Buying and selling a property comes with a laundry list of potential risks and benefits, like a Mechanics Lien. Renovations and new builds can add even more complexity. Consider the following situation:
A property owner contracts with a general contractor who then lines up workers and materials to complete a project. The owner periodically submits payments to the contractor so that they can pay subcontractors and purchase supplies. Everything is going smoothly until the owner receives a legal document in the mail that states: “Notice of Intention to Claim Mechanics Lien” for a large sum of money owed to one of the subcontractors. Owners are often shocked by Mechanics Liens, claiming that they’ve already paid the general contractor in full. Unfortunately, that doesn’t mean the general contractor paid the subcontractors.
What is a Mechanics Lien?
A Mechanics Lien is a legal claim placed on a property by a contractor, subcontractor, or supplier who has not been paid for work or materials provided on the property. Mechanics Liens can pose a significant danger in title insurance for property owners and lenders.
When a Mechanics Lien is filed on a property, it creates a cloud on the title, which can make it difficult to sell or refinance the property. If the lien is not paid, the lienholder may seek to foreclose on the property to satisfy the debt, which could result in the property being sold at auction.
Title insurance can provide protection against Mechanics Liens by covering the cost of legal fees and expenses associated with resolving the lien. However, it is important to note that not all title insurance policies provide coverage for Mechanics Liens, and coverage may vary depending on the policy.
To mitigate the potential risks of Mechanics Liens, it is important to work with reputable contractors and suppliers and to ensure that all contracts and payment terms are clearly defined and agreed upon in writing. Property owners and lenders should also regularly monitor their properties for any potential liens and take prompt action to resolve any issues that arise.
Title Insurance: A Protection from Mechanics Liens
Because the laws and statutes governing Mechanics Liens can be quite confusing, it is best to work with an attorney and an experienced title company. An attorney can make sure any existing Mechanics Liens are valid. A title company can issue title insurance to protect you from Mechanics Liens in any future transactions.
Need more information?
At BesTitle, we stand out from others in our industry because we provide genuine, professional services to each of our customers and take great pride in offering exceptional communication. Contact us today for help with your title service needs.