It is important to understand the ins and outs of financing when dealing with contractors. A lien is a contractor’s claim to your property and something you don’t want, so read below on how to avoid it.

What is a lien?

A lien is a claim (a right of a creditor over a debtor) against an asset (item of economic value – your home), which is used to secure a loan and must be paid when the property is sold.

The Mechanic’s Lien Law

When a contractor (or supplier) supplies labor or materials for the construction of improvements on real estate, the Mechanic’s Lien Law gives the contractor a security interest in the real estate.

A person who performs labor or furnishes material with a value of $500 or more to be used in the construction, alteration or repair of your home has a lien upon the property in the event of an unpaid balance in the agreed upon amount or fair market value. As part of the disclosure prior to signing a contract, the contractor must inform the homeowner of the lien rights of labor, suppliers and subcontractors. Any person not paid for labor or materials furnished for a home improvement project may obtain a lien against the homeowner’s property.

Request a contractor’s Affidavit of Final Release be provided to you at the time you make final payment and a final waiver of mechanic’s lien. This is your assurance that you will not be liable for any third-party claims for nonpayment of materials or subcontractors.

Required Disclosures

There are things that you must tell your contractor. When you enter into a contract, there are certain disclosures that your contractor must provide to you in writing. Disclosures must be provided by General contractors, Residential contractors, and Swimming Pool and Spa contractors.