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Mechanic's lien on your property? Don't panic

Your home improvement project is complete and the general contractor is paid in full. Now comes the scary part: The contractor did not pay one or more of the subcontractors and they in turn put a "mechanic's lien" on your home or property. This legal claim against your property could force you into foreclosure unless you pay the subcontractor yourself.

Another possibility is that the general contractor's work is substandard and you decide not to pay. The contractor turns the tables and files a mechanic's lien on your property to force you to pay.

It's important to know how to respond, and to do so quickly. The first step is to contact a construction lawyer to review the lien and make sure all proper filing procedures were followed. If they were not, then the lien is invalid and will be dismissed. This process takes about 60 days (from the time the lien was filed) to complete.

If the lien is valid, the attorney you choose should help you determine the best course of action -- to fight it in court or settle. You may be able to settle the lien if: 1) you can prove you paid the contractor bills in full, or 2) you can prove the contractor breached the contract and does not deserve payment. The cost of legal fees will range from $5,000 to 15,000. If the dispute is small, it may be better to settle. An attorney can help you make the best decision.

If the general contractor was paid in full and did not skip town or go bankrupt, then you can sue the contractor to recover your losses. Be sure to file a complaint with your state's contracting board in this case.

Be careful, however, because if you did not follow the payment procedures spelled out in the contract, you may be required to pay the subcontractor filing the lien, even if the general contractor was paid in full. The contractor can also sue you for breach of contract, even if their lien was dismissed.

One very effective way to protect your property from a lien is to have the general contractor and subcontractors sign a lien waiver, which is a legal document provided by the general contractor. The downside is waivers need to be signed by the general contractor and all subcontractors.

An alternative is to have the general contractor and the subcontractors completing the majority of the work sign the waiver. Be sure to discuss this with the contractor early and work out the payment details with the signed wavers. Requesting to pay the subcontractors directly is another option. Direct payment won't protect you from liens, but you will know they are paid.

If a lien has been filed or you are unsure how to handle a situation, be sure to contact a construction law attorney right away. They can help walk you through what needs to be done and make a stressful situation easier to manage.

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