Definition: Mechanic's Lien
"A mechanic's lien is a statutory lien that allows certain types of vendors to have a lien against real property when they've performed construction-type services that benefited that real property," explains Matt Zifrony, who advises homeowners and condo associations at Tripp Scott, a Ft. Lauderdale law firm, and who's also the president of a 3,000-home association. "It's a pretty powerful tool contractors have if someone they've done work for refuses to make payments." It's powerful because many lenders refuse to lend for properties with liens attached to them. They'll require the lien be paid before any new loan may close. So if a pool construction company slaps a lien against your association, and your board later wants to secure a loan to build a clubhouse, it's likely your association won't be able to secure financing until the pool lien is removed from the association's title. Not every contractor can file a mechanic's lien. "The only people typically protected for lien purposes are those adding value to the property, maybe painting or roofing contractors or contractors adding some fixed asset," says Robert White, managing director of KW Property Management & Consulting in Miami, which oversees about 125 associations totaling 30,000-35,000 units. "If the work involves a service contact, such as landscaping, those providers are normally not allowed to place a lien unless that's provided for in their contract. So when boards are entering into contracts with vendors, they need to be educated on the contracts they enter into and lien problems from the beginning." Another important point to remember is that mechanic's liens can be placed only against the entity that owns the property on which the work was completed. "You have to focus on where the work was performed," explains Zifrony. "If it was against the common elements, the mechanic's lien would be limited to the association, which would be less likely to affect sales of individual units. But potential buyers will still want to understand what a lien is for. Is the association in financial trouble? Could resolving that lien result in a special assessment? So even if a mechanic's lien might not directly affect the sale of individual units, it might indirectly affect them." Get tips to protect your condo or HOA against mechanic's liens, in our recent article. Go there now »
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