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What is a Lien Waiver? - Definition, Partial & Conditional

Instructor: Ian Lord

Ian is a real estate investor, MBA, former health professions educator, and Air Force veteran.

In this lesson we will look at what a lien waiver is and how it protects someone who is paying for contract work and materials. We will also review the different forms of waivers and explain the scope of each type.

Remodeling

Nate is having some major renovations done to his house, including adding a bedroom and bathroom. Because of all this work his general contractor has had to subcontract aspects of the project out to other contractors to cover electrical, plumbing, and drywall.

Little does Nate know that even though he has made all of the agreed upon payments to his general contractor, he is still at risk for having a lien placed against his home by one of the subcontractors. Let's take a look at what a lien waiver is and how it can help protect Nate from a lien.

Lien and Lien Waiver

But first, what is a lien? Let's say a supplier or subcontractor isn't paid for the work or materials they provide by the general contractor coordinating the project. A mechanic's lien is a legal claim for the unpaid bill that is filed with the county.

If a payment solution can't be figured out in a timely manner, the supplier or subcontractor could force the sale of the home at auction in order to get paid. The alternative would be for Nate to pay twice; once to the general contractor and again a second time to the supplier or subcontractor.

Even if the lien isn't enforced, simply having one associated with a property can create a lot of problems for Nate when it is time to sell, since no bank will make a mortgage when a lien is still on the books.

A lien waiver is a documented agreement made between a payer and another party for that party to give up the right to place a lien against the property. Getting these waivers from each vendor, subcontractor, or any other parties in the job can prevent Nate from having a lien placed against the property. A few different types of lien waivers are available to Nate to minimize the risk of this happening.

Conditional and Unconditional Waivers

  • A conditional waiver removes the contractor's right to place a lien on the property once payment has been made.
  • An unconditional waiver removes the contractor's right to place a lien and is effective the moment the agreement is signed.

With the conditional waiver the party can still place a lien if they aren't paid, and Nate doesn't have to worry about a lien being filed once the payment has been made.

Nate will most likely want to use a conditional waiver in favor of an unconditional waiver since it is generally unreasonable for a contractor to accept the conditions of the unconditional form. A contractor might be compelled though to accept an unconditional waiver in extreme circumstances such as trying to outbid another contractor. It's also possible that a contractor might not be aware of the difference and just accept whatever waiver is signed out of ignorance.

Partial and Final Waivers

Lien waivers can be further broken down into sub-classifications of partial and final waivers.

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