NASCLA Lien Laws and Payment Procedures 1 — Questions and Answers
Question 1: What is a 'mechanic's lien' in construction?
- A lien placed on a contractor's tools by a creditor
- A legal claim against a property by unpaid contractors, subcontractors, or suppliers for work or materials provided (Correct answer)
- A lien placed by a mechanic on a vehicle repaired on the job site
- A court order freezing a contractor's bank account
Correct answer: A legal claim against a property by unpaid contractors, subcontractors, or suppliers for work or materials provided
A mechanic's lien (also called a construction lien) is a legal claim placed against the property by unpaid parties who contributed labor or materials, giving them a security interest in the property.
Question 2: Who has the right to file a mechanic's lien in most states?
- Only the general contractor
- General contractors, subcontractors, material suppliers, and sometimes equipment renters who went unpaid (Correct answer)
- Only licensed contractors with more than 5 years experience
- Only parties with a direct contract with the property owner
Correct answer: General contractors, subcontractors, material suppliers, and sometimes equipment renters who went unpaid
In most states, any party who provides labor or materials to improve a property — including subcontractors and material suppliers — has the right to file a mechanic's lien if unpaid.
Question 3: What is a 'preliminary notice' (also called a pre-lien notice) in construction lien law?
- A notice sent to begin construction
- A written notice sent to the owner early in the project informing them of the sender's potential lien rights (Correct answer)
- A notice filed with the court before a lawsuit
- A warning letter sent to a subcontractor about performance issues
Correct answer: A written notice sent to the owner early in the project informing them of the sender's potential lien rights
A preliminary notice is a statutory notice that subcontractors and suppliers must typically send to the property owner (and sometimes lender) early in the project to preserve their lien rights.
Question 4: What happens if a contractor fails to record (file) a mechanic's lien within the statutory deadline?
- They can still file the lien with a late fee
- They permanently lose their lien rights on that project (Correct answer)
- They can file the lien in federal court instead
- The owner must waive all payment objections
Correct answer: They permanently lose their lien rights on that project
Missing the statutory deadline to record a mechanic's lien permanently extinguishes that party's lien rights, leaving them without the security interest in the property.
Question 5: Which of the following would a 'conditional lien waiver' indicate?
- The lien has been unconditionally released upon signing
- The lien release is conditioned upon the receipt of a specific payment — if payment doesn't clear, the lien rights are preserved (Correct answer)
- The contractor waives all future lien rights on all projects
- The subcontractor releases rights for past and future work unconditionally
Correct answer: The lien release is conditioned upon the receipt of a specific payment — if payment doesn't clear, the lien rights are preserved
A conditional lien waiver releases lien rights only upon the condition that a specified payment is actually received and clears, protecting the recipient if the payment fails.
Question 6: What is a 'stop payment notice' in construction law?
- A notice from the bank to stop a contractor's check
- A statutory remedy allowing unpaid subcontractors and suppliers to demand that funds be withheld from the general contractor until they are paid (Correct answer)
- A stop-work order issued by a building inspector
- A notice to stop purchasing materials for a project
Correct answer: A statutory remedy allowing unpaid subcontractors and suppliers to demand that funds be withheld from the general contractor until they are paid
A stop payment notice is a statutory tool available in some states that allows unpaid subcontractors and suppliers to direct the owner or lender to withhold contract funds from the general contractor.
NASCLA Lien Laws and Payment Procedures 1
What is a 'mechanic's lien' in construction?