Section 1301 of Pennsylvania Statutes Title 49 P.S. regarding Mechanics' Liens provides, in pertinent part, that “[E]very improvement and the estate or title of the owner of the property shall be subject to a lien, to be perfected as herein provided, for the payment of all debts due by the owner to the contractor or by the contractor to any of his subcontractors for labor or materials furnished in the erection or construction, or the alteration or repair of the improvement.”
That sounds pretty simple, doesn’t it? A contractor provides labor or materials to a construction project and doesn’t get paid. He therefore has a lien against the property to secure his right to payment. Simple... but not so fast.
If you are a provider of labor or materials to a construction project in Pennsylvania, you generally have a right to a lien. However, you must jump through hoops to exercise that right or it simply evaporates. The hoops can be technical, and if you jump through them incorrectly, your lien rights vanish. A mechanic's lien is a very powerful tool in getting paid, and it’s well worth it to know how to preserve your rights.
WHAT IS A LIEN?
The types of liens that most people are familiar with involve car and home mortgage loans. Examples of how they work and why they exist include:
- Allows one to pay over time, on the come.
- Drive the car now, pay later.
- Live in the house now, pay later.
But is your bank satisfied with your firm handshake and your good word that you’ll pay them back?
Of course not!
First, they have you sign a written promise to pay them back. Then, to make sure you hold up your end of the promise, the bank requires a lien on your car or house when you receive the loan. If you don’t pay the loan back, the bank will take your car or house and sell it in order to get their money back.
MANAGING THE CONTRACTOR’S RISK OF NON-PAYMENT
A contractor providing labor or materials to a construction project usually doesn’t get paid in advance. Often, he’s left pushing for payment long after he’s provided the labor or materials at his own “out-of-pocket” cost.
The owner has not given the contractor a mortgage on the property to secure the owner’s promise to pay the contractor for the work. In fact, the owner often does nothing to secure his promise to pay for the work. A mechanics lien is a device that can provide that security and often force the owner to pay for the contractor’s work.
Traditionally, a contractor has no right to a mechanics lien at all – unless the state government specifically created that right for him in a specific law. In Pennsylvania, and in West Virginia, Ohio and virtually every other state, the state has provided that right.
However, in order to take advantage of a right to mechanics liens created by the government, the contractor must jump through every one of the government-created hoops exactly, or his right to the lien evaporates like mist on a windshield on a sunny day. Do something wrong, and POOF! … it’s gone.
But if the contractor does it correctly, his mechanics lien will give him the right to foreclose on the owner’s property, and the government will help him sell that property to the highest bidder to satisfy the outstanding debt.
It’s a very powerful tool. It must be used correctly, or it doesn’t work. So, what is required to use it correctly? I'll cover that and more later this month in part two of What is a Mechanic's Lien and Why Should I Care? Meanwhile, should you have any questions, visit our Construction Law webpage or feel free to contact me for more information.