Browse Proptionary encyclopedia

Build your real estate vocabulary to be able to communicate and invest more effectively and professionally.

Lien Release

DEFINITION

Voluntary release of a lien by the party that placed the lien.

EXPLANATION

A tradesman that performs work for another party has the right to be compensated for that time. When the recipient of that work decides against paying the contractor for their time, the contractor can place a mechanic’s lien against the hiring party to recoup the money they are owed. The lien offers recourse to the mechanic in the event the hiring party does not want to pay the full or partial amount.

A lien places a hold on the hiring party who did not pay the contractor’s property. The lien prevents the property owner from refinancing, cashing out equity, retaining a loan, and other detrimental financial factors. By putting a hold on the property, the lien forces the property owner to come to the table and negotiate with the contractor to get a lien release. The property acts as security for the contractor to ensure that they will get paid.

A mechanics lien can be released if the claimant files a lien release form with the county recorder. This is done to prevent a homeowner’s title from being inaccurately clouded, which would prevent the landowner from selling, refinancing or obtaining new financing.

Lien Clouds a Property

A lien placed on a property clouds the title of the property, thereby preventing the property owner from making any significant financial decisions concerning their property. Eventually, even if the property owner does not initially want to pay the contractor or disagrees with the contractor’s fees, the property owner will have to come to some kind of a settlement, known as a lien release, to make any financial decisions concerning their property.

A lien release is a form that releases the lien from the property owner’s property. Oftentimes, the mechanic that placed the lien will settle with the property owner and accept a reduced fee to walk away with some type of money. A lien release waives the mechanic’s lien that was on the property, thereby clearing the cloud on the title from the property. This allows the property owner to sell their property, refinance the loan, or get cash out if they have the necessary equity to do so.

Lien Release When a Lender is Owed a Debt

When a borrower gets a mortgage, the lender has the right to place a lien on the property. When the mortgage is paid off or refinanced, the original lender will release their lien, thereby granting the borrower the right to refinance with another lender or sell the property. If the lender is not repaid, the loan will not be released and the property will not be able to be sold or refinanced.

Liens in Real Estate

A mortgage is the most common type of lien and represents the security interest the bank has in the real property. If you plan on selling a piece of real estate with a mortgage, the bank that holds your lien must be involved in the transaction to make sure that the lien is released or transferred before the transaction can take place.

Getting a Lien Waiver

After a contractor has been paid, it is advised that the hiring party get a lien waver. The lien waver is a statement indicating that the mechanic has been paid and as a result has no authority to place a lien on the property. Essentially it is a receipt of services provided and the payment for those services. The release form waives the contractor’s future right to place a lien on the property.

A property owner can have a mechanic’s lien placed on their property, regardless of whether they directly hired the workers or if the working party was a subcontractor. If the party was a subcontractor, the hiring party should insist to the main contractor to have every worker sign the form indicating that they have been paid. This can reduce and eliminate any future issues, especially when a subcontractor is hired.

[quiz-new]