Contractors/Liens
| Author | Jeffrey Wilson |
| Pages | 1163-1169 |
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A lien is a claim to property for the payment of a debt, typically one connected to the property. Because a lien is something that is filed with the local recorder's office, it can be a powerful legal tool. It is a public record, available to anyone, that alleges a valid, unpaid debt against the specific real estate named in the lien.
There are several types of liens, all of which could cloud the title and prevent the seller from conveying marketable title to the buyer. In some states, a mortgage is regarded as a lien, not a complete transfer of title, and if not repaid the debt is recovered by foreclosure and sale of the real estate. Real estate can also be affected by liens for federal income taxes. Additionally, liens can be placed on property for the non-payment of real estate taxes and special assessments, including homeowners' association dues. Contractors, subcontractors, material suppliers, and laborers can place liens against property for the value of work or materials installed on that property. The filing requirements and statutes of limitation for these liens vary according to the law of each state.
The word lien, derived from the French, means"knot or binding." The person to whom the debt is owed, the one who binds the property, is known as the lien holder. In certain circumstances, the lien holder may foreclose on the property if the debt is not paid in full. Liens can generally be removed by the payment of the amount owed. This payment can occur at any time up to and including the stage at which the closing documents for the sale of the property are signed.
A contractor's lien, often known as a mechanic's lien, or a construction lien, is a claim made by contractors or subcontractors who have performed work on a property who have not yet been paid. A supplier of materials delivered to the job may also file a mechanic's lien. In some states, professionals such as architects, engineers, and surveyors may also be entitled to file a lien for services rendered.
The priority of liens on a construction project does not depend upon the time of completion of the particular job, but rather everything relates back to the first visible commencement of the work. This
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stipulation means the final work, such as painting, is equal in priority to the initial work of laying a cement foundation. Therefore, during the entire work of construction, the owner must obtain lien releases or waivers of lien from each subcontractor and material supplier. Without these waivers or releases the real estate is subject to liens of all the subcontractors, even if the general contractor, though paid in full, fails to pay the subcontractors.
In some states, contractors and subcontractors must notify the property owner prior to filing a lien, but in other states such liens can be filed without any notification to the owner. Lien claimants who are contractors or subcontractors are protected under this legal doctrine because all their materials and labor are "buried" in the real estate, having become part of it. Unlike mortgage liens, however, the liens of these claimants cannot force a foreclosure.
In a divorce, one party may be awarded the right to live in the marital house. When that spouse sells the property, the ex-spouse may be entitled to half of the equity. That ex-spouse could file a lien to ensure receipt of his or her share of the sales proceeds. In some states, although a lien is not part of a divorce proceeding, it can be placed on property of parents for unpaid child support payments.
A judgment lien can be filed if an actual judgment in a lawsuit is obtained from a court. Such cases include failure to pay a debt, including credit cards, bank loans, or deficiency judgements on repossessed vehicles. In some circumstances, judgments can be enforced by sale of property until the amount due is satisfied.
Homeowners' Association Liens are commonly filed against property when Homeowner Association Dues assessed against that property are not paid on time. When a house or condominium belonging to a homeowners' association sells, the title or escrow company will request a certificate of payment from the homeowners' association to be sure that all due and assessments have been paid and are current. If these payments have not been made, the dues will need to be brought current at the time the closing transaction papers are signed.
A tax lien can sometimes be placed on a property for past taxes due to the government by the taxpayer/owner. In order for a Federal Tax Lien to be filed by the Internal Revenue Service (IRS), the IRS must file a Notice of Federal Tax Lien. Prior to even filing a notice, however, the IRS must do all of the following:
The IRS must determine and assess the exact amount of tax liability
The IRS must send the taxpayer a notice and demand for payment
The taxpayer must neglect or refuse to fully pay the liability within 10 days of the notice and demand
If the taxpayer pays the lien or posts a bond guaranteeing payment, the IRS must issue a Release of the Notice of Federal Tax Lien within 30 days. A lien will release automatically if the IRS does not refile the lien before the time expires to legally collect the tax. A taxpayer may sue the federal government for damages if the IRS knowingly or negligently fails to release a Notice of Federal Tax Lien provided the taxpayer first exhausts all administrative appeals within the IRS and the suit is filed within two years from the date the IRS should have released the lien.
A taxpayer can also get a Lien Release by entering into an installment agreement with the IRS to satisfy the liability. Finally, the IRS can withdraw a filed Notice of Tax Lien if the withdrawal will facilitate collection of the tax or if it is determined by the IRS that the withdrawal would be in the best interest of both the taxpayer and the government.
A Federal Tax Lien is incorrect and may be appealed if any of the following occurs:
The taxpayer paid the entire amount owed before the lien was filed
The IRS assessed the tax and filed the lien when the taxpayer was in bankruptcy and subject to the automatic stay during bankruptcy (although the bankruptcy filing may not absolve the taxpayer of the tax liability, the filing of the lien during that time would not be permissible)
The IRS made a procedural, administrative, or mathematical error in making...
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