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Can That Contractor Take Your Home?
By: Sam Laksanasut (Real Estate Investor)
May 1, 2009
When hiring a contractor to work on an addition to your home, you should always sign a contract.
A good contract will ensure that your rights are protected - that the contractor will show up and do the work you want
within the timeframe you request. However, you should know that such documents also can give the contractor rights,
and in some cases, may even allow the contractor to take your home if you fail to pay them!!
A contractor's legal right to your property is referred to as a mechanic's lien. A "lien" is the legal term for the
right a creditor has in a borrower's property. A mechanic's lien is a specific type that is created by law to protect
contractors, home repair people, and home building supply people. Other types of workers who may be eligible to receive
a mechanic's lien include subcontracts (the crew hired by your general contractor), electricians, architects,
lumber yards, and plumbers.
Although mechanic's lien vary by state, they usually allow the protected individuals to
jump to the front of the line should your creditors have to go to court to get payment on a failed project.
This is an example to see how mechanic's liens usually works. Let's say you are expecting a new
baby so you need more space for your growing family, but with the current real estate market conditions right now, you don't think you
will be able to sell your home. So, you hire Sam, a general contractor, to add an extra room above your garage.
As part of the contract you and Sam sign, Sam is given a mechanic's lien in your home (Sam will have to follow the necessary state requirements to "perfect" the lien, which may require filling a form
with the county recorder or office that maintains real property records, and giving you notice of the lien and of
commencement of work). Sam's rights to your property are now similar to the mortgage holder. If Sam finishes the job,
and you pay as required, Sam must clear the title on your home, which means that he must release the lien. However, if you fail
to pay Sam what he is owed, he could go to court. There, in an extreme case, Sam could ask the court to order a forced
sale of your home in order to satisfy the debts you owe him.
You must understand the rights that contractors and other hires might have in your
property by virtue of a mechanic's lien.
Mechanic's lien are referred to by more than one name; in some states or areas,
they may be called construction liens, materialman's liens, or supplier's lien. It is also important in some cases,
they don't always apply to real property. Rather, in some cases, such lien can apply to personal property.
For example, the repair person you hire to fix your oven may be able to take out a mechanic's lien interest in that same oven.
Chances are excellent that when you start a home-construction project, you will have every
intention of paying your contactors. However, in these tough financial times, it is important to realize that all may
not always go as planned. Consequently, you must understand the rights that contactors, and others you hire, might have
to your property by virtue of a mechanic's lien. When signing a contract with a contractor, like any other contract,
make sure you understand each clause; when in doubt, ask for clarification or talk to your lawyer.
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