The Impact of a Mechanics Lien on Property Sales and Refinancing

A mechanics lien is a powerful legal tool that contractors, subcontractors, and suppliers use to secure payment for work performed or materials supplied on a property. While beneficial to construction professionals, mechanics liens can create significant obstacles for property owners looking to sell or refinance. Understanding the impact of a mechanics lien is crucial for property owners, buyers, lenders, and contractors.

What is a Mechanics Lien?

A mechanics lien is a legal claim against a property filed by a contractor, subcontractor, or supplier who has not been paid for work performed or materials provided. Once filed, the lien attaches to the property title, making it difficult to transfer ownership or obtain financing.

Effects on Property Sales

When a mechanics lien is recorded, it can have serious implications for selling a property:

• Title Issues: Most buyers and lenders require a clear title before proceeding with a transaction. A mechanics lien clouds the title, preventing a smooth transfer.
• Reduced Marketability: Properties with unresolved liens may deter potential buyers, leading to extended listing periods or lower offers.
• Delays in Closing: If a lien is discovered during the title search process, closing may be delayed until the lien is satisfied, disputed, or removed.
• Legal Disputes: Buyers may request that the seller resolve the lien before finalizing the sale, leading to legal negotiations or settlements.

Impact on Refinancing

Refinancing a property with a mechanics lien presents its own set of challenges:

• Loan Approval Issues: Lenders typically require a clear title before approving a refinance. An outstanding lien may prevent refinancing altogether.
• Higher Interest Rates or Denied Applications: If refinancing is possible despite the lien, lenders may impose higher interest rates or less favorable loan terms due to the perceived risk.
• Required Lien Resolution: To proceed with refinancing, property owners must often pay off or legally dispute the lien, adding extra time and financial burden to the process.

How to Address a Mechanics Lien

Property owners facing a mechanics lien have several options:

• Pay the Debt: If the lien is valid, paying the outstanding amount will remove it from the title.
• Negotiate a Settlement: In some cases, contractors may agree to a reduced payment or payment plan to release the lien.
• Challenge the Lien: If the lien is invalid or improperly filed, legal action may be taken to remove it.
• Obtain a Lien Release Bond: In some situations, a lien release bond can be purchased to allow the sale or refinancing to proceed while the dispute is resolved.

How Our Firm Can Help

At Stone & Bellus, PC, we specialize in construction law and real estate disputes, including mechanics lien issues. Whether you are a property owner, contractor, or lender, our experienced attorneys can help you navigate the complexities of mechanics liens, resolve disputes, and protect your interests.

If you need assistance with a mechanics lien or have questions about its impact on your property, contact us today for a consultation.