Having been in the practice of providing exemplary legal services in the Bonney Lake area for over a combined 35 years, our attorneys have expertly handled a wide variety of legal matters, including, but not limited to, transactions, litigation, appeals, and post-judgment issues. One aspect of real estate law practice that can be tangentially related to all of these complex processes is the creation, handling, and disposition of liens. This can be a complex and nuanced topic, especially when clients have questions related to obtaining a lien waiver. Tackling these inquiries requires a brief overview of liens in general, as gaining a basic level of familiarity with the subject will optimize your working relationship with your real estate attorney.
What Exactly Is a Lien?
Put simply, a lien is a legal entitlement or interest that a creditor possesses in another party’s property. Generally, creditors utilize liens for securing the repayment of outstanding debts. There are three basic types of liens that can be placed on a client’s property:
- Consensual: A consensual lien is one that is established on a voluntary basis by the property owner that has an existing lien encumbrance. The most commonly created consensual lien type is a residential mortgage in which the purchaser of the property consents to a financial institution filing a security interest in the home when a mortgage is obtained. In the state of Washington, the bank subsequently records a Deed of Trust to provide evidence of the existence of the security interest. Another common type of consensual loan scenario is when a homeowner pledges their home as collateral for a loan – such as for another mortgage or line of credit. This process might also be used to finance a business venture. A significant caveat, however, is that the homestead is not applicable in the context of consensual liens. That is, a homeowner is not permitted to claim a homestead exemption for protection against a mortgage foreclosure.
- Statutory Lien: There are multiple property liens that are statutorily based on Washington state law, which include, but are not limited to the following:
- Mechanic’s & Materialman’s Lien: This category of lien is created when a contractor or supplier provides service on a work project and is not immediately paid.
- Tax Lien: Local, state, or federal government entities have the authority to create a property lien in the event the owner fails to pay federal income or state taxes.
- Condo or Homeowner Association Lien: In the state of Washington, condo and homeowner associations are afforded a statutory lien for assessments that can, depending on the circumstances, take priority over other secured interests.
- Landlord’s Lien: RCW 60.72.010 outlines a landlord’s lien, which is a lien for rent upon “personal property which has been used or kept on the rented premises by the tenant.”
- Judgment Lien: A judgment lien is the result of litigation. A creditor may record the creditor’s judgment against the debtor’s property. The creditor can then pursue a foreclosure of the judgment lien to obtain the debtor’s property if the judgment goes unpaid for a specified period.
To further complicate matters, each subcategory of liens carries with it a particular set of rules and regulations that dictate the attachment of the lien to the property and the enforcement process.
Why Obtain a Lien Waiver?
In the broadest sense, a lien waiver essentially extinguishes a contractor or materialman’s right to exercise a lien or bond claim on a specific work project. These waivers can be limited in scope and solely waive these inherent rights for a specified time segment of a given construction project, or it can summarily waive the right to file a claim for services, material, or equipment provided. Additionally, a lien waiver can either be conditional or unconditional. A conditional lien waiver is one that remains invalid until after an exchange of value – usually monetary. An unconditional lien waiver, on the other hand, states that all outstanding debts have been paid and the claimant has volunteered to forfeit any and all future rights to file a lien claim.
Two common inquiries we receive regarding lien waivers are:
- Why are they needed?
- Which parties are benefited from them?
Generally speaking, in the context of a private construction project (either residential or commercial in nature), the primary beneficiary of a lien waiver is the owner of the property. On a public works construction (e.g., state, city, county, school district or federal construction plan), the primary benefits go to the prime contractor. Subcontractors, and entities furnishing supplies and renting equipment, also benefit from consenting to a waiver because doing so is commonly a prerequisite for getting paid. That being said, the true beneficiary on a private works construction is the property owner. This is because the lien waivers operate in such a way to provide assurance to the owner that sub-trades collaborating on the project have been paid by the general contractor, and, thus, will not file a lien claim as the work progresses or after its completion.
If you are a property owner who is presently undergoing a construction project, lien waivers from the associated sub-trades are extremely important to protect the financial integrity of the project. Getting a waiver from the general contractor, stipulating that they have fully reimbursed all of his subcontractors, is inadequate and will expose you to a significant amount of risk for future lien claims. Although property owners can work around this issue via joint checks to the subcontractors, nothing provides the security and peace of mind as a comprehensive set of lien waivers.
On public projects, the primary benefit goes to the prime contractor, as the document offers protection against claims against his payment bond. This is essential as public entities are basically immune from claims for non-payment by subcontractors because lien claims are not allowed to be filed against publicly owned property.
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The knowledgeable and experienced attorneys of Bolan Law Group., regularly represent businesses, individuals, landlords, residential and commercial property owners, purchasers, sellers, lenders needing to foreclose, and many others located in the Bonney Lake locale. If you have any questions, please do not hesitate to contact us for more information on how we can assist you.
You need and deserve meaningful and efficient results. Through hard work, dedication, and commitment, we pledge to provide you with exceptional professional excellence. You can also find more information on our real estate FAQ page.