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Mechanics Lien Waiver

By Diane Dennis

What is a mechanics lien waiver, lien waiver form, lien release form?

When you invoice, and/or get paid, on a construction project you'll almost always be required to provide a mechanics lien waiver, also commonly known as a "lien waiver form" and "lien release form".

There are typically four lien waivers in the series. The length of your project, how long it takes to complete it, will determine which of the four you'll use, and how often.

"Construction lien waiver forms are dangerous - make a mistake on the documents and you could be looking at your worst nightmare."

The purpose of these documents is A) to allow you to incrementally release your lien rights on a construction project, as you get paid, and B) to keep the owner from having to pay twice for work (or materials, services, etc.).

When you submit an invoice you'll submit a conditional mechanic's lien waiver for the invoice dollar amount and when you get paid you'll submit an unconditional mechanic's lien waiver for the payment amount.

Using the various mechanics lien waiver forms allow you to keep your lien rights protected while your customer is able to pay you knowing that the portion of the work/material/services he's paying for is now protected from liens.

But, if you use them incorrectly you could lose all lien rights and all payment.

A rundown of the individual mechanics lien waivers

Conditional Waiver and Release Upon Progress Payment

The Conditional Waiver and Release Upon Progress Payment form, also known as the #1 lien waiver/release form, is used when submitting your first invoice on a project that's lasting longer than one billing period.

When using this document if you're not careful you can inadvertently release 100% of your lien rights, without full payment, and have no recourse in regard to filing a mechanics lien

When you submit an invoice for a partial payment (you're not billing for the entire balance amount of your contract), you'll use the waiver/release form titled, "Conditional Waiver and Release Upon Progress Payment" (aka #1 lien release).

"Be careful! Make a mistake with the #1 waiver/release form and you could give up 100% of your lien rights!"

On this #1 release, you'll include the release thru date. You'll also include the dollar amount you're invoicing for, as well as the customer's name, and the project title and address.

Once you receive the payment from your customer (which should be for the dollar amount on your invoice and release form ), your customer is going to want another release form from you.

Unconditional Waiver and Release Upon Progress Payment

Now that you've been paid, you need to provide the owner with the Unconditional Waiver and Release Upon Progress Payment (commonly known as the #2 lien waiver form/lien release form).

The Unconditional Waiver and Release Upon Progress Payment form is always the release used when you've been paid on a progress invoice (vs. final invoice).

Do NOT provide that #2 lien waiver form to your customer until you know for a fact that your customer's check has cleared both your bank account and your customer's bank account.

"Make a photocopy of the check before you deposit it. Then you can call his bank (thanks to the photocopy of the check) to see if his check has cleared his account, before issuing the #2 release."

Once you sign that release and give it to him, if his check doesn't clear for any reason you're out of luck because you released your lien rights for that time frame when you signed the form.

It almost happened to me!

I was a subcontractor on a project in Irvine, CA.

I drove three hours to pick up the check they promised me, only to be greeted with a #2 unconditional on progress release form.

They insisted that I sign the form before I could have the check. I refused.

After much arguing back and forth I left with the check and no signature on the release form. I promised that I'd send it as soon as the check cleared.

"Do NOT submit the #2 lien waiver until you are certain that the payment you received has cleared 100%."

We got notice that the project went on hold. It wasn't until I ran into someone on another job who had also been on that one in Irvine.

Turns out that the majority of the checks the general/direct issued didn't clear and he wasn't anywhere to be found (ours cleared thank gosh but it was small compared to some of the other trades).

The #2 release forms that the subcontractors had signed when receiving the check had been given to the owner.

The subcontractors were out of luck because they'd signed that #2 saying they'd been paid. They've got recourse against the general/direct, they can spend beaucoup bucks to go to court to sue him, but they don't have lien rights on the property or recourse against the owner.

Plus, those guys still had to pay their suppliers, even though they hadn't been paid.

Suppliers, this can happen to you too. Don't give that #2 until you've got cash in hand (or bank account).

Conditional Waiver and Release Upon Final Payment

When you submit your final invoice, you'll include the Conditional Waiver and Release Upon Final Payment (aka #3 release) form.

In addition, when you invoice only once on a project you'll use the #3 instead of the #1 because, while it is your first invoice on the project it's also your *final* invoice on the project.

Each contractor uses the #3 release form once only per construction project.

Be very aware when you use this document. It can release your lien rights 100%. If you should be using a #1 instead then don't use the #3.

This lien release/lien waiver does not have a 'release thru' date like the first two lien waivers do, as this #3 lien waiver is for the final payment on the project.

You will enter the total dollar amount, the same amount your final invoice is for, on the lien waiver.

Do NOT submit the #3 lien waiver until you are certain that you are finished on the project and will not be back to do any other work.

If you do submit the #3 release, and then you do go back and perform additional work on the project, then you'll have to issue another preliminary notice on the project to protect your mechanic's lien rights.

"Do NOT submit the #3 lien waiver until you are certain that you are finished on the project and will not be back to do any other work."

It can get really involved and complicated, and expensive, to have to re-prelim projects.

The easiest way to avoid that is to NOT issue that #3 lien waiver until you know that you are done on the project and that the dollar amount you are entering on that #3 lien waiver is indeed the full and final amount owed to you.

Once you have received this final payment and it has cleared your customer's bank account, you will then submit the #4 release.

Unconditional Waiver and Release Upon Final Payment

The Unconditional Waiver and Release Upon Final Payment form, also known as the #4 lien waiver/lien release form, is used after you've collected the final payment on the project and it has cleared the banks.

As with the #3 release form, you'll use this #4 release form only once per project.

The #4 release/waiver form releases 100% of your lien rights on the project.

"Do NOT submit the #4 lien waiver until the final payment has cleared all bank accounts."

Use this form *only* after you've received the final payment on a project and it has fully cleared the bank.

Who submits a mechanics lien waiver, and to who?

Any entity working on a construction project that has lien rights will undoubtedly be required to submit mechanics lien waivers.

You'll always submit them with your invoices, to your customer(s).

Typically every supplier, subcontractor, and direct contractor will submit lien waiver/release forms to their respective customers.

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Article Series: Mechanic's Lien Waivers/Releases


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