Resolving a payment dispute by filing a mechanics lien is a rather tedious task. And just when you think everything has been sorted out, there is yet another step to officially close the deal: filing the lien release.
If you’re the claimant of the mechanics lien, you might be wondering: when exactly do you sign a lien release? Should you submit one before receiving payment? Do you still have to sign a release even if it is not required by the law?
This guide will help you understand the nature of lien releases, the process behind submitting them, and the possible rewards and consequences that follow.
What is a construction lien release?
The construction lien release — also known as the release of lien, the lien cancellation, or the cancellation of lien — is essentially a document that requests the county records office to remove a mechanics lien attached to a property title. As the names suggest, the lien release declares that the debt has been settled and therefore the mechanics lien may be cancelled.
Keep in mind that the release is different from a lien waiver. The lien waiver is submitted before a mechanics lien has been filed and it serves as a receipt for partial or full payment of the claimant’s service. When a mechanics lien has already been recorded in the town’s office, you are looking to file a lien release, not a lien waiver.
Why must a claimant file a lien release?
An outstanding lien listed under a property title may effectively freeze the sale of that property or stop the cash flow to the project’s funds. It is therefore in the best interest of a property owner to ensure that the contractor lien release is filed in order to free up their property from an existing lien claim. This makes filing the mechanics lien release a very important step in the long arduous process of securing payment from a delinquent client.
There are other ways to remove the mechanics lien from their books (e.g. court orders and foreclosures) but the contractor lien release is arguably the least dramatic and least costly process. Filing a release in the construction industry ideally signals the end of a payment dispute.
When do you file a release?
This is the tricky part because of the two interests in conflict: the paying party would want to have the lien release in hand before issuing the payment, but the claimant would like to sign the release after the payment has been received.
These concerns are understandable. The property owner or the general contractor may be dealing with a furious claimant who might make it difficult for them to remove the lien from their books. They would would therefore want to secure the release before handing out the payment. The claimant, on the other hand, may also be ripped off once they release the lien without receiving the payment first.
As a general rule, however, it is highly advised for the claimant to file the lien cancellation only after they have received the payment.
There are many reasons behind this advice:
· There is little incentive for the claimant to withhold the lien cancellation; claimants are primarily after the payment. The paying party, on the other hand, has more reason to not issue not payment once the lien has been released.
· The mechanics lien is the strongest leverage the claimant has against any delinquent client. If the lien has been cancelled prior to receiving the payment, the claimant has barely any options to pursue due compensation for their hard work.
· It is easier for the paying party (e.g. property owner) to remove the lien cancellation from their records as long as they can prove that they have issued the payment. On the contrary, it is extremely difficult — not to mention highly impossible — for the claimant to reinstate a lien after it has already been released.
So always remember: do not file a lien release unless you have received and cleared the payment.
How to prepare a lien release
The lien release process is not as tedious as filing a mechanics lien, but paying attention to the details must still be practiced nonetheless. You must inquire with your local county recorder if there are specific forms or document formatting that you should file and follow.
Once you have all the information above, you must have your lien of release notarized for it to be considered official.
How to file a lien release
Preparing the document is one thing, but filing it is another. When you are confident that your document is ready and complete, you must then send it to your county recorder office.
Do the following steps to ensure that the mechanics lien is properly discharged:
· Obtain at least one original and signed copy of the lien release.
· Inquire with the town office if you have to pay any fees to file the lien release. Ask the recording clerk for the money order in that specific amount.
· Send one (1) original and one (1) photocopy of the lien release to the recording clerk’s office together with the money order.
· You must file the release in the same office the original mechanics lien was filed.
· You may send these documents via hand delivery, certified or overnight mail.
· Wait until the clerk sends back a copy of the lien release that is marked as “filed” or “recorded.”
· Provide a copy of the “recorded” release to the property owner, the direct contractor, and all other relevant stakeholders in the construction project.
Other frequently asked questions
Can the recorder’s office reject a release?
Yes, they most definitely can. The most common mistake is writing the wrong reference information regarding the original mechanics lien. Sometimes the claimant may also provide incomplete information (i.e. missing filing date) so always remember to get the details correct and complete.
Is a lien cancellation required in all states?
No. While most states require that a mechanics lien is released upon settlement, some states provide no specific information on whether a lien must be officially discharged or not.
However, it is still considered best practice to always file a release even when the law does not require you to do so. Once the payment dispute is over and the debt has been settled, the property owner would like to have the lien removed from their records. It is only honorable for the claimant to fulfill their end of the deal by releasing the lien after the dispute has been resolved.
Also keep in mind that there are deadlines to when the lien release must be filed. These deadlines vary per state, but they usually range between 10-30 days.
What happens if I don’t cancel a lien?
Not filing a lien release, especially when required by law, will expose the claimant to costly penalties and fees. This also applies when the lien release was filed but only after the statutory deadline has passed.
When an mechanics lien remains even after the paying party has provided payment, the property owner has every right to file a lawsuit against the claimant. The property owner will likely win the lawsuit and will cause further financial damage to the claimant, including being responsible for the owner’s attorney fees.
It is best to just release the lien once the debt has been settled to avoid further conflict.
What if the paying party refuses to hand the payment unless the lien cancellation has been signed?
There are no clear cut solutions to these standoff scenarios.
When negotiations are at a stalemate, one of the most common suggestions is for the property owner and the claimant to have a meeting and exchange the payment and the release document at the same time. This way, both parties will have what they need and the owner may also go ahead and file the lien release themselves.
