Lien Waiver
A signed document in which a contractor or supplier waives their right to file a mechanic's lien against the property, given in exchange for payment. Lenders require them on construction and rehab draws to keep title clear.
A lien waiver is a document signed by a contractor, subcontractor, or material supplier confirming they've been paid (or will be paid) and giving up their right to file a mechanic's lien against the property for that work. On any fix-and-flip or new construction loan with a draw schedule, lien waivers are the mechanism that keeps the title clean as money flows to the people doing the work.
Why mechanic's liens are the risk
In most states, anyone who supplies labor or materials to improve a property can file a mechanic's lien if they aren't paid — and that lien can jump ahead of, or cloud, the lender's lien position. An unpaid sub on your rehab can attach a lien even if you paid the general contractor; the sub simply didn't get their cut. Lien waivers close that gap.
The four common types
- Conditional waiver on progress payment — effective only once the specific payment clears.
- Unconditional waiver on progress payment — effective immediately; sign only after you're sure payment is good.
- Conditional waiver on final payment — final waiver, effective when the last payment clears.
- Unconditional waiver on final payment — full release; the strongest, given at project completion.
A worked example
Fix-and-flip, draw #2 of $25,000 due to the GC.
Before releasing the draw, the lender collects:
• Conditional lien waiver from the GC for $25,000
• Waivers from each subcontractor paid from the prior draw
Draw funds released → once cleared, the waivers become effective,
protecting the lender