Mechanics lien and Judgment lien — you’ve heard the terms before, and you know you want to avoid them.
But is there a difference between the two? And if there is, what’s the difference?
- Look at both mechanics liens and judgment liens
- Examine some examples of them both; and
- Answer some frequently asked questions
Flexbase: Get Paid Faster With Streamlined AIA Billing and Help Avoid Having to File a Lien
If you are like most others in the construction industry, you know that getting paid can be a challenge.
With even a small project, there can be many moving parts:
- And more
It’s good to know that when you don’t get paid, there are some actions you can take. One of them is filing a lien.
Wouldn’t it be amazing if you could avoid filing liens altogether?
With Flexbase, you have the ability to auto-generate AIA billing forms to help you receive payments on time and stay cash flow positive.
WIth Flexbase, billing is easier. And when billing is easier, contractors may get paid on time and can avoid the need to file a lien for nonpayment.
What Is the Difference Between a Judgement Lien and a Mechanics Lien?
The simple answer to this question is that a mechanics lien is made by statute, or law, where a judgment lien is made by a court decision.
While both types of liens are an attempt at recouping a debt that is owed, they differ in how the creditor gets the lien.
Mechanics liens are usually set up voluntarily with the property owner’s consent, and the lien is usually created when the work is performed.
Judgment liens, in contrast, are a result of a lawsuit filed against someone regarding a debt they owe. Unlike mechanics liens, judgment liens involve going to court and require further steps after the ruling has been made.
Another significant difference between mechanics liens and judgment liens involves where the lien can be filed and how far-reaching the lien can be.
A judgment lien is more extensive because it can be filed in any state or county and can apply to any property owned by the defendant in the county where the judgment is made.
On the other hand, mechanics liens apply only to the property in question where the work was performed and cannot be used in other counties. Additionally, before filing a mechanics lien, most states require you to file a preliminary notice.
In the case of a mechanics lien, it will need to be released or removed before the property can be sold or transferred.
Flexbase has you covered when it comes to liens. We can easily ...
- Create lien waivers
- File preliminary lien notices; and
- File mechanics liens
… on your behalf that are fully compliant with state laws.
Mechanics Lien (AKA a Construction Lien): 3 FAQs Answered
You might hear mechanics liens referred to as property liens or constructions liens — they are referring to the same thing.
No matter what name you use, this type of lien is a legal document used by contractors, subcontractors, and suppliers that give them the right to request compensation for work done that has not yet been paid.
To further understand the intricacies of mechanics liens, let’s look at the answers to some frequently asked questions.
What is a Mechanics Lien strategy?
Mechanics liens are a must-have strategy for any construction worker to use as a last resort in the event that their requests for payment go unanswered.
Getting paid in construction can be challenging and time-consuming. Here are a couple of reasons why:
- Property owners usually pay for work only after it has been completed. This means that contractors spend a lot of money upfront, and laborers do their work on the front end before getting paid.
- Because of the many people involved in a construction job, it may be difficult for the property owner to keep track of everyone who needs to be paid.
If a contractor, subcontractor, or supplier isn’t paid for work they’ve done or supplies they’ve provided, a mechanics lien gives them the leverage they need to force payment.
Who Can File a Mechanics Lien?
Anyone who makes a permanent improvement on a property can file liens.
The most common parties who file liens include:
- Suppliers; or
Individual states have their own laws governing lien rights, and some states may give lien rights to other construction professionals like:
- Equipment lessors; and
What Are the Steps for a Contractor to File a Mechanics Lien?
Though filing a mechanics lien is fairly straightforward, if you need to file a lien, you can do it easily by following these steps.
Step #1: Provide Preliminary Notice
Not all states require a preliminary notice before filing a mechanics lien, but it’s always a good idea. Doing so may help communication and increase your chances of getting paid.
A preliminary notice is simply a document that gives the GC or property owner information about the work you are doing on a job.
Many states require preliminary notice, also called a pre-lien notice, to retain the right to file a lien. It’s important to do some research and know the laws of the state before you begin working on a project.
Step #2: Send a Notice of Intent
The next step is to send a notice of intent (NOI).
