Don't forget a final, important step in dealing with contractors

Q. We are attempting to refinance our mortgage and just learned there is a mechanics lien against our property. This was a guy who did some remodeling work for us about a year ago.

We had some problems with him and he ended up not finishing the job. We negotiated a final payout to him and we paid him. Apparently, without our knowledge, he put a lien on our house and never took it off.

We have tried to contact him but he will not return our calls. Our loan guy says we cannot do the refinance until the lien is released. Any ideas on how we can get the lien released?

A. Before we attack your problem, let's review what occurred and discuss what you could have done to avoid your current situation.

Anytime you employ someone to perform work at your home, you are subject to a mechanics lien claim. Anyone who performs work or furnishes materials that ultimately improve your property obtains certain rights under the mechanics lien act. The most basic of these rights is that the contractor may record and ultimately foreclose his or her lien. In the event the contractor prevails on his or her lien claim, if the contractor is not paid, he or she can force the sale of the property to satisfy the claim.

Accordingly, it is imperative that anytime a party performs work at your property, upon final payment, you should insist on receiving a Final Waiver of Lien. This document generally states that the contractor waives any lien rights he or she has on the property. A properly drafted and executed Final Waiver of Lien will generally defeat a lien claim that evolved before the execution of the Final Waiver.

OK, so we will presume you did not obtain the Final Waiver. You have some options. One would be to just wait. The contractor is required under the statute to foreclose (meaning file a lawsuit) the lien within two years of last performing work at the property. In other words, after two years, the lien falls and you could move forward with your refinance.

If you don't wish to wait, you could serve the contractor with a Section 34 notice. Section 34 of the mechanics lien statute provides that a property owner subject to a lien claim may serve notice on the contractor demanding the lien be foreclosed within 30 days. If the contractor fails to foreclose the lien, the lien falls. Of course, you would need to locate the contractor to serve the notice.

There may be other options available to you. I would suggest contacting a real estate attorney familiar with mechanics lien law.

Q. My wife and I are hopelessly behind on our mortgage payments. I read somewhere about an easy way to just give the property back to the bank without hurting your credit and without having to pay back what we owe. Are you aware of something like this?

A. I believe what you are referring to is a deed in lieu of foreclosure. If you and your wife have given up hope of saving your home, contact your mortgage company and ask if this relief would be available to you. You want to make sure of two things: 1) No adverse reports will be furnished to the credit agencies, and 2) You will not be held responsible for any outstanding amounts due.

I hope you have explored all the options available to you. There are federal programs designed to assist homeowners in your situation. In addition, lenders are often amenable to restructuring loans to accommodate your situation. The last thing most lenders need is another foreclosure on the books.

• Attorney Tom Resnick's column appears every other week in Homes Plus. Send your questions to Tom Resnick, 345 N. Quentin Road, Palatine, IL 60067, by e-mail to tdr100@hotmail.com or call (847) 359-8983.