What is a lien release or lien waiver?

If you intend on hiring outside help to assist in home repairs or home improvements, it's important to brush up on the lesser-known contract option known as a lien waiver.

First things first, a lien is a kind of hold that is placed on the property to ensure that a debt is paid or another obligation is met in exchange for materials supplied, a contractor's service or the service or supplies of another involved party.

When used by a contractor, a mechanic's lien can be applied to satisfy monies owed for work completed. That is, if a contractor feels he or she has met the obligations of the contract and completed the project or a stage of the project, but hasn't been paid as agreed, they can apply a lien on the property to enforce payment.

When used by subcontractors or suppliers, if a home improvement contractor fails to pay his employees or fails to pay for the building materials used in the project, a lien can be placed on your property and you, the property owner, can be held liable for the unpaid expenses if a lien waiver was not established.

To avoid unexpected fees or liens, homeowners should first ensure that they are working with contractors who are licensed, bonded and insured, and then consider always including a lien waiver or lien waiver clause in the project's contract. With a lien waiver, when the project is successfully completed, both parties sign off and state that the contract obligations have been met, including the general contractor making all necessary payments to materials suppliers, subcontractors or vendors.

If the general contractor doesn't agree to sign off on the lien waiver, you can withhold payment until he or she has proved they've paid their suppliers or subcontractors.

A lien waiver is an important step for larger projects that involve working relationships with contractors, subcontractors, material providers, equipment lessors and any other party to the project.

One of the most essential things to know about liens and lien releases is how they're enforced in your area. 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.

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