A mechanics lien is available to persons who build or repair real estate or furnish materials used in such work.

Typically an owner of real estate will enter into a contract in which the contractor will agree to construct or repair a building and the owner will agree to pay him. The contractor may, in turn, agree to pay a subcontractor for doing part of the work or furnishing material, and will expect to pay him out of the money to be received from the owner. All parties to this transaction should be aware of the effects of any failure to pay the contracted price.

If the owner fails to pay when work is completed, the contractor can sue him and, by following certain procedures, can also have a lien on the real estate. Mechanics lien laws allow him to foreclose the lien, sell the real estate at auction and receive payment from the sale proceeds.

By using the lien, the contractor may be able to obtain payment in circumstances where he could not get his money by merely suing the owner. The lien works no real hardship on the owner since he did agree to pay the contractor.

On the other hand, if the sub-contractor is not paid, the owner may get an expensive surprise. The owner in the example never agreed to pay the subcontractor; he may have never known there was a subcontractor. The owner does not owe the subcontractor anything and the contractor alone is responsible for paying the subcontractor.

Nevertheless, if the contractor fails to pay the subcontractor, the latter can not only sue the contractor, but by following certain procedures he too can have a lien on the real estate and can have it sold at auction.

If the owner has paid the contractor and the contractor is over his head in debt, the subcontractor very likely will seek to recover through the mechanics lien laws, and although the owner owes nothing, payment to the subcontractor may come from the owner's property.

The justification for this law is that if someone must suffer from the contractor's default it should be the owner, who is supposedly better able to choose and supervise a reliable contractor.

If a subcontractor obtains a lien due to a contractor's default, after the owner has paid the contractor, the owner may have to pay twice to save the real estate from auction. Therefore, the owner should deal only with a reliable contractor and should not pay him without verification (by periodic and final lien waivers) that all subcontractors and sub-subcontractors with whom he may have dealt have been paid, since these persons may also be able to file liens on the property.

The mechanics lien laws have certain strict requirements, which vary widely from state to state. Typically, the contractor or subcontractor must (1) give certain notices to certain persons at specific times; (2) file a proper sworn statement of facts about the construction project and the money owed in the proper public office within the proper time; (3) file a lien-foreclosure suit in the proper place, way and time; and (4) comply with any other requirements of law. Deadlines are crucial and delay can be fatal. Some steps may have to be taken even before the construction work is begun.