If you are a homeowner looking to do some renovation work on your home, you may wonder if you should file for a lien release before you sign any contracts.
Lien releases and lien waivers are critical tools for property owners who want to avoid having mechanics liens put on their projects. These are commonly used documents in the construction industry, and while not required by law, providing or exchanging signed waivers in exchange for payment is often a requirement of construction project contracts.
The main difference between lien waivers and releases is that lien releases are used after a lien has been filed already, and waivers are filed before a lien is filed.
Benefits to Property Owners
Lien waivers are documents that a lien claimant (the contractor) signs stating they will waive future lien rights against the property in question for the specified amount. It acts basically like a receipt for payment. Let’s say you pay a contractor $100,000 to put on an addition; your contractor will waive the right to file what’s called a mechanics lien worth $100,000 against your property.
Lien waivers bring great benefit to property owners because you don’t really know for sure that everyone on the job (subs, suppliers, etc.) got paid. Lien waivers provide confirmation of that payment. As a homeowner, you want the project to be finished without liens or bond claims against the property, and collecting those signed waivers helps you achieve that.
You should have anyone who supplies materials, labor and services to your project sign a lien release. Why? Any claims regarding the property title or bond could prevent you from doing anything with your property until such time that the claim has been resolved.
This can be a double-edged sword, though. While you want the contractor (the one signing the waiver) to waive their lien rights prior to paying them, the contractor also wants to get paid before they sign over their lien rights.
Contractor Perspective
Now let’s take a quick look at the contractors’ perspective when it comes to lien waivers. In order to get paid for work they have performed, contractors must execute a lien waiver and release which states that they have been paid or will be paid, thereby eliminating their lien rights.
Lien waivers are generally used to preemptively waive lien rights, and it’s signed before a lien has been filed. Sometimes, property owners request that a contractor or sub-contractor sign and deliver lien waivers before payment can be disbursed. This protects homeowners from paying the contractor and still having a lien filed on their property.
In the end, both sides should know what they’re releasing and what they’re signing. The handling of lien waivers and lien releases is usually a fairly straightforward process that takes place throughout a typical construction project as various payment milestones are met. Talk with your contractor to see what their process is and do your research to make sure you’re comfortable with that process.
Contact Allstar Construction for Spring Home Repairs
Hire the pros at Allstar Construction in Fargo to inspect your home for winter damage and make the necessary repairs before spring hits. You can fill out our online form or call (701) 315-8150 for more info.
