- Have the contractors and all subcontractors sign a “waiver and release” giving up lien rights and releasing the owner from liability for nonpayment. Waivers are generally conditional, say, until the installment or final check clears the bank.
- Make out checks to joint payees. Such a check can only be cashed if the intended recipient actually signs it.
- File a “Notice of Completion” (also known as a “Notice of Cessation”) with your recorder’s office. That effectively shortens the time a contractor has to file a lien.
- Record, with the county recorder, the home improvement contract and a payment bond worth at least 50 percent of the contract’s value. If after the recordings one or more sub-contractor files a mechanic’s lien, the amount collected is limited to what you owe the general contractor. Additional amounts are assessed against the general contractor and the payment bond. Contractor’s must have enough credit and collateral to qualify for a bond. The actual cost can be as much as 10 percent of the bond amount, leaving many contractors unable to qualify.
If you are hit with a mechanic’s lien anyway, here’s what to do:
- Negotiate a settlement with the lien filer directly or with the help of mediation services. In exchange for any payment, have the contractor sign a mechanic’s lien waiver and release that removes the lien for your title.
- Contractors have a limited time to act on the lien, and to file a lawsuit to collect the money. If that time has elapsed and there’s been no action, demand the lien filer execute a release of lien, freeing your title.
- If the lien filer refuses to execute a release of lien, file a court action to remove it. Once time is up to act on a lien it is no longer binding, but you need to remove the lien if you want to refinance the mortgage or sell the property later.
- If the lien filer acts on the lien, you’ll likely need an attorney to defend you, but you can request a hearing to determine if the lien is valid.