What is a lien waiver and why do I need one?

 

What is a lien waiver and why do I need one?

Maria Puttre and AlMighty Exteriors, Pueblo Colorado

What is a lien waiver and why do I need one?
A lien waiver is a type of legal document that relinquishes a person’s or business’ right to place a lien on another party’s assets. In many cases, lien waivers are used by mechanics as well as by contractors. They are signed and provided to customers who have paid their mechanic or contracting bills in full and release the customer from all claims on his property because of work done and supplies that were purchased. Without a waiver, a contractor or mechanic may have a right to take his supplies back or place a lien on the customer’s property if the customer fails to pay as agreed.

Contractors and mechanics often take a risk when they agree to provide services for their customers. They may do extensive work for a customer and then have to deal with a customer who pays late or not at all. In many jurisdictions, liens are protections contractors, mechanics, and suppliers have against non-payment. If customers know these people can place liens on their property, they may be less likely to withhold payment.

A lien waiver typically states that the party has paid in full and releases the customer from all property liens and claims by the supplier, contractor, or mechanic. If, for example, a contractor is replacing a person’s cabinets, he may take periodic payments or receive all of his payments once the entire job is done. If the customer refuses to pay him, he may suffer a substantial loss because of the supplies he’s purchased as well as the labor he has completed. If the customer does not pay, one recourse the contractor has is to place a lien on the property.

Once a customer has paid all of the money he owes to a supplier, contractor, or mechanic, he’ll usually receive a signed lien waiver. This waiver essentially waives the right of the supplier, contractor, or mechanic to place a lien against the customer’s property because of non-payment. If a customer does not receive a signed lien waver, he may be at risk of having a lien placed on the property, even if he has paid the hired party or supplier in full.

Whether or not a person needs a lien waiver from a supplier may depend on how the project is handled. If, for example, the supplies are delivered to the project site, regardless of who signs for them, the customer may need a signed lien waiver from the supplier. This is due to the fact that the supplier knows where the supplies were used and could demand his supplies back or money from the customer if the contractor fails to pay him. If the contractor received the supplies at his own location, however, and the supplier does not know where the supplies are being used, a separate lien waiver may not be necessary.

Different types of lien waivers

  • Conditional waiver on progress payment – The safest waiver for claimants, this waiver generally specifies that if they have indeed been paid to date (and that includes no return or stopped payment checks) the waiver is an effective proof against any lien claim on the property.
  • Unconditional waiver on progress payment – This waiver releases all claimant rights through a specific date unconditionally (and that includes no return or stopped payment checks).
  •  Conditional waiver on final payment – This waiver releases all claimant rights to file a mechanics lien if they have indeed been paid to date (and that includes no return or stopped payment checks).
  •  Unconditional final waiver final payment - The safest waiver for owners, this waiver generally releases all rights of the claimant to place a mechanics lien on the owners property unconditionally. It is immaterial if the payment check has been returned or stopped payment. Claimants should issue this type of release only when they are positive their work is done and the payment has cleared their bank. Owners should demand this release when they are paid in full. Some states allow an Unconditional Release upon final payment that is used to induce the final payment.

Contact Almighty Exteriors Pueblo and Southern Colorado

Please call (719) 543-6501

 

About Dena Stevens (719) 369.9087

Putting the 'real' into REALTOR since 2004
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2 Responses to What is a lien waiver and why do I need one?

  1. Great information, it is also my understanding that a home may not be sold unless all liens are cleared up and in some cases there are liens on the property that the owner may not be aware of. Is there a way to research this yourself?

  2. Dena Stevens says:

    Actually, a house can be sold with liens against it. But most buyers don’t want to buy a property with issues. The title company won’t issue title insurance unless the liens have been cleared or all involved parties are notified.
    You can research the liens via the county the property is located or ask a title company to do this for you. There is a small fee involved with this.

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