What is a lien waiver and why do I need one?

A lien waiver is a type of legal document that relinquishes a person’s or business’ right to place a lien on another party’s assets. In many cases, lien waivers are used by mechanics as well as by contractors. Once a customer has paid in full they may be given a lien waiver showing that the contractor has no right to lien the property. A lien in essence is a bill attached to the home. Amongst other things it means the home can not be sold or refinanced without the encumbrance being paid. A lien waiver states that the bill has been paid and the contractor no longer has the right to file a lien against the property because of work done and supplies that were purchased.

Contractors put themselves at risk because they may purchase materials and do extensive work for a customer and then have to deal with a customer who pays late or not at all. In many jurisdictions, liens are protections contractors, mechanics, and suppliers have against non-payment. If customers know these businesses can place liens on their property, they may be less likely to withhold payment.

A lien waiver typically states that the party has paid in full and releases the customer from all property liens and claims by the supplier, contractor, or mechanic. If, for example, a contractor is replacing a person’s cabinets, he may take periodic payments or receive all of his payment once the entire job is done. If the customer refuses to pay him, he may suffer a substantial loss because of the supplies he’s purchased as well as the labor he has completed, one recourse the contractor has is to place a lien on the property.

Once a customer has paid all of the money he owes to a supplier, contractor, or mechanic, he may ask for a signed lien waiver. This waiver essentially waives the right of the signer to place a lien against the customer’s property because of non-payment. If a customer does not receive a signed lien waver, he may be at risk of having a lien placed on the property, even if he has paid the hired party or supplier in full. A homeowner should always do their best to ensure they are working with reputable contractors and keep all their payment records. NEVER pay for services in cash unless you get a receipt and a lien waiver from the owner or authorized representative of the company.

In our area even if a homeowner has paid a contractor in full for services and materials, a supplier might still be able to file a lien against the property if the contractor doesn’t pay the material bill. You may protect yourself from this by asking for a lien waiver from the supplier as well as the contractor. If the materials are delivered to the job by the contractor in most cases the supplier cannot file a lien, but if the supplier delivers the materials then they can.

Types of lien waivers

Conditional waiver on progress payment – The safest waiver for claimants, this waiver generally specifies that if they have indeed been paid to date (and that includes no return or stopped payment checks) the waiver is an effective proof against any lien claim on the property.

Unconditional waiver on progress payment – This waiver releases all claimant rights through a specific date unconditionally (and that includes no return or stopped payment checks).

Conditional waiver on final payment – This waiver releases all claimant rights to file a mechanics lien if they have indeed been paid to date (and that includes no return or stopped payment checks).

Unconditional final waiver final payment - The safest waiver for owners, this waiver generally releases all rights of the claimant to place a mechanics lien on the owner’s property unconditionally. It is immaterial if the payment check has been returned or stopped payment. Claimants should issue this type of release only when they are positive their work is done and the payment has cleared their bank. Owners should demand this release when they are paid in full. Some states allow an Unconditional Release upon final payment that is used to induce the final payment.

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