NCS Top 10 List: Lien Waiver Questions
Lien waivers are one of the most popular documents within construction credit. We’ve compiled a list of the top 10 lien waiver questions.
Let’s Dig In!
1. What Is a Lien Waiver?
A lien waiver is a signed document in which the would-be lien claimant agrees to waive rights to its claim based on payment received.
2. What Information Should Appear within the Waiver?
Every lien waiver should clearly identify the property name & project location, the debtor’s name (your customer), the invoice or purchase order number, the payment amount and the disputed claim amount. If the lien waiver is for partial payment, you should also include the payment period or a through date.
3. Is a Lien Waiver the Same as a Release of Lien?
No, and this is a common misconception. A lien waiver acknowledges receipt of payment whereas a release of lien releases a previously recorded document.
4. Are Lien Waivers the Same in All States?
Most states do not require a specific lien waiver format. However, there are about a dozen states that do have specific lien waiver requirements, including Arizona, California, Colorado, Florida, Georgia, Massachusetts, Michigan, Mississippi, Missouri (residential projects), Nevada, Texas, Utah, and Wyoming.
Important Note: GA & MS allow for an Affidavit of Non-Payment to be recorded if a waiver has been executed and payment has not been received. Watch the statutory time requirements!
5. Are There Different Types of Lien Waivers?
Yes! Lien waivers are either conditional or unconditional as well as partial or final.
- Conditional: subject to requirements made or granted on certain terms
- Unconditional: not subject to requirements; absolute
- Partial: existing only in part; incomplete
- Final: the last; end; termination or conclusion
- Partial Conditional Lien Waiver: waives rights to a claim for a dollar amount or through a specified date, conditioned upon receipt and clearance of the partial payment.
- Partial Unconditional Lien Waiver: waives rights to a claim for a dollar amount or through a specified date. The waiver is not conditioned upon clearance of a payment. If the check is not received, or does not clear, the contractor/subcontractor/supplier will have waived their rights to that partial payment.
- Final Conditional Lien Waiver: waives rights to a claim, conditioned upon receipt and clearance of a final payment. If the contractor/subcontractor/supplier does not get the final payment, or the payment does not clear, the waiver does not waive their rights.
- Final Unconditional Lien Waiver: waives all rights to a claim. The waiver is not conditioned upon clearance of a final payment. The contractor’s/subcontractor’s/supplier’s rights will be waived whether payment is received or cleared.
6. Can a Conditional Lien Waiver be an Unconditional Lien Waiver?
Yes, an unconditional lien waiver may be masquerading as a conditional lien waiver. It’s critical to review the entire document (don’t rely on the document title).
We frequently see two phrases within the “consideration clause” of the waiver, which indicate the waiver is unconditional and not conditional:
- “the receipt whereof hereby acknowledged” and
- “the receipt and sufficiency of which are hereby acknowledged”
These two phrases are legalese for “I have received the payment and the payment cleared.”
7. Which Waiver is Preferred?
Conditional lien waivers are preferred over unconditional lien waivers, because the “conditions” provide the creditor with leverage, in the event payment is not received or does not clear.
8. I Signed an Unconditional Waiver and the Check Didn’t Clear. Do I Lose My Lien Rights?
Yes, it is likely you would lose your lien rights if the waiver was a final unconditional lien waiver. However, depending on the circumstances in which the waiver was given there could be new causes of action in addition to receipt of bad check.
If you waived your rights and payment didn’t clear, seek legal guidance ASAP!
9. Does a Lien Waiver Waive My Right to Cause of Action for Lost Profits or Disputed Change Orders?
It is likely your right to cause of action will be waived, because frequently waivers will include language such as “all possible causes of action.” That said, it will depend on the specific language within the waiver you signed. You should have an attorney review the waiver and confirm.
Note: If the waiver provides for carve outs, it is recommended you enter the amounts remaining due in this section.
10. Can Payment (Legally) Be Withheld if a Lien Waiver Is Not Signed?
Yes, if a party is requiring an executed waiver in exchange for payment, the payment can be withheld until the signed waiver is received. You may be reluctant to sign a waiver without cleared payment, and I would be too!
In situations such as this, many of our clients will hire an attorney to facilitate the exchange of waiver for payment. When you hire an attorney to facilitate the exchange, the attorney will hold both the funds and the signed document.
Essentially, the funds are held in escrow until payment has cleared. Once the payment has cleared, the attorney would remit funds to you and provide the signed waiver to the other party. If the funds do not clear, or payment is not made, the attorney will not release the signed waiver to the other party.
Any Other Waiver-Words-of-Wisdom?
Before you sign a waiver you should confirm the dollar amounts match (what you are waiving & the amount received), double check to ensure the document is properly dated and signed, carefully review the waiver language so you don’t inadvertently waive too much, and honestly, there is a lot at risk when executing lien waivers: seek a legal opinion.