Offering customer financing can be a great way for contractors to win more business, but it raises an important question: Does financing affect my mechanics’ lien rights? Mechanics’ liens are one of the strongest tools contractors have to get paid for their work, so it’s critical to understand how extending financing to a client might interact with those rights. In this post, we’ll explain the basics of mechanics’ liens and best practices to protect your lien rights. We’ll also highlight some state-specific examples to show how rules can differ across the U.S. so you can navigate financing arrangements without jeopardizing your right to lien.
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Mechanics’ Liens and Customer Financing
A mechanics’ lien (or construction lien) is a legal claim against a property for unpaid construction work or materials. In simple terms, if you as a contractor complete a project and aren’t paid, you can record a lien on the owner’s property. This lien encumbers the property title, making it difficult for the owner to sell or refinance until you’re paid, thus giving you leverage to secure the money you earned. Mechanics’ liens exist in every state as a protection for contractors, subcontractors, and suppliers to ensure they get paid for improving someone’s property.
Mechanics’ lien rights are created by state law, not by your contract terms. That means no matter what payment schedule you agree on, the legal deadlines and requirements for preserving your lien rights still apply. Offering financing to a customer does not automatically extend your lien filing deadlines or nullify your rights. If the customer fails to pay as agreed, you generally still have the right to file a lien for the unpaid balance. However, there are important considerations and potential pitfalls to keep in mind when you venture into customer financing.
Contractors should keep these in mind:
- Lien Deadlines Still Apply: Every state sets strict deadlines by which a mechanics’ lien must be recorded after work is completed (or after last providing labor/materials). For example, Texas law requires a residential general contractor to file a lien affidavit by the 15th day of the third month after the last day of work, roughly 60 to 90 days. Similarly, Florida gives only 90 days from last work to file a lien (and also requires a Notice to Owner within 45 days of starting the job). In New York, the window is longer: up to 8 months after completion (4 months for single-family homes). Courts have made clear that a contractor’s lien rights lapse once the statutory deadline passes, regardless of any promises or payment plans made by the owner.
- Preliminary Notices and Paperwork: Offering financing doesn’t remove the usual paperwork requirements many states have. If your state requires a preliminary notice (also called Notice to Owner or 20-day notice, etc.), you still must send it within the prescribed time after you start the work in order to have lien rights. For example, California law mandates that contractors and suppliers send a “20-Day Preliminary Notice” within 20 days of first furnishing labor or materials to preserve lien rights. If you send it late, you only retain lien rights for work done in the 20 days prior to the notice (and afterward), meaning you’d lose lien rights for earlier work. Florida, as noted, requires a Notice to Owner within 45 days of commencing work. Failing to meet these notice requirements can leave you without the ability to lien later. Always follow your state’s notice rules.
Protect Your Lien Rights While Offering Financing
Offering financing can be done in a way that keeps your payment security intact. Here are some best practices for contractors to maintain lien rights when giving customers flexible payment options:
- Serve Notices and Track Deadlines from Day One: Treat a financed project just like any other in terms of lien notices and timelines. Mark the date you start work and calculate all relevant deadlines for notices and lien filing. Send any required preliminary notice (e.g. a 20-day notice in California, or a Notice to Owner in Florida) on time, even if you feel confident about payment. Create calendar reminders well ahead of your lien filing deadline. If the customer hasn’t paid in full by a reasonable time before the deadline, be prepared to file the lien claim before the deadline expires. Remember, if you miss the deadline, your lien rights are gone forever . No matter how friendly the client is or what promises have been made, don’t forfeit your legal protections by waiting too long.
- Use Written Agreements that Preserve Your Rights: When you agree to a payment plan or any financing terms, put everything in writing. The contract or promissory note should clearly outline the payment schedule, any interest or fees (if applicable), and consequences for non-payment. It’s a good idea to include a clause stating that all statutory lien rights are reserved until you’re paid in full. This makes it clear to the owner that you can file a mechanic’s lien if they default on the payment plan. While such a clause may be more a reminder (since you likely have the right to lien by law anyway), it sets the expectation that financing is not a substitute for your security rights. If you are working with a third-party financing company, ensure the homeowner’s contract still reflects the possibility of a lien if something falls through. The goal is transparency: the customer should understand that offering financing doesn’t mean you waive the right to get a lien if you don’t get paid.
