Lien Waivers - Don't Pay Twice!

Consider the following situation: You hire a general contractor to renovate your kitchen and as part of the work, your contractor subcontracts with a plumber to relocate the sink. When you receive a bill from the contractor, you assume that the plumber is subsequently paid. However, if the general contractor neglects to pay the plumber, the plumber (or any subcontractor or supplier in the same situation) can file a "lien" against your property for the amount owed.

Such a lien is charged against the future sale of the property and you cannot transfer title until the lien is paid. Therefore you could be forced to pay for the plumbing work twice: once to the contractor, and once to the plumber.

A "lien waiver" is a document that helps ensure you will not be forced to pay twice for work performed on your property. Many lenders require signed lien waivers from all subcontractors before they will release funds to the contractor. In general, this is a good idea because it ensures that everyone has been paid what they think they are owed.

If you are paying for the work out of pocket, you may request a signed lien waiver before you write your check. In general terms, a lien waiver should include the following information:

Name of the company,
Address where work was performed,
Description of the service performed,
Statement to the effect that all subcontractors and suppliers have been paid,
Amount paid, and
Notice that in consideration of the sum paid the contractor or subcontractor releases any and all claim or right to lien on the property on account of labor or materials .

This language may take several forms, so if you are concerned about its enforceability in your situation, you should have a lawyer take a look at it.

Most lenders require borrowers to purchase "title insurance" to protect against unknown liens against the property you are purchasing. Liens may be discovered during a title search and can jeopardize your closing if not taken care of appropriately.