We saw an episode of a home renovation show on HGTV recently that had an unusual twist. Usually, the contractor finds mold or asbestos in the fixer-upper, or the electrical panel needs to be upgraded to support the modern family's electronics habits. In this episode, though, the contractor receives a call from someone who had worked on the house before, someone who had not been paid for the work.
Somehow, no one knew that the fixer this young couple (they are always young couples) had purchased was subject to a mechanic's lien. The contractor in the show simply pays it off and carries on with the renovation. There was no mention of how the lien was missed in the title search. There was no discussion of what a mess a mechanic's lien could make for the new owners if the lienholder weren't paid at once. Nor did we see the contractor verify that the debt was real.
Of course, the real estate transaction itself is not the subject of the show. The show is about remediating the toxic mold (it's always toxic on these shows) and giving the home an "open concept" kitchen layout. The fact is, though, that the contractor was tearing apart a home that his client did not own.
Here's a fairly typical scenario for a mechanic's lien: The homeowner hires a general contractor to build an addition to the house. The general contractor then works with "the trades," the subcontractors that are skilled in one particular aspect of the job. Electricians, carpenters, painters and plumbers are just a few of the types of trades that a general subcontracts with.
At the end of the job, the homeowner pays the general contractor. The general then pays the subcontractors, and they move on to the next project.
Let's say that the general does not pay one of the subcontractors. Instead, he takes that money and leaves Minnesota for a warmer climate. The subcontractor may now put a "hold" on the property by filing a lien with the county recorder. The lien is now part of the property's title.
A couple of things can happen. The homeowner can pay off the lien and try to recover the money from the general contractor. The homeowner can also leave the lien in place.
Letting the lien ride, though, will lead to other complications. We'll discuss those in our next post.