- Don’t Start Work Until Financing Is in Place: This is especially important if the customer is supposed to obtain a loan or if you’re helping them get financing. Verify that the financing has been approved and finalized before you sink a lot of labor or materials into the project. As mentioned earlier, California law actually forbids enforcing a home improvement contract until the third-party loan is approved and the borrower’s rescission period has passed, which is a good practice to follow anywhere.
- Stay Informed on State Laws and Updates: Finally, keep yourself educated about the lien laws in the states you work in, especially if you operate in multiple states. Lien laws can change, and new financing-related regulations can emerge. For example, some states might introduce specific protections or requirements for solar contractors offering financing, or adjust timelines.
State-by-State Examples
Because lien laws are state-specific, let’s recap a few examples mentioned to highlight how offering financing might play out differently across various states:
California protects homeowners by requiring that any loan-based financing be in place before work starts. For example, if a contractor helps the homeowner get a loan for the project, the contract isn’t enforceable until the lender approves the loan, the homeowner accepts it, and any federal Truth in Lending Act rescission period has passed. The contractor is even prohibited from performing any services (other than minor pre-work tasks like pulling permits) before those conditions are met. For contractors, this means you must coordinate closely with the lender and homeowner to time the project start. Once the job is underway, California also requires a 20-day Preliminary Notice to maintain lien rights, and the deadline to file a lien is generally 90 days after project completion (or 30 days after a file of completion notice).
Texas has one of the more complex lien notice systems, and the timelines are relatively short. In Texas residential projects, an original contractor (contractor dealing directly with the owner) must file a lien affidavit by the 15th day of the third month after the last month in which work was performed. There are also monthly notice requirements for subcontractors.
Florida’s lien law requires a Notice to Owner to be served on the property owner within 45 days of first furnishing labor or materials on the job (or earlier, ideally). Then, the Claim of Lien itself must be recorded no later than 90 days after your last work or delivery on the project. For example, if you finish a kitchen remodel on June 1, you must file any lien by August 30 (90 days later) if the homeowner hasn’t paid in full. Otherwise, after August 30 you lose the right to lien that job.
New York provides a comparatively longer period to file a mechanic’s lien: generally 8 months from completion for private projects, or 4 months for single-family dwellings. This is more generous than many states. However, even in New York, you shouldn’t simply wait 8 months with fingers crossed. It’s wise to set an internal deadline well before the 8-month mark to assess payment status. If an owner is delinquent on their payment, consider filing the lien around month 4 or 5 (for a commercial job) to be safe, rather than pushing right up against the 8-month limit. And remember, if it’s an owner-occupied single-family home, you only have 4 months. For example, you finish work on a single-family residence on May 1. By September 1, if you’re not paid in full, your 4-month window is closing; you’d need to file the lien by then. New York also requires that you serve a copy of the lien on the owner after filing, and then enforce (foreclose) the lien within one year.
Each state has its quirks. Many states do not allow advance waiver of lien rights (for instance, Georgia, Virginia, and others void any contract clause that waives lien rights before work is done). A few states, however, might enforce a clearly written waiver or subordination, so know your local law. States like Louisiana or Mississippi have shorter filing periods (often 30 or 60 days after completion for subcontractors in certain cases). On the flip side, some states like Washington or Oregon have 90-day lien deadlines similar to many, and some (like Nevada) require a preliminary notice early on. Always check the requirements where you operate. One-size-fits-all doesn’t apply here, but the universal principle is this: if you don’t get paid as agreed, use the tools the law gives you (notices and liens) within the time the law allows.
Offer Financing Confidently With Hearth
Customer financing with Hearth is a win-win: homeowners get the improvements they need with affordable payments, and contractors secure more jobs and get paid sooner. Your right to file a mechanic’s lien still exists when you offer financing, but it’s up to you to actively preserve and protect those rights. By understanding your state’s lien laws, not letting deadlines slip, avoiding unintentional waivers, and following best practices like proper documentation and notice, you can confidently extend financing options to customers without giving up your safety net.
With Hearth, you can offer financing options and still get paid upfront. To learn more about how offering financing can benefit your business, schedule a demo today.
