A lien is a legal way to secure the payment of a debt.
If a lien has been placed on your property to secure payment under a construction contract, you will need to secure a lien release once payment has been made. Making sure a proper lien release is obtained requires an understanding of liens, waivers, and releases. This includes knowing the different types of releases that may be appropriate in various circumstances.
Read on to find out the differences between a lien waiver and a lien release, a full and a partial release, and between a conditional and an unconditional lien release.
What are liens, waivers, and releases?
A lien gives the creditor certain rights over the property of the debtor until the debt is paid.
A mechanic's lien, sometimes called a materialman's lien, is used by contractors and subcontractors who perform construction work on real property. This may relate to labor and materials provided for constructing a new building or for a project for an addition or repair work.
A lien document is filed in the public land records by the contractor, so that anyone doing a title search can find it. The property owner will find it difficult, or impossible, to sell or refinance the property unless the debt is paid and the lien released by the contractor.
A lien release is a document that is filed in the public land records as the official notice that the lien is removed. Once payment has been received, a contractor has a duty to remove any lien that was filed against the property.
Failure to do so allows the property owner to file a lawsuit against the contractor to compel the lien's removal.
It should be noted that a lien release is not the same as a lien waiver. While a release removes an existing lien, a waiver is an agreement that prohibits a contractor or supplier from placing a lien on the property.
It's important to understand that liens are governed by state law, which varies from one state to another. Some states don't permit lien waivers at all.
State law may also dictate the information that needs to be included in a release, and may even have suggested or required release forms. How and when liens may be placed and released may also be governed by the terms of the contract, to the extent permitted by state law.
What is the difference between a full and a partial release?
When a lien is filed, it states the amount that is owed to the contractor. If the stated amount is paid in full, the contractor should file a full release of the lien. This results in completely removing the lien from the property.
Sometimes—depending on the terms of the contract—the property owner pays the contractor in installments as stages of the work are completed. As the installment payments are made, the contractor may partially release the lien accordingly. With a partial release, a lien remains on the property, but for a reduced amount.
Should you use a conditional or an unconditional release?
An issue sometimes arises where the property owner doesn't want to make the final payment until the lien is released, and the contractor doesn't want to release the lien until the final payment check has cleared. A conditional release of the lien may resolve this situation. A conditional release will state that it is contingent on the payment clearing. If the check doesn't clear, the lien is reinstated.
If the property owner tries to sell or mortgage the property, a conditional release lets a potential purchaser or lender know that more investigation is needed to determine if the property is free of the lien.
In contrast, an unconditional release fully removes the lien from the property, with no possibility that it will be reinstated.
The type and form of a lien release will vary, depending upon the state's law where the property is, and whether full or partial payment is made.
