How to Get a Lien Waiver

A lien waiver is like a magical piece of paper that says, "Don't worry, I've been paid!" As a real estate investor, especially one who's into fix and flip, obtaining a lien waiver is crucial to make sure that you're protected from any future financial demands from those who have worked on your property. And let's be honest, who wouldn't want to avoid those annoying phone calls from contractors asking for payment?

There are significant financial and legal consequences if you can’t get a lien waiver from the appropriate parties. Without a lien waiver, the contractor, subcontractor, or supplier may have the legal right to file a lien on the property, which can result in double payment, delays in the sale or refinancing of the property, and legal action. Most relevant for fix and flippers, lenders and buyers may be hesitant to work with a property that has had a lien filed against it, which could impact the marketability and value of the property. These consequences can be costly and time-consuming.?

So that you can avoid these nightmares, we break down the simple steps that you need to take to ensure you have the necessary lien waivers to keep your project running smoothly.?

1. Know your lien waiver types: There are two types of lien waivers: conditional and unconditional. The first one only waives the right to a lien if the payment is received, while the latter waives it regardless of whether the payment has been received or not. Keep in mind that contractors, subcontractors, and suppliers may require additional assurances or incentives before providing an unconditional lien waiver, such as a letter of credit, bond, or other security.
2. Negotiate: Before starting any construction project, it's crucial to negotiate the payment terms with your contractors, subcontractors, and suppliers. This includes when they'll be paid and what type of lien waiver they'll require. You don't want to end up paying twice for the same work, do you?
3. Request the waiver in a timely fashion: Once payment has been made, request a lien waiver from each contractor, subcontractor, and supplier. Make sure the lien waiver is signed, dated, and includes a description of the work performed and the amount paid.?
4. Keep pristine records: Keep a copy of each lien waiver in a safe place. You may need to refer to these documents in the future if there is a dispute over payment.?
5. Verify…carefully: Before accepting a lien waiver, verify that it is valid. Check that it has been signed and dated by the correct person, and that it includes a description of the work performed and the amount paid.?

Obtaining lien waivers is an important step in protecting your interests as a real estate investor, especially if you're into fix and flip or other similar rehab projects. Make sure you understand the different types of lien waivers, negotiate payment terms, actually the request lien waivers, keep records, and verify their validity. By following these steps, you can ensure that your investment is protected and you won't face unfounded financial claims in the future. And most importantly, you won't have to answer those annoying phone calls from contractors asking for payment.