“When should I release my Mechanics Lien rights?” We receive this question quite often, and in this blog we will help you determine what releasing your mechanics lien rights means to you and your company. However, before we answer this question, we need to clear up a common misconception. Many people believe that releasing a mechanics lien and releasing mechanics lien rights are the same thing. They are not. Releasing a mechanics lien and releasing mechanics lien rights are two separate things. When you release a lien, you are essentially releasing the lien which has already been filed on the property. You are required to release a lien when payment is received, or the lien is expired, or for any other applicable reason.
Releasing mechanics lien rights, however, is an entirely different matter (as we will explain below in detail). Mechanics lien rights are earned in one of two ways: through the proper serving of a Preliminary Notice or through the language included in the state statute. You cannot earn your lien rights any other way. At the appropriate time you may want to release these lien rights. To do so you must follow the process set within the specific state statute.
In California, for example, there are four types of waivers and releases designed to manage the way you release your lien rights. The first type of waiver is called the Conditional Progress Release (or Conditional Waiver and Release on Progress Payment). This release is conditional, and it is conditioned by the person who is physically issuing the release (also referred to as “waiver”) receiving a check for the amount listed in the waiver. Once a progress payment is received, the claimant (the person issuing the waiver) releases their rights to file a Mechanics Lien, Bond Claim, or Stop Payment Notice against the property for any lien rights they held prior to the date of the conditional releasse. The Conditional Waiver and Release on Progress Payment is usually given throughout the course of a job in exchange for progress payments.
Once a conditional progress release is completed and payment is received, it is common to issue an Unconditional Progress Release (or Unconditional Waiver and Release on Progress Payment). This waiver releases a company’s (or person’s) lien rights without any conditions. It is essentially confirming that the progress payment has been received. If you have not received payment, do not issue this waiver! When you issue this waiver you release your lien rights for that project or period of time. Once it is issued, it cannot be taken back so don’t make the mistake of issuing it unless you are absolutely certain it is the right choice for you and your company.
The Conditional Final waiver releases all of the rights you have to bring a lien against the property in return for one final payment. The Unconditional Final waiver gives up all of your lien rights unconditionally. A word of advice – never sign an unconditional waiver if you have any open accounts receivable on the job. You want to make sure that all of your payments have cleared before you sign an Unconditional Final waiver.
The four types of waivers listed above only apply to the state of California. If you are doing business in another state, you will need to look into the specific statutes for your particular state. Each state has its own process and variances on the number of forms or waivers they require. We have simply found over the years that the California system is the best strategy to protect a company and its lien rights. Keep in mind, however, that in July 2012 the California Waiver Forms were revised after the legislature found that they were still running into disputable issues even though the waivers and forms were clear. If you use one of the California waivers prior to the 2012 revisions, you are not in compliance with the state statute. Make sure you use an updated waiver form in order to maintain compliance.
The most important thing to know about these waivers is that they only release you from your rights to file a lien. Once you have filed a lien, these waivers become irrelevant. Giving up your lien rights for a specific job or time period means you have given up your rights to file a mechanics lien against that property.
TIP: What do you do when you have signed off on an “Unconditional Final” Release and your customer ask if you can supply additional materials or do some additional work on the same job?
Answer: Serve a new preliminary notice on the day after you signed your unconditional final release or the day you begin to supply the added materials or services to the project. Your Lien Rights will start all over and you stay protected.
If your business is conducted exclusively on California, CRM Lien Services has a package just for you. Our CA Waiver Release Package is available for purchase in CD form to help you complete your California waivers and releases. The package contains all of the four updated forms mentioned above, with and without Notary Public endorsements, and guides you through the entire release process. Gain access to the forms you need for releasing your mechanics lien rights. CA Waiver Release Package to purchase the CA Waiver Release Package.
If you do business in other states, or if your business files waivers in more than one state, eSystems is a more comprehensive solution for you. Our eSystems online software includes all of the waivers for all 50 states. The software automatically determines which form you need to use so you don’t have to worry about finding a specific form. If you are responsible for preparing a waiver in multiple states, eSystems will take all of the work out of the waiver preparation process. It automates the process by reducing 75% of your waiver preparation work. If you’d like to learn more about preparing waivers and releases in eSystems,