What is a Lien Waiver?
A lien waiver is used as its name suggests: to waive lien rights. This document is generally required by the owner or general contractor and implemented throughout the project in exchange for payment. Much like a receipt for payment, a signed waiver means the party is waiving that dollar amount of lien rights they have against the owner’s property. For instance, a party that receives $3,000 in payment will sign the document that waives $3,000 worth of lien rights to the project.
Four Types of Lien Waivers
The four types of lien waivers vary depending on the type of payment made and when the waiver is valid and binding. As for payment types, there are different forms for progress payments versus final payments. While progress payment waivers reserve rights to payment of pending change orders or retained withholdings, final waivers waive all remaining lien rights for payment.
Progress and final payments are broken down further into conditional waivers and unconditional waivers. A conditional lien waiver does not waive the lien rights until payment is made as a safer, recommended option. The payment is the condition that must be met before the document is licit. Conversely, an unconditional waiver is immediately effective upon signing, making it important that you not sign the unconditional waiver until you have cash in hand.
What is a Lien Release?
A lien release is also known as a release of lien, cancellation of lien, or a lien cancellation. These are typically used to cancel an already filed lien from public records. Though liens will expire if not enforced within the required timeframe, it does not guarantee that the claim has been removed from the property title. A lien release should be filed any time a lien claim has been fully paid and fulfilled.
How to File a Lien Release
While lien waivers are sent to the party making the payment, lien release forms are filed in the county recorder’s office where the lien claim was filed. Though the form varies depending on your state, there is some general information required, such as the project address or legal property description, the property owner’s name, the lien claimant’s name, and filed lien claim information (date of filing, book number, page number, etc.).
Lien release forms are filed in the same way as the lien claim itself. Additionally, it is good practice to contact the recorder’s office in advance to verify that the release format is proper for recording.
When Should You Release a Lien Claim?
The lienholder is required to formally release the claim once the underlying debt of the lien claim is made good. Many states, in fact, explicitly require the claim to be released within a specific timeframe. Most states require liens to be released within 10-30 days of fulfillment or the date written request for release was received. However, there are exceptions, so check your state’s statutes to know the when and how to release a lien. It is generally best practice to file the release as soon as the payment clears; however, the property owner will likely ask you to do so anyway.
How Can Accounting for Construction Help?
When managing your lien rights, discerning the difference between a lien waiver and a lien release is critical; however, many contractors still confuse the two. Confusing the two can be a costly mistake. At Accounting for Construction, our financial professionals advise contractors by utilizing our depth of knowledge from decades of experience.
Accounting for construction requires a keen eye for detail, whether accurately tracking expenses or categorizing costs, and we know that there are unique challenges associated with the construction industry. Ensure that your company benefits from its accounting method by messaging or calling us today.