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Mechanics’ Liens in Real Estate: What to Watch Out For
Author: G. Russell Donaldson, Esq, Co-Founder, Velocity Title
If you are a buyer of a new home, or a home where substantial improvements have been made, or you are a real estate professional representing a buyer is such a case—you need to watch out for an often-overlooked financial hazard. New construction, or substantial improvements made to a home, often time come with a possibility that a subcontractor or material supplier may file a Statutory Mechanics’ Lien against the property. What exactly does this mean for you or your client?
Statutory Mechanics’ Lien Overview
Under certain conditions Maryland Law allows for a subcontractor or material supplier to file a lien against the property where construction has taken place if that subcontractor or supplier has not been fully paid for their work or materials by the contractor/builder/seller. If the subcontractor properly follows the Statute and provides the property notices required it is possible that the buyer of the property may get stuck with the bill.
Under Maryland law every building constructed or repaired to the extent of fifteen percent (15%) or more of its value is subject to establishment of a mechanics’ lien. If a subcontractor or material supplier claims they have not been paid then the subcontractor or material supplier has 180 days after the work has been completed or materials furnished to file the lien. This is where a buyer of new construction may have an unwanted surprise.
Protect Yourself and Secure a “Lien Release”
If you or your clients are one of the unlucky buyers that have already closed on a home and moved in only to get a notice by the subcontractor or material supplier of their intent to file a mechanics’ lien, there are some defenses you can take. Under the law, if you have not received timely notices of the intent to file the lien you may be able to build a case. However, the easiest and safest way to handle this situation is to secure a “Lien Release” from the contractor/builder prior to settlement or making final payments to them. This should be included in a purchase and sale contract that the contractor/builder will secure these lien releases by every subcontractor or supplier and provide you with a copy of the lien release. Once the subcontractor signs the lien release, they are then prohibited from filing a Mechanics’ Lien against the property.
If you are a real estate professional and you have a buyer looking for new construction, or they are buying a home where there has been substantial improvements, your fiduciary duty to that client is to protect them from unforeseen pitfalls. Make sure you include in the purchase and sale contract an obligation on the builder/contractor/seller that they secure lien releases. Even if you are successful in court in defending against the establishment of a mechanics’ lien against your home, the legal costs for the court battle can be high. To be safe make the lien releases a part of the contractual agreement.
For questions on mechanics’ liens or other contract law matters call G. Russell Donaldson, Esq., at 1-800-myrelaw.
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