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Monday, July 25, 2022

Mechanic’s Lien: What to Know Before Buying the House

Despite its name, a mechanic’s lien comes from home construction or remodeling work. The typical scenario involves a subcontractor or supplier who does not receive payment from the general contractor. The subcontractor or supplier tries and fails to work out payment with the general contractor and ultimately goes after the homeowner and the home instead.

Here is an overview of what you need to know about mechanic’s liens and what happens if you buy a house with a lien against it.

How a Mechanic’s Lien Happens

A mechanic’s lien usually starts as a dispute about payments from the general contractor. When a contractor fails to pay for labor or materials associated with a construction project, the subcontractors and suppliers can file a lawsuit against the contractor for a breach of contract.

But lawsuits take time and money. The lawsuit could also amount to nothing if the general contractor goes bankrupt or has no assets to attach.

Since the risks of filing a lawsuit against the contractor often outweigh its benefits, subcontractors and suppliers will often file a mechanic’s lien against the property. By filing a lien against the home, the subcontractor or supplier has a hard asset with value to pay off the lien.

The Value of the Lien

New York law allows the subcontractor or supplier to file a lien for the amount owed plus interest. The additional interest might make the lien substantially larger than the original debt.

How Your Property Ends Up with a Mechanic’s Lien

A mechanic’s lien goes through three stages in New York:

1. Filing the Mechanic’s Lien

The subcontractor or supplier fills out a mechanic’s lien form along with a Notice of Mechanic’s Lien and files them with the county clerk where the property sits. The subcontractor or supplier does not need a written contract with the general contractor or property owner to file a mechanic’s lien. But subcontractors must hold a contractor’s license to file a mechanic’s lien.

Subcontractors and suppliers must act quickly to file a lien. Suppliers and subcontractors must file a mechanic’s lien for single-family homes four months after they complete the work or the last date the materials were supplied. For other construction projects, you have eight months to file the mechanic’s lien.

The clerk’s office records the Notice of Mechanic’s Lien. This means anyone conducting a title search can find the notice. However, most people only search their title when selling or buying a home.

To alert the homeowner to the lien, the subcontractor or supplier sends a copy of the notice to them. While this can put the lienholder in an awkward position, the notice will often push the homeowner to help collect the debt. Once the contractor satisfies the debt, the lien gets released.

2. Sending a Notice of Foreclosure

The notice of foreclosure tells anyone with an interest in the property that you intend to execute on your lien. The lienholder must give notice to the mortgage holder, homeowner, or any other lienholder of their intent to foreclose.

3. Foreclosing the Lien

A foreclosure lawsuit converts a mechanic’s lien to a judgment lien. A judgment lien puts the subcontractor or supplier in line to get paid if the home is ever sold.

Before Buying a House in New York

Before buying a house in New York, you will conduct a title search. The title search will uncover any liens against the home. If the home has a mechanic’s lien, the title search will usually alert you to it. This allows you to push the seller into paying off the liens before you buy the home.

Buyers also typically get title insurance. Title insurance protects the buyer if the title search fails to uncover relevant liens. If you end up buying a home subject to a mechanic’s lien, you can file a claim with the title insurance company.

To discuss your legal exposure to mechanic’s liens on the house you want to buy, contact Merlino & Gonzalez, a real estate and elder planning law firm in Staten Island, NY.


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