We are circling back to our Aug. 21, 2014, post. The subject, as the title says, is mechanic's liens, and when we left off we were talking about what happens in a home sale if a mechanic's lien is filed against the property.
Remember, a mechanic's lien relates to construction or other work done on your property. If you do not pay a contractor, he or she can record a mechanic's lien against your home. Likewise, if a contractor does not pay a subcontractor or supplier, the subcontractor or supplier can file a mechanic's lien. This is true in Minnesota and every other state.
The lien gives the lienholder the right to foreclose on the property. In theory, it makes sense -- you should not be able to keep what you haven't paid for. The subcontractor cannot repossess his hours of work, and the supplier cannot repossess the nails used to build the new garage. What can be confusing, though, is that these companies can hold the homeowner responsible for a debt that the homeowner did not incur.
Yes, you should pay what you owe, but you signed a contractor with the construction company, not the electrician. Why should the electrician hold you accountable for the construction company's breach? Are you expected to pay twice?
Minnesota law requires that contractors give written notice when they intend to file a lien. Usually, the notice is included in the contract between the general contractor and the property owner/customer. The law also requires that the notice include the customer's options in the event of a lien. Without proper notice, the lien will not be valid.
First, the customer may pay a subcontractor or supplier directly. The total would then be deducted from the total price of the project. Or, the customer may withhold payment from the general when the project is finished.
The amount withheld should equal the amount owed to the subcontractors and can only be withheld for 120 days. If the general gives the customer a lien waiver, the money is released to the general. The waiver is not from the contractor; it is from the subcontractor, signed by the subcontractor (or the supplier). The waiver then releases the subcontractor's right to file a lien.
We'll wrap this up in a week or so.
Source: State of Minnesota, Office of the Attorney General, "Citizen's Guide to Homebuilding and Remodeling," accessed online Sept. 19, 2014