Everything You Need to Know About Construction Lien Releases

Construction Lien Release

The path to a lien release can take many different roads, but they all usually start with the same issue: a construction payment dispute happened. After some attempts at collecting payment, the contractor or supplier that is owed money realizes that time is running out to file a construction lien, and finally decides that now is the time to file a lien. The owner, who gets a copy of the lien soon after it is filed, realizes that the building that was just built or renovation is now in jeopardy because the lien puts a restriction on the owner’s deed. Suddenly, the same people who could not find their way to releasing payment for work performed, have a change of heart, resolve the payment dispute and pay the contractor. Once that payment is made, the construction lien needs to go away so the owner can have his unblemished title to the property. Construction lien releases effectuate the removal of the lien, signaling the end of the payment dispute.

What is a Lien Release?

Before we can talk about what a lien release is, we need some background on liens themselves. You may already know that a lien restricts the sale of property. The word “lien” is a French word, meaning to tie up, like in a knot. And as any good boy scout can say, different knots are used for different situations, and knowing which knot to tie is extremely important. In England and in the United States, a lien became known as a legal claim, with mechanics liens tying up real estate until a debt is paid. Liens allow someone who doesn’t actually have ownership, to control or hold someone else’s property until the debt resolved. In all 50 States, a construction lien (or, as it is also known, a mechanics lien), has become a legal, statutory right for those who work on construction projects providing labor or materials to improve property.

But just like the knot the boy scout tied, the lien will eventually need to be untied. There are a couple of different ways to untie a lien: court orders, foreclosures, and, the least dramatic way, a lien release. A court order implies that litigation had to commence, and the parties had to spend significant amounts of money in court fees or attorney’s fees to get the debt resolved and the lien removed from the property records. The foreclosure route is even more complicated, involving the courts, the sheriff or police, and a forced sale of the property. On the other hand, the lien release is the equivalent of simply pulling one side of the rope and watching the knot unravel. It’s simple, effective, and cost efficient.

A lien release, in its most simple form, is a document that asks the property records office to remove a previously filed mechanics lien. Some states call it a lien discharge, because the filing indicates the discharge of a debt.

Why A Lien Release Should be Filed

The most basic explanation of why a contractor lien release form should be prepared and filed, is that it gets the contractor paid. There is almost no circumstance where a lien has been recorded and an owner will agree to pay for the underlying work without requesting that the lien be discharged. Payment for the work and a lien release go hand in hand.

It is imperative that the release be provided to the owner in order to receive payment. Just as paperwork is provided during the course of the project to obtain payment, whether that be invoices, lien waivers, or payment requests, the lien release is another document that smooths the way to payment. As the final step in the mechanics lien process, the lien release ensures that payment has been effectuated and, in return, the lien has been discharged. How that payment is made and the timing of when the release is provided can be difficult to maneuver, but there are simple ways of dealing with the timing aspect, which this article will discuss at length.

When to Prepare a Lien Release

The timing of preparing and filing a lien release is as important as the timing of filing a mechanics lien. If release is filed too early (before payment is made), then it is possible that any rights under the lien will have been lost, and there may be no ability to file another lien to take the previous lien’s place. If the lien discharge is delayed, the property owner has the right to ask the court to remove the lien, and in many cases may be entitled to any court costs or attorneys fees incurred in having to make that request to the court.

Generally, the sequence of events prior to the filing of a release of lien is that the previously filed lien has been paid or otherwise resolved. In most cases, the debt for which the lien was filed has been paid. In other situations, the parties have come to a mutual agreement to remove the lien. Keep in mind that the owner has every incentive to ensure a lien release is filed as soon as possible: the filing ensures that the property can be sold or financed without restriction and without paying the person who placed the lien on the property. It is important, then, to ensure that the release or discharge is not filed prematurely.

Additionally, the owner has limited time to resolve the dispute. Most states require that the lien be foreclosed upon within a certain period of time, some as little as 90 days. This puts pressure on the property owner to negotiate a release of the lien or face a costly litigation. If the negotiations fail, the owner is faced with a potential loss of the entire property.

If negotiations are successful, the owner will request that the lien be removed. Many owners will require the remove of the lien as a condition of payment: this can be dangerous. It is common that, by the time the parties come to an agreement on payment terms, that there is a lack of trust (and in many cases outright animosity). How could there not be? The contractor who filed the lien believes he performed work and didn’t get paid. As a result, the owner could be afraid the contractor will make it hard to get rid of the lien even after payment. While both sides should use caution, it is easier for an owner to get rid of a lien if he can show it was paid than it is for a contractor to file a new lien after he has already released it.

CAUTION: When a lien has been removed from the property records by way of a lien release or lien discharge, it is not easy to reinstate it. This is true even when there is an agreement in place, but payment was not made. Be careful of the timing: the premature removal of a lien is usually a permanent act.

