Mechanic's lien can create serious title problems

July 26, 1992|By Copley News Service

An increasing number of homeowners are facing the risk of losing their homes because of a problem they didn't know existed.

The recording of a piece of paper called a mechanic's lien can create a serious title problem and can lead to foreclosure of the property.

Here's an example:

"Now you can buy the ultimate water treatment device for your home. It will extend your life and prevent deadly diseases. It can be purchased for the bargain price of just $7,000."

This was the pitch promoting a water filtering and softening device, by a California company, said Greg Brose, supervisor of consumer protection for a district attorney's office.

The company's claims far exceeded the truth, Mr. Brose said. But after salespeople pounded away at the greatly exaggerated benefits of the device during a three-hour session, many people took the bait, buying a unit and signing a purchase contract despite the high cost.

Many of the buyers soon realized they had been pressured into a bad deal and filed complaints with the local district attorney's office. An undercover investigation revealed the company did engage in gross misrepresentations and did not allow a three-day cooling-off period, in violation of the law.

When these remorseful buyers refused to make payments on their purchase contracts with the company, mechanic's liens were recorded against their homes. This clouded the title of each homeowner's property, meaning a claim of interest was placed on the title. This makes it difficult to transfer the title or use it for security in obtaining an equity loan. It could result in losing the property in foreclosure.

What a lousy deal! In a moment of weakness you succumb to a pressured sales pitch after being worn down in a long seminar. And when you finally wake up and refuse to make payments on a bad contract, the company records a piece of paper that could cost you your home.

Mechanic's liens have caused serious problems for many homeowners. They can be recorded by any contractor or other person who provides a service or product for your home or other real property, said Kirk J. Grossman, an attorney who specializes in real estate law.

"A mechanic's lien is a very powerful instrument, cutting a wide swath legally," Mr. Grossman said. "It places a cloud on the property's title and can cause major problems and costs for the property owner."

The law in most states provides that anyone who furnishes labor or materials to a home can record a "Claim of Lien" or mechanic's lien against the home if they are not paid in full. This could be a general contractor, a subcontractor, landscape designer, seller-installer of a built-in component, etc.

In some cases, you might pay the bill in full to a general contractor. But if that contractor doesn't pay his subcontractors a lien could still be recorded by the subcontractor against your house.

"The best method to prevent problems created by the recording of a mechanic's lien is to think carefully before signing a contract that could jeopardize your home," Mr. Brose said. "If in doubt, check with a knowledgeable attorney," Mr. Grossman agreed.

It's also a good practice to specify in the contract that the general contractor is responsible for obtaining and providing the homeowner with "lien releases" from each subcontractor and material supplier, Mr. Grossman said.

"A homeowner's risk can be greatly reduced with a contract bond or use of a funding company.

And the homeowner shouldn't sign a 'notice of completion' until the job is totally completed to his satisfaction."

Clarify any legal questions by discussing it with an attorney.

The company that promoted the $7,000 water treatment devices is out of business, Mr. Brose said.

The purchase contracts were sold to a finance company, and the district attorney's office is trying to obtain restitution for the unhappy purchasers.

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