As a member of the construction industry, you deal with lien releases on a regular basis. But have you ever stopped to consider exactly what a lien is or what it does? And if so, what are you doing when you “release” a lien?
What Is A Lien Release? In A Way, It’s Like A Home Mortgage
A lien, simply, is a security interest in real estate like land and buildings on the land. If you properly file a lien, you’ve secured your interest in being paid against that property. The simplest example of this is your home mortgage. You owe the bank money because they lent you the money to buy the house and property. They file this debt owed in the property records to show they have a security interest in your home. This prevents you from selling your home until the bank is repaid. Once you repay the debt, the security interest is release and you receive the title to the property.
In the construction industry, a lien you file is not for money you lent the land owner but for payments you are owed for work you performed or materials you supplied that benefited the land. Much like the mortgage example, once you are paid for the work or materials, you release the lien.
Releasing A Lien Can Have Consequences Beyond What You Intend
It may sound simple but releasing a lien can have consequences beyond what you intend. For example, you may file multiple liens for several payments you are owed as the project has progressed. You receive payment which covers some of the debt owed, but not the entire debt. Should you sign and file a lien release?
Make Sure the Language of the Release Reflects Your Intent
It depends. The lien release should only be limited to release the liens to the extent you have been paid. Many lien releases contain language releasing “any and all claims” and, upon filing, release all liens including those you did not receive payment for. Lien releases come with various titles such as Conditional Waiver and Release, Unconditional Waiver and Release, Progress Payment Release, or Final Payment Release. Regardless of the title, make sure the language of the release reflects your intent.
You will likely be asked to sign lien waivers in exchange for receipt of payments, even when you have not filed a lien. By signing, you are giving up your future right to file a lien against the property in exchange for receiving money you are owed. This is a standard protection owners and contractors use to create proof of payment and prevent the filing of false liens.
Only Sign A Lien Waiver If It Correctly Reflects Your Agreement
With the many types of lien forms and procedures, the simple answer is that you should only sign a lien waiver if it correctly reflects your agreement. At the beginning of a project, you may sign a conditional waiver that only waives your rights to the extent you are paid. You still can later file a lien if you can prove you have not been paid money you are owed. Some lien releases are limited and exclude open claims, such as disputed invoices, and provide a space for those open claims to be listed as excluded from the release. At the end of your work, you may sign a final payment release which prevents you from filing of any liens against the property ever, in exchange for final payment. It’s okay to sign such a final release if, in fact, you are receiving the last of all money you are owed or will be owed in the future for the job.
Whether you should sign a lien release must be made on a case by case basis. Read each release before you sign it to make sure reflects your agreement and you are not giving up any more rights that you must. Avoid language such as “any and all claims” and instead limit it to “lien or payment claims”. If it’s not a final payment release, make sure the release is limited only to the extent you have received the money you are owed. It takes an attention to detail and diligence, but when it comes to being paid, don’t get tricked. And, as always, when in doubt consult a lien attorney or other expert service.