If someone does work on your rehab, or a house you are going to flip or rent. However, at the end whatever reason they decide they have not been properly compensated, they can put a lien on the property. What does it mean to have a lien on your property? It means you can not sell the house or refinance the house without paying the claimed debt. Not only can they put a lien on your property but the supply company can too under certain circumstances put a lien on the property; which is why you need a proper lien waiver for your rehab jobs.
Here is an example, you paid the fence company to put a fence for privacy. You pay the fence people. However, the wood supply company sends you a notice of lien, because they were not paid. Technically, you already paid the fence company but they did not pay the supply company and they ran away with the money - because However, the courts may now decide you have to pay twice...UNLESS you had a lien waiver.
So, what should you do? Let us say you have a house you are going to flip, and you are fixing it up. There will be three typical scenario's 1) you hire each individual trade yourself, and you pay each yourself 2) you hire a contractor, and the contractor hires his sub-contractors and he pays them 3) you hire a handyman who you expect to take care of everything. All the work being done with be on based on the inspection report or your own rehab or flip
If you hire each trade on your own, you need them to sign a lien waiver as they finish each job. The lien should specify that the labor and materials are paid for. Sometimes, a certain group of people may do more than one trade, treat each trade separately-- have a separate contract, that clearly specifies what you expect done, with any trade, contractor, or handyman. Pay for each trade, and get a lien waiver. Some will agree to give the lien waiver as they are paid or even before that.
If you hire a contractor, and the contractor hires the sub contractor, again, have a detailed contract. Pay contractor on a schedule as the work is done, As each trade is done, let's say roofing, you get a lien waiver by the contractor and sub contractor, have them both sign it, that all supplies have been paid for and all labor for that trade have been paid for. You can negotiate you are going the pay the contractor as every job is done. Because the contractor pays the sub contractor, this will ensure the sub contractor does not come back to you, claiming they have not been paid. This way also, if the sub contractor refuses to sign, you will know there is a problem between the general contractor and the sub contractor- hopefully you can resolve it, but you will be able to deal with the issue head on, by telling the general contractor he needs to resolve the issue or it effects his pay. So have the general contractor, and sub contractor sign off, that they have satisfied all material and supplies, and the labor has been compensated.
For the handyman, the same general rules apply as the general contractor. You will have to have in written detail in the "scope of work" or in a contract what the handyman will do and which "friends" and trades he (she) will bring in. Have each friend or trades people sign the waiver of lien form. Sometimes a handyman will do almost everything but not roofing for example. So, that needs to be clear and understood.
One thing that needs a lot of emphasis is that there is sometimes a misunderstanding or miscommunication. It is vital you put everything you expect to be done on paper, and have gone over it with the person who will do the job. Share whatever you need done; like inspection report, etc. For example, you say fix the attic, he says no problem. In your mind it means, add the attic stairs that are missing. He says it's done, you look, get upset, he says that will cost more, you say the attic is not fixed, he says well that is not how I understood you. So the more specific you are the better for you, and the less chance of a lien or any other issues.
Here is a sample form for a general contractor waiver of lien, you can adjust for your situation
WAIVER OF LIEN
For value received, the undersigned hereby waives ALL of his/her/its rights and claims
for construction lien for its labor, material or services performed on or provided to land
and improvements located on property located at ____________________________,
_________________, WI, owned by _____________________________ regarding a
project on which ________________________________ acted as general contractor.
Dated this _____ day of __________, 2011.
Contractor Name: ________________________________