This document notifies …
- The property owner
- The general contractor; and
- Others working on the job
… that a lien will be filed if payment is not received.
Oftentimes, a notice of intent to lien is all it takes to prompt the debtor to pay up, avoiding the need to file the lien.
Step #3: File a Mechanics Lien
To file the lien, the creditor will need to fill out a lien claim form that includes detailed information about:
- The property
- The work accomplished
- The amount owed
After properly filling out the form, the unpaid worker should be careful to file the mechanics lien properly. Failing to follow the correct steps can result in a forfeiture of the right to file a lien.
Step #4: Release or Enforce the Lien
After the lien is filed, the claimant may still need to take more steps.
If the payment is made, the claimant should release or cancel the lien to avoid penalties.
If the payment remains delinquent, the holder of the lien may choose to enforce the lien.
Before enforcing the lean, the lienholder may want to seek out legal advice before moving forward. To foreclose on the property, court action is necessary.
Judgement Lien: 3 FAQs Answered
In some cases, a mechanics lien may not be possible or advisable, and a judgment lien may be the best option. Answering the following frequently asked questions will help you know if a judgment lien is preferred.
Why Do Judgement Liens Exist?
Judgment liens exist for the same reason as mechanics liens — unpaid compensation.
However, a judgment lien is placed on a property only when a debtor is sued in court and wins a judgment lien, which attaches to the property.
A judgment lien is an attempt to get the debtor to pay what they owe. The claimant usually isn’t attempting to take over the property, though this may be the result if the owner has enough equity.
Who Can File a Judgement Lien?
Anyone who wins a judgment lien, called a judgment creditor, can collect on a lien.
Creditors may include:
- General contractors
- Materials suppliers
- Other laborers
How Does the Judgment Creditor Collect on a Judgment?
Even if you’ve won a judgment in court, there are still steps to take in order to recover the money owed to you.
The laws of collecting on a judgment vary by state, so make sure you are clear on what the laws of your particular state are to avoid losing the right to collect.
After a judgment is won, most states require the creditor to record the judgment by filing it with either the county or state. The lien that is filed will include details about the property and the amount owed.
For the property to be transferred, a judgment of possession will be ordered by the court often followed by a writ of execution.
The sale of the property will follow, and after the mortgage and other required payments have been paid, the creditor will receive funds to cover the debt. If the mortgage owing is substantial, it’s possible that the remaining funds may not cover what was owed.
Mechanics Lien vs. Judgement Lien: When Is Each Type of Lien Needed?
Example of When a Mechanics Lien Is Needed
Suppose you are hired to add an addition to a client’s home. You complete the work, giving the property owner a beautiful addition that is according to their wishes.
However, at the end of the project, for whatever reasons, the property owner refuses to pay the remaining balance of $15,000.
You know that filing a breach of contract is an option, but you also know that filing a mechanics lien may be more productive.
Flexbase can do all the filing for you, and you can be assured that the lien filing will be compliant with all state laws.
Example of When a Judgement Lien Is Needed
Maybe you failed to file a preliminary notice, and a judgment lien may be the only option left for you to receive the payment you are due.
Or perhaps the amount owed to you is under $10,000, and filing a judgment lien is easier than filing a mechanics lien. Making a claim in small claims court gets you the judgment you’re looking for.
This may especially be the way to go if you know the property owner has property assets in other counties.
When a Mechanics Lien Can Turn Into a Judgement Lien
A mechanics lien can be converted into a judgment lien through foreclosure.
If a lawsuit is necessary to fulfill the mechanics lien and the creditor wins the lawsuit, a judgment can be issued to recover payment.
Get Paid Faster With Flexbase (And Hopefully Avoid Needing to File a Lien)
You can avoid the need to file a lien by taking advantage of Flexbase's resources aimed at getting your payment on time.
Flexbase provides services like …
- Payment reminders
- Payment negotiations; and
- Access to working capital
… to get you paid on time and help manage your cash flow.
Try Flexbase today and do away with licenses and subscriptions you never use.
You only pay us when you get paid, and our platform is fully available immediately.
Let Flexbase take care of the details for you so you can concentrate on expanding your construction business.
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