With this in mind, as a general rule, payment should be made prior to the filing of a construction lien release. While the owner is clearly within their rights to demand removal of a lien after payment has been made, it is good to keep in mind that the payment itself provides the owner with the right to seek an involuntary discharge of the lien. A wrongfully maintained lien can lead to the person who is holding onto it being responsible for the owner’s attorney fees, and in some cases, any costs incurred as a result of the wrongfully maintained lien. On the other hand, the lien claimant (i.e. the person or company that filed the lien) generally cannot reinstate the lien even if the agreed to payment is not made. The only recourse at that point is to sue the owner without the property as collateral.

Timing the payment versus filing of the documents is one area where attorneys can make things easier. It is common practice in legal circles for an attorney to hold a document “in escrow” until payment is made or the check clears. In this scenario, a fully signed lien release would be provided to either the owner’s attorney, or the lien claimant’s attorney, who agrees to hold onto the document until the payment process is complete. Once the payment is made, or clears the bank, the attorney either files the document, or provides it to the owner.

Real estate closings provide another example of how to ensure the timing of the filing of the lien release is not premature. In most home closings, the parties meet to exchange payment and the deed at the same time. The payment is made either via certified check or wire transfer, and the deed is prepared, signed and ready to hand over to the new owners once the money transfer is confirmed. The new owners then take the deed and file it with the property records office. For a lien release, the same arrangement can be made. The contractor and owner can meet, exchange payment and the release of lien. The owner can then take the lien release document and file it.

How to Prepare a Release of Lien

Knowing how to prepare a release of lien is important to ensuring that it is effective when filed with the county clerk’s office. While getting paid for work performed on a construction project is amazing news for the person who did it, if a lien was involved, the great news for the owner is when the discharge of lien is filed and effective.

There’s no need to be nervous about the filing process. Since a lien release marks the end of a payment dispute, and the end of the life of the mechanics’ lien, it is important to get it right. But unlike the filing of a construction lien, if you don’t’ get it right the first time, you’ll have a couple of opportunities to correct any mistakes.

Like any other document that gets filed with the government, you’ll need specific information, like the book and page or instrument number the clerk provided when it filed the original lien, as well as when the lien was filed and against what property. In many cases a specific form is required, knowledge of where to send the document, as well as if there’s any associated filing fees.

Don’t confuse a lien release with a lien waiver, which sounds similar, but is a different document altogether. Lien waivers are not filed with a government office, are not recorded with a property records office or county clerk, and do not discharge a lien. Instead, lien waivers are meant to provide the owner with notice that work was performed, payment is due for a current invoice, and what payment has been made for previous invoices. In short, lien waivers are not a substitute for a lien release, though the owner may still want a lien waiver to be signed in addition to a lien release in order to process payment.

Lien Release Checklist

The level of difficulty in preparing and filing a lien release is not high if you have done it before. But knowing what should go into it – the wording of it, who must sign it, should it be notarized, the processing fees and who it should go to – is key to making sure that it is effective and will serve to remove the underlying mechanics lien claim notice.

For those who need assistance in preparing a lien release, services such as LienItNow provide access to forms and filings, allowing anyone to prepare their own documents quickly and easily. The LienItNow website automatically creates the form needed in real time, based on the information you provide, which can be reviewed before the order is placed, ensuring all the correct information has been provided.

Keep in mind that, apart from the form itself and the information that is required to be contained therein, the lien release must be sent to specific people, like the correct government records clerk, the owner, certain contractors, and, in some cases, the construction project lender.

When preparing a release of lien, make sure to include the following:

  1. Detailed project address and legal or tax description information.
  2. Correct, updated owner information.
  3. The lien claimant’s information (the person or company that filed the lien), including the current address.
  4. Whether the lien is being fully or partially released (if partial, the release should state the amount still owed).
  5. Recording clerk’s lien filing markings and notations (you will need a copy of the filed lien claim), which may include the date the lien was filed, book and page number or instrument number noted on the lien.
  6. Sign the release, and have it notarized.

Filing the Lien Release

After the document has been correctly prepared, it must be sent to the county or town office where land records are filed. While most states record land records at the county level, some states record them in towns, and at least one records them with the state itself. The following steps will ensure that the lien release is properly filed so that the underlying lien is discharged.

When filing a release of lien, the following steps should be followed:

  1. Obtain an original (with the original signature) and at least one (1) copy of the release of lien.
  2. Find out if there are any fees required to file the release and obtain a money order for the recording clerk in that amount.
  3. Send the original release, the copy and the money order to the clerk where the lien was filed via hand delivery, certified or overnight mail.
  4. Wait for the filed copy to be returned, stamped as “filed” or “recorded” by the clerk.
  5. When the filed copy has been received, make sure you provide it to the owner, general contractor, and anyone with whom you had a contract on the construction project.

Taking these steps will ensure that payments continue to flow, and that the property is left free and clear of any lien claim.

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