Financing

How hard money lenders view unfiled mechanic's liens on a property

Hard money lenders consider unfiled mechanic's liens a significant risk, even if they are not yet recorded. He or she will want a clear understanding of the potential liability and a plan to resolve it before funding.

November 5, 2026 · 3 min read

What is an unfiled mechanic's lien?

An unfiled mechanic's lien is a claim a contractor or supplier has against a property for unpaid work or materials. He or she has performed services but has not yet taken the formal step of recording that claim with the county recorder's office. This means it may not show up on a standard title search.

Even without being recorded, the right to file the lien often exists for a certain period, usually 60 to 180 days after the work is completed or materials are supplied. If the contractor files within this window, the lien can 'relate back' to the start of the work, taking priority over later encumbrances.

Why an unfiled lien is a red flag for lenders

Hard money lenders are looking for clear title and a secure first position. An unfiled mechanic's lien represents a potential future encumbrance that could complicate or even block a future sale or refinance. It introduces uncertainty into the deal.

If the lien is later filed and it relates back, it could take priority over the lender's new mortgage. This risk exposure is something he or she tries to avoid, as it directly impacts the security of the loan.

How to discover potential unfiled liens

You cannot rely solely on a preliminary title report to find unfiled liens. You must ask the seller directly about any recent work done on the property and if all contractors have been paid. Get copies of invoices and proof of payment.

Also, inspect the property for signs of recent work, like new roofing, plumbing, or electrical systems. If you see recent work, ask about it. Talk to neighbors, who might know about recent construction activity.

Proving a lien is not valid or paid

If a potential lien surfaces, your first step is to get a signed lien waiver from the contractor. This document confirms he or she has been paid in full and waives any right to file a lien. If the contractor is paid, this should be straightforward.

If the contractor claims he or she is owed money, you will need to negotiate a settlement or provide proof of prior payment. A lender will require this to be fully resolved before funding, or for the amount to be held in escrow.

Lender's likely requirements for funding

A hard money lender will typically require a full resolution of any potential mechanic's lien. This means getting a signed lien waiver from the contractor, ensuring all invoices are paid, and possibly obtaining an indemnity from the seller. He or she needs to be certain that no claim can be filed.

In some cases, the lender might hold funds in escrow to cover the disputed amount until the issue is cleared. You should be prepared to address these concerns head-on, providing all documentation proving payment or waiver of rights.

Alternative solutions if the lien persists

If a contractor refuses to provide a waiver or a dispute cannot be resolved, the lender may decline the loan. You might explore transactional funding for a quick double close, if you have a buyer lined up who is willing to take on the lien risk. This is a complex strategy and not always feasible.

Another option might be to negotiate a significant price reduction with the seller to cover the potential lien, assuming you can resolve it yourself. Always consult with a title professional or real estate attorney in these situations. This is not legal advice.

Questions people ask

Can I still get hard money with an unfiled lien?

It depends on the lender and your ability to resolve the issue quickly. Most lenders will require the potential lien to be cleared, or the amount secured by an escrow, before funding.

What if the contractor says he or she won't file it?

Verbal assurances are not enough for a lender. You will need a signed lien waiver, a legal document confirming he or she has no claim. Without it, the risk remains.

Will a title company find an unfiled lien?

A standard title search typically only finds recorded liens. A diligent title company might ask about recent work, but it is ultimately your responsibility to uncover potential unfiled claims from the seller.