A lien waiver is a real estate related legal document designed with the intention of rendering the claim of a mechanic lien claimant unenforceable. This is often done in order to allow the transfer of real estate, or as a means of proving a particular contractor or subcontractor has been paid for their work on a particular property. If you are in the business of flipping homes, the title company will require you to obtain lien waivers from all of the contractors and subcontractors who did work on the property you have rehabbed and are trying to sell.
Essentially, a lien waiver states that a particular contractor has received adequate payment for their services and has no right to record a lien against the property on which they have worked. The main reason a contractor will record a lien against a specific property is to ensure they receive compensation for the materials and labor for that job. In a nutshell, if a contractor was hired for a job, completed the job with materials and labor, and was not paid for the work, the contractor has the right to record a lien against the property, assuming the contractor has complied with all the statutory billing requirements. The lien then prevents the owner of the property from being able to sell the property until the lien has been released, i.e. the contractor has been paid.
It should be noted that a general contractor should always attempt to hire individuals with prestigious reputations while keeping ALL of their payment records and remembering to never use cash as a means of payment unless receiving a receipt and lien waiver from the subcontractor.
Despite all these precautions, there is still a risk of having a lien recorded against one’s property for non-payment. The safest way to avoid this is simply to request a lien waiver from all suppliers and contractors. Additionally, requiring all necessary supplies be obtained and delivered by the contractor, and not the supplier, will also reduce your mechanic lien risk. If you have any questions regarding lien waivers please call us today.