Selling a property has always been a challenging endeavor, even for seasoned real estate professionals. When selling your property, it is a good practice to be diligent in researching the necessary information to ensure that the sale proceeds without a hitch. One particular aspect of property selling that becomes apparent during the process is the discovery of liens attached to the property. If you find a lien attached to your home during the title search process, you will need to deal with it as soon as possible before you can proceed with the sale. Especially if your goal is to sell your house fast.
But what exactly is a lien? In general terms, a lien is a legal claim filed against a person’s property and attached to it until a debt associated with the property is paid. Liens are some of the defects that you may find in a property title search, which is basically a background check that verifies your legal claim on a piece of real estate — in this case, your home.
There are several types of liens, including homeowners association (HOA) liens, which an HOA files against properties when owners break a rule or fail to pay fees; Department of Revenue liens, which are filed against properties when the owners fail to pay state taxes; and IRS liens, which are filed when owners fail to pay federal taxes. In this guide, however, we will focus on the mechanics lien, which is specifically designed to help construction contractors, subcontractors, and material suppliers recover payments
What is a mechanics lien?
If you are not familiar with how the construction industry works, you will probably be surprised at how persistent payment issues are in the industry. Payment delays and even nonpayment are unfortunately all too common given the nature of the construction process. Because of the significant length of time between the contractor signing the contract and the day the construction project is finished, contractors need to learn the tools at their disposal that can help them preserve their right to get paid. One such tool is the mechanics lien.
Also known as a materialman’s lien, a mechanics lien in real estate is a legal claim that a construction contractor or supplier can file against a property they worked on to secure payment for their unpaid work.
This type of lien is an involuntary security interest. Compared to a home mortgage where you as a homeowner and a lender agree that your home will be used as collateral until you repay the loan, a mechanics lien can be attached to your property without your consent. Contractors will be able to file a mechanics lien even without your permission, though they have to meet strict requirements and deadlines before they can do so.
As a mechanics lien puts a claim on your property, it will make it difficult for you to sell the property or refinance it through a bank or any other lending institution. This is something that may deter many Houston home buyers if it arises during your real estate transaction, so make sure you address this prior to reaching that stage of the process.
Who can file a mechanics lien?
All 50 states have laws that govern mechanics liens. In general, contractors, subcontractors, and material suppliers who provided labor and furnished materials for the construction of your property will have the right to file a mechanics lien if they do not receive their due compensation. However, all states have varying requirements before a mechanics lien filed is deemed valid and enforceable.
The state of Texas deems the following construction participants as eligible to file a mechanics lien:
- those who furnished labor or materials to a construction project or repair;
- those who fabricated special materials for a project, even if the materials have not been delivered or incorporated into the project yet; and
- Those who prepared a plan for the project as an engineer, architect, or surveyor.
Texas lien laws also specify landscapers and parties who perform demolition services as being entitled to the right to file a mechanics lien.
How do you sell a property with a mechanics lien?
There are several things that you can do when selling a house with a lien on it. The first thing is to check if the mechanics lien filed against your property is valid. Texas state laws regarding mechanics liens are quite strict. Before a lien is deemed enforceable, the claimant first has to have submitted pre-lien notices within a specified deadline. They should also file an Affidavit of Lien specifying the amount of debt.
If you have the necessary invoices, receipts, and documents that state that the debt is paid in full, you can dispute the lien and will be able to have the lien released from your title and proceed with the sale.
If the mechanics lien is valid, however, you need to negotiate with the creditor in order to have the lien released. The simplest way is to pay the amount in full. In some cases, however, you may feel that they are not entitled to the amount that they ask for. You may have to be creative in your approach. For instance, you may negotiate to pay a lower amount in exchange for quick payment or pay the debt on an installment basis.
The most drastic method of dealing with a mechanics lien on house is litigation. This requires you to retain an attorney and it can take months or even years before the court can reach a verdict. Use this only as a last resort, especially if time and money are serious concerns.
Dealing with a mechanics lien when you are selling your property is a stressful process. Always consult with a real estate professional or lawyer for the best way to handle mechanics liens. The property team at PPS helps clients navigate and solve these problems on a daily basis.