Understanding mechanic’s liens

When a buyer and seller are going through the process of transferring ownership in real estate, one of the most important steps they must take is to ensure the title to the property is clear. If they find that a third party has a legal interest in the property, it can throw the most well-negotiated transfer into chaos.

One of the most common of these problems involves the discovery of a mechanic’s lien.

What is a mechanic’s lien?

From the perspective of a subcontractor or supplier, a mechanic’s lien is a good way to ensure that you are paid for your work. In a construction or remodeling project, a subcontractor often places a lien on the property so that, just in case the contractor fails to pay them as agreed, the subcontractor will be compensated through a percentage of the sales price when the property is sold.

Tennessee law has a similar concept for automotive work. This is known as a garagekeeper’s lien.

Mechanic’s lien disputes

While a mechanic’s lien might be good for a subcontractor or supplier, it can be terrible for a property owner. After all, it isn’t necessarily the owner’s fault if the contractor failed to pay a subcontractor. An owner can sue the contractor to be compensated for their loss due to the lien, but this takes time and isn’t always successful.

Timing is an issue when trying to sell the property. Few buyers will want to pay full price for a property with a lien on it, and many sellers may not want to sell if the cost of the mechanic’s lien comes out of their sales price.

While people who work in the construction industry may be familiar with mechanic’s liens, most property owners are not. It can be a terrible surprise to discover a lien on a property in the midst of a sale. Buyers, sellers and others who need help resolving issues with liens should speak to an experienced attorney.