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If you intend to hire a contractor for repairs or home improvements, it's important to brush up on the lesser-known contract option known as a contractor lien waiver.

Liens are a powerful tool contractors can use to enforce their debts. While no contractor wants to resort to using a lien, sometimes they're a necessary outcome. Contractors have an interest in your home until they're paid — especially suppliers and subcontractors. They need this legal avenue to recover their investment if they're not paid.

Though particulars vary by state, mechanics' liens give a supplier, subcontractor or contractor a partial legal claim to the property for unpaid work or materials. A lien can wreak havoc on a project by tying up bank loans, clouding title ownership and scaring away potential contractors — it can even force the property's sale.

A lien may seem the most unfair when you've already paid the general contractor, but the contractor failed to pay suppliers or subcontractors. Those additional sources can file a lien on your home, and in that case, you may have to pay twice to clear it. In that event, you have standing to sue the general contractor.

Fortunately, you can take steps ahead of time to protect yourself.

 

How to Avoid Liens

The most important tool available to you is a subcontractor/supplier lien waiver, sometimes known as a lien release. This document is an important step for larger projects that involve working relationships with contractors, subcontractors, material providers, equipment lessors and anyone else involved. Any reliable general contractor will have no problem offering these documents.

To get a lien release and avoid unexpected fees, homeowners should first ensure that they're working with contractors who are licensed, bonded and insured. Consider always including a lien waiver or subcontractor lien waiver clause in your project's contract. Make sure to include the names of subcontractors and suppliers in your contract as well. Stay in touch with them and make sure they're paid on time.

With a lien waiver, when the project is successfully completed, both parties sign off and state that the contract obligations have been met, including that the general contractor has made all necessary payments to materials suppliers, subcontractors or vendors.

If the contractor doesn't agree to sign off on the subcontractor lien waiver, you can withhold payment until he or she has proven they've paid their suppliers or subcontractors. Although the general principle is the same for most areas, each state or municipality has different standards for the application of liens and their releases. If a lien was improperly filed, you may be able to get it removed.

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