How to protect homes from liens during repair work

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DENVER -- Getting insurance and mortgage companies to work together to provide coverage can be more confusing than it has to be.

Consumer experts say homeowners can end up holding the bag when confusion over coverage checks for contractors holds up the process.

Carrol McCallister was heartbroken when the home she shared with her husband of more than 50 years was hit by a May hailstorm.

The roof was badly damaged by the hail but her insurance covered the repairs.

McCallister said when more than 90 days passed and the roofer’s payment check wasn't forwarded from her mortgage company, a lien was placed on the home.

The Denver Better Business Bureau said homeowners can reduce the chances of having a lien placed on their home while payment issues are being worked out by adding a release of lien clause to the contract ahead of time.

It requires the contractor and supplier to furnish a  a certificate of a waiver of lien.

Homeowners can also place payments in an escrow account until the work is completed, and contractors and suppliers verify they have been paid.

Legal considerations

For a large remodeling job that involves many subcontractors and a substantial financial commitment, you should protect yourself from liens against your property in the event the contractor does not pay subcontractors or suppliers.

You might be able to add a release-of-lien clause to your contract, requiring the contractor or subcontractors and suppliers to furnish a certificate of a waiver of lien.

Another solution is to place your payments in an escrow account until the work has been completed and subcontractors and suppliers verify that they have been paid.

Preliminary lien notices

Shortly after your job commences, you will probably receive preliminary lien notices from subcontractors and material suppliers.

This does not mean a lien has been filed against the property. The law requires you to be furnished with these notices to alert you that those persons have worked on or have supplied material for your job and may have lien rights.

Mechanics' liens

The law provides that anyone who furnishes labor or materials to your property can record a claim of lien or mechanics' lien against your property if they are not paid.

Even if you have paid your general contractor in accordance with the contract, if the contractor fails to pay any subcontractor or materials supplier who performed work or supplied materials in connection with your project, you still run the risk of having a lien filed against your property.

You could be required to pay a bill twice to keep from losing your property in a foreclosure proceeding.

This risk is greatly reduced by protecting yourself with a contract bond and/ or use of a joint control company, but is never entirely eliminated.

Therefore, it is a good practice to specify in the contract that the contractor is responsible for obtaining lien releases from each of the subcontractors and material suppliers.