Before you sign that remodeling contract, theres a very important piece of the home improvement puzzle that you need to know about. Your contractor may or may not tell you about it (more than likely not)… besides, its always best to go into a situation with as much information as possible.
The thing you must absolutely know more about before you sign a contract to remodel is mechanic´s liens.
What is a mechanic´s lien?
A mechanic´s lien is, basically, a claim that can be levied against real property (your home). It is used to protect the interests of those that have done work on your property.
For our situation, this would include general contractors, sub-contractors, material suppliers, bathroom or kitchen remodelers, etc. Basically, anybody that has given labor or materials has the right to place a lien… if they haven´t been paid in full.
When used, a mechanic´s lien goes against your home´s title and would either have to be resolved or paid off during any sale or refinancing.
Why is this important to know about?
Obviously, having a lien put against your property is not a good thing to happen. Especially if you are not at fault, or are being taken advantage of by a dishonest contractor.
In worst case scenerio, a mechanic´s lien can lead to being enforced by a judicial foreclosure sale. The court can literally force the sale of the property in order to pay off the lien.
How do you protect yourself?
Plain and simple, with a lien waiver.
A lien waiver is a legal release from recourse (i.e. mechanic´s lien) that is signed by your contractors/suppliers. It serves as a record and reciept of payment in full for all labor and materials used on your project. By signing on the dotted line, they cancel their right to use a lien against you.
Make sure to get all necessary lien waivers signed BEFORE you pay them. This is very important. If you´ve already paid, what´s to make a dishonest remodeler sign the waiver? Nothing…
This is what the business men call “negotiating from a point of weakness”. So get the signature in return for further payment. Keep in mind this includes before you hand over the check for 30% or whatever youve agreed upon for initial payment.
Furthermore, its important to get waivers from any sub-contractor´s involved in the project as well. If, as an example, the remodeler is going to sub-contract the painting work you need to get a waiver from both even if you are just paying the general contractor. Otherwise, the painter would have room for a claim in the case that the GC didn´t pay him.
If he needs the money from you to pay the painter, simply arrange for both to be present to sign off on waivers. Again, DO NOT fork over your cash before you get a waiver for that section of the work order.
Despite what the contractor may tell you, getting waivers before payment is standard practice. They may not like it… but remember who is paying who.
According to Wikipedia, there are four type of lien waivers:
- Conditional waiver on progress payment – This waiver states that if the contractor has been paid to date (barring a returned or stopped check/credit card), the waiver relinquishes any lien claim.
- Unconditional waiver on progress payment – A complete release of all claimant rights through a specific date unconditionally. This would still be valid, even in the event of a returned or stopped payment check/credit card payment. This waiver is more safe for the homeowner than a conditional waiver, but is less common than the conditional waiver on progress payment.
- Conditional waiver on final payment – Similar the the conditional waiver on progress payment, this waiver relinquishes any lien claim in the event that the contractor has been paid in full.
- Unconditional final waiver final payment – The same as the unconditional final waiver for progress payement, with the exception that this applies to the completion of the projcet. This is the safest waiver for a homeowner to get and should be demanded upon payment in full.
So, what combination should you use? That is up to you, but I generally use a conditional waiver as we move through the milestones and an unconditional waiver upon completion of the project.
But, as always, it is a personal decision. An unconditional waiver would be safer for me (the homeowner) during the project, but you have to balance whether or not to piss off your contractor… they may feel you are trying to rip THEM off.
Either way, do the legwork, get your waivers signed and sleep better as your home improvement progresses.