Buying a residential property is an exciting, life-changing experience. But unfortunately, unexpected obstacles can pop up and possibly derail your dream of owning a home or investment real estate.
During the window between contract and closing, your title company will perform a search to ensure that the seller has the right to sign over the property to you, clear of any encumbrances.
One of the most common hindrances to a smooth title transfer is discovering a lien. There are several different types, and potential buyers of existing homes will frequently encounter what’s known as a mechanic’s lien.
You’re purchasing a house, not a car — what do mechanics have to do with anything? Read on to learn more about this sticky situation and how you can quickly resolve it to get the keys to your new home.
A Guarantee of Payment
Also known as a construction, artisan’s, or materialman’s lien, these guarantees are often necessary to secure funding for a variety of projects. First utilized in the bureaucracies of Europe, the concept was embraced by Thomas Jefferson as a way to encourage building in the new city of Washington, DC.
A mechanic’s lien simply means that when any sort of construction or refurbishment work is done, the contractors and subcontractors must be paid for their labor and materials before the property can be sold for a profit.
In case of foreclosure, there’s a hierarchy that has to be followed if a property has more than one lien. While tax liens are usually satisfied first, the mechanic’s lien is right up there in terms of priority.
While most people sign contracts in good faith, sadly it happens all too often that subcontractors do not get paid or providers deliver subpar results. In the case of a mechanic’s lien, you’ll want to talk to an expert and take action to resolve it as soon as possible.
According to Illinois Legal Aid, a contractor has two years from the time they complete their work to file a lien against the property owner. They only have four months to claim or sue to have priority over the mortgage lender.
If you (or your legal representative) send the holder of the mechanic’s lien a written demand to sue, they only have thirty days to put the wheels in motion, or the lien is lost.
Removing a Mechanic’s Lien
Discovering a lien on your prospective new property can ruin your whole plan. Thankfully, this cloud on title is usually relatively easy to remove — contractors want to get paid and move on to the next project, not spend time wrangling in court.
The easiest way to solve this problem is to reach a settlement with the lienor, the person who placed the lien.
Whether the contractor feels they are owed payment for a completed project or the property owner says the work wasn’t up to snuff, most people don’t want to go through the hoops required to battle this issue out in front of a judge.
Having a sit-down to hash out the pertinent details is a much better approach for both parties. Contractors will frequently negotiate a lower payment to remove the lien so they can walk away with cash in hand.
Bonding Over (or Bonding Off)
Per a 2016 amendment to the Illinois Mechanics Lien Act, the state developed a statutory process for the interested buyer to obtain a surety bond for the amount of the lien, effectively removing it by proving you have the means to pay it at a later time.
This process is known as bonding over the lien, or bonding off. It’s a strategy that is best for someone who needs to move quickly through the process of buying a home for various reasons.
Sometimes called a lien discharge bond, these are relatively complex financial transactions that are backed by major insurance companies. You should speak to your agent to see if your insurer can provide this instrument.
Take It To Court
Occasionally the only way for both parties to get satisfaction from a mechanic’s lien is through t court proceedings. This is the most drastic option, and you’ll need to retain an attorney who’s an expert in the real estate and construction laws of your state.
Nowhere near as exciting as your favorite episodes of Law & Order, the burden will be on the contractor to establish the case of why they’re owed money.
The lienholder will have a chance to dispute. Perhaps the contractors stopped showing up or stopped responding to your communications, or the work they completed was not what was agreed upon in the written contract. Shoddy work can be an excellent reason to fight the lien in court.
A Partner For Results
If you’re buying a new home, you deserve to work with an organization that has your best interests at heart. At Landtrust Title Services, we’re more than just a title company — we are a true partner for you and your family on the road to financial independence.
We offer personalized support, concierge service, and comprehensive attention to detail. Our expert team will help you overcome any obstacle on the way to owning your own home. Questions? Give us a call today at 312.528.9210, or email us at [email protected].