A mechanics lien is typically placed on a property when the borrower or owner doesn't make a payment to the contractor. It's not to be confused with a 20 day lien notice. A lien notice is quite often placed on a home or project when the supplier feels it is in their best interest to let the world know they will file a lien if they don't get paid.
A lein is likely the last resort for a contractor who hasn't been paid on a project. As I understand it the general contractor doesn't need to lein the property but the general subcontractors might very well do so if they don't get paid. This action notifies the owner of the property and the lender that the contractor's not paying his subcontractors. This way they can take appropriate action to see that those subcontractors get paid.
We had one project in which a contractor had been terminated prior to the 203K being put in place. That contractor immediately filed a lien on the property. It turns out that lien was not valid as he had been paid for all work to date. Once the contractor places a lien on the property he's under obligation to go to court within 90 days. This is why it's a last resort for a contractor to go to court to get paid because once they file a lien the homeowner is not likely going to pay them anything until they go to court and let the judge work it out for them. In the case that we just had the contractor realizing that he would be foolish to get in front of a judge failed to file the court action. That lien died at the end of the 90 days because it no court action had been filed. The lien is no longer valid nor can the contractor come back and ask for more money because he didn't follow through with this threat.
Doesn't make sense for a contractor to put a lien on the property if he doesn't have the money or the will to file a lawsuit. Had this contractor filed a lawsuit and got in front of a judge the outcome may have been totally different than he expected. By then we had lots and lots of information that that prove that this contractor really shouldn't even be in business and we stood a good chance of getting all monies already expended with this contractor returned to the borrower. I think once that contractor realized his situation and the ramifications of his action he decided it was in his best interest to just drop this one and move on. In my opinion this contractor should not be a contractor.
Were dealing with one client right now who is holding the final 10% hold back check as she tries to extort the contractor for more work for her project that is beyond the scope of his original contract. It's like she's saying if you do this additional work I'll give you the money already earned. She's made a lot of other threats as well that are not substantiated or cannot be fulfilled. Should the contractor file a lien, I would recommend that he immediately exercised it and hired an attorney to start the court action. In my opinion this borrower is 100% wrong and the judge would be the best one to ferret out who's right and wrong. In this case I recommend the contractor file a lien immediately. In all likelihood he should ask for costs and fees as well and get this project final payment in his pocket along with a nice settlement for damages.