use mechanic's liens to force homeowners to satisfy unpaid contracts. Like other liens, a mechanic's lien is secured debt—you can't refinance your mortgage or sell the home until it's paid. 

You could end up with a mechanic's lien if you:

• Don’t pay a contractor's invoice in full when you've agreed to do so. 

• Set up an installment plan with a contractor and miss one or more payments. 

• Pay your contractor, but they don’t pay the subcontractors who worked on the project. In that case, the subcontractor could bring a mechanic's lien against you. 

State law determines when a contractor or subcontractor can impose a mechanic's lien, and how long they have to do so. In California, for example, contractors have to serve a 20-day preliminary notice after they start work. Liens must be recorded within 90 days of project completion, and they have 90 days after recording to enforce the lien with a lawsuit. Your state may use a different time frame; the county recorder's office or clerk of superior court should be able to fill you in on the specifics. 

Can I Lose My Home to a Mechanic's Lien?

Yes. A mechanic's lien could cost you your home if it leads to a forced sale. While that's rare, contractors could foreclose on your home to collect what's owed to them. State laws define the legal process that's required to enforce a mechanic's lien to that degree. 

Here's how the process generally works:

• The contractor files a mechanic's lien with the proper agency (usually the recorder's office or clerk of superior court) in the county where the property is. 

• You're served a notice of the lien, and given an opportunity to pay the debt. 

• If you don't pay, the contractor may file a notice of intent to foreclose, which is essentially a final demand for payment.

• If you don't respond, the contractor could file a lawsuit to foreclose. If you still don't pay, the court could order the sale of your home. 

• Once the order is issued, the home is sold at public auction to the highest bidder, and the proceeds are used to pay the contractor. 

A mechanic's lien can feel scary when you realize the risk it carries. However, it doesn't have to get to this stage. There are ways to get a mechanic's lien removed and save your home from foreclosure.

How to Remove a Mechanic's Lien

The simplest way to remove a mechanic's lien from your home is to pay the debt. You might pay in full or negotiate a settlement with the contractor. You could also contest the lien in court, or file a surety bond (we’ll look at this in more detail below) to get it removed. 

First, verify that the lien is valid. If you were properly served notice of the lien, you should have a copy of it. Review it to check that all of the details (your name, the contractor's name, the amount, and scope of the work) are correct. 

Next, check that the lien was filed in line with your state's deadline requirements. Also check to see if the preliminary notice was served within the time frame required by the state. 

If you think the lien is invalid for any reason, you can file a petition with the court to have it removed. You may also be able to sue the contractor if you believe the lien is fraudulent. Consult with an attorney if you wish to pursue these options.

If the lien is valid, here's what you can do next.

• Pay in full: If you have the money to pay the contractor in full and you're not disputing the quality of the work, you can pay the bill to get the lien released. Before you pay, it’s helpful to get a detailed invoice that lists all of the charges and explains what they're for. 

• Negotiate a reduced payment: If a mechanic's lien is the result of a dispute over the work, you may be able to get the contractor or subcontractor to agree to a settlement. That's no different from negotiating credit card debt or medical bills, which could let you pay less than what's owed. Documentation is key. Make a written record of the settlement details, including the payment amount, date, and method. You may want to talk to a debt expert or an attorney about how to draft a settlement agreement so the contractor can't sue you for the rest of the debt. 

• Bond the lien: Bonding the lien off means you purchase a surety bond. This is basically a guarantee from a surety company that the amount will be paid. The bond is usually for more than the lien amount. This transfers the lien from your home's title to the bond, so that you can refinance the mortgage or sell the property. 

You could try to wait out a mechanic's lien to see if the contractor will take additional steps to foreclose. If they don't do so within the window set by your state, the lien expires. However, this doesn't make the debt go away. 

In some cases, bankruptcy may be your best option for debt relief. Talking to a debt expert, real estate attorney, or bankruptcy attorney can help you decide how to handle a mechanic's lien a contractor placed on your home.

And if you haven't started home improvements yet, a little planning could help you avoid a mechanic's lien altogether. Options include asking your contractors to sign lien waivers, making payments to contractors and subcontractors, and keeping records of all payment transactions. These small steps could save you the trouble of trying to recover from a contractor gone wrong.