Another solution is for the claimant to prepare a short contract stating that they will release the lien once the payment has been made. The details of this contract is another matter to sort and may even cause more stress. The point, however, is for the claimant to never surrender their lien rights until they have the payment in hand.
Lien Waiver vs Lien Release: FAQ on similarities and differences
Let us begin with the most important detail: lien waivers and releases are not the same. You must not confuse these two documents. They are not interchangeable; you are not allowed to file one when you are meaning to file the other.
With that in mind, let us unpack the differences between a lien waiver and a lien release. Knowing when to use which is very important in securing the payment that you worked hard for.
Quick Links
- What is a Lien Waiver? When is it used?
- What is a Lien Release? When is it used?
- Which states require you to cancel a mechanics lien?
- Should you still submit a lien release even if the state does not require it?
- Can you just let a mechanics lien expire instead of submitting a lien release?
- What happens if you don’t release a mechanics lien claim in a state that requires a lien release?
What is a Lien Waiver? When is it used?
A lien waiver is submitted before a mechanics lien if filed. Submitting a lien waiver means the contractor, subcontractor, or materials supplier is waiving their right to eventually pursue a mechanics lien claim against the project title.
There are four basic types of lien waivers: the conditional waiver for progress payment, the conditional waiver for final payment, the unconditional waiver for progress payment, and the unconditional waiver for final payment.
Choosing which specific lien waiver to file depends on certain conditions. All of these waivers would require you to specify an amount for which you are waiving your lien rights. Say you were paid or are expecting to get paid $1000 and you sign a lien waiver for that amount, you are effectively declaring that $1000 worth of your services had been paid.
In this regard, the lien waiver is similar to a billing receipt. Just like a “proof of purchase,” the lien waiver proves that part or all of your services have been compensated, therefore you are waiving your rights to file mechanics lien for the given amount.
What is a Lien Release? When is it used?
A lien release is submitted after a mechanics lien has been filed. It is also known as the release, lien cancellation, or cancellation of lien. As the names suggest, this document releases the mechanics lien claim on the project of interest. Ideally, the release is submitted only after the payment is received.
Most states require that a release is submitted within a specific time frame after the payment is received. This time frame usually ranges between 10 to 30 days, but some states like Maine extends up to 60 days.
Which states require you to cancel a mechanics lien?
Should you still submit a lien release even if the state does not require it?
Yes, it is still considered good business practice to release a mechanics lien even if it is not required to do so. If the payment dispute has been resolved and you have no intention of further pursuing the claim, you must still submit a mechanics lien release.
A mechanics lien does not go away even when payment has been exchanged—there will always be a mechanics lien record under the property title as long as the mechanics lien is not released. If the property owner or the party responsible for paying you has fulfilled their end of the bargain, you must recognize that and consequently release your mechanics lien claim.
Releasing a lien once the payment has been received is the proper thing to do, even if it is not required by law.
Can you just let a mechanics lien expire instead of submitting a lien release?
No, you cannot. This is because the expiration of a mechanics lien does not automatically remove the mechanics lien in the project title’s records. An expire mechanics lien does not un-record itself in county records, so anyone who searches the property title will still see an outstanding lien claim even if it has already been resolved.
This means that it is still best practice to submit a lien release whether it is required or not required by law to do so. The property owner will eventually want the mechanics lien to be removed from their records.
What happens if you don’t release a mechanics lien claim in a state that requires a lien release?
In this scenario, the property owner will have the right to pursue a lawsuit against you (the claimant) until you release the mechanics lien. As previously mentioned, the mechanics lien claim does not get removed from property title records until it is officially released by the claimant. An unreleased mechanics lien may prohibit a property from getting sold in the market so it is in the interest of property owner to file a lawsuit against a claimant who would not release a lien that has already been fulfilled.
This lawsuit will most definitely go against your favor, especially if you are required by law to release a mechanics lien upon payment. This may incur additional costs, penalties, and fees on your end so it is best practice to keep in mind the lien release deadlines in your state and to duly submit the document as soon as allowable.
In summary, you must keep the following important points in mind:
- The lien waiver and the lien release are NOT the same. Do not confuse one for the other.
- The lien waiver is submitted BEFORE a mechanics lien is filed. It serves as a receipt—a “proof of payment”—that effectively voids the claimant’s lien rights for a specified amount.
- The lien release is submitted AFTER a mechanics lien has been filed. It serves as an official cancellation of the mechanics lien claim. It is therefore submitted ideally after payment has been received.
- Some states require a lien release to be submitted while others have no specific requirement. You must familiarize yourself with the different deadlines and time frames for when to submit a lien release — these deadlines vary per state.
- Even when the lien laws of the state do not require submission of a lien release, it is still best practice to release a mechanics lien once the payment dispute has been resolved.
- The mechanics lien does not get automatically removed from county records once the lien has expired.
- Submitting a lien release is the best way to un-record a mechanics lien from a property title.
- Once payment has been received, releasing a mechanics lien claim is the honorable and smart thing to do even if it is not required by law.
If a lien is not released even after the payment dispute has been resolved, the property owner may file a lawsuit that will go against the claimant’s favor. It is in the property owner’s best interest to get the lien record off their books, so they will exhume all efforts to get the lien officially released.
Fighting this lawsuit will be a losing battle for the claimant. There are also laws in place to protect the property owner. Losing the lawsuit will mean additional fees and penalties for the claimant—an obviously devastating result for a problem that could have been resolved by just submitting a lien release.