Doing work on residential properties often involves balancing your risk with the risk of the client that hires you. There are contractors out there that take large deposits or require full payment up front, only to fail to perform the work for which they have already received partial or full payment.
Many cautious homeowners will want to pay up front a portion of the cost for the construction or remodeling project they wish to undertake and then expect to pay the remainder later. You could have a construction contract that requires either a series of payments at different stages in the process or a lump sum at the end of the project.
Unfortunately, that kind of arrangement means that the business involved has to take on some risk. If you do all the work but don’t get paid ahead of time, you will be at a disadvantage if that person refuses to pay you. Mechanic’s liens can protect hard-working construction professionals against unscrupulous clients who want to avoid paying them.
How does a mechanic’s lien work?
A lien is a recorded note on the title for a piece of real property. There are many different kinds of liens, such as mortgages. All of them serve the same purpose, however, which is to prevent the homeowner from selling the house, transferring ownership or conducting a cash-out refinance without repaying the debt first.
Creditors can also place a lien against a property in order to compel a homeowner to repay them. Hospitals or those who secure a judgment against the homeowner can place a lien on the title of the property. A mechanic’s lien is a specialized creditor lien for those who have done work on a property or supplied materials for work on the property. Under Minnesota law, you have to give the homeowner notice before placing a lien against their property.
If they pay you off, you won’t have to record the lien. If they don’t, adding the lien can help ensure you get paid. You may have to go to court to ask them to enforce the lien. Once you do receive payment in full, you have to release the lien and have it removed from the title of the property.
Whether you need to send a client legal notice or to enforce or record a lien, you will need to be careful to comply with state laws at every step to protect your business’s right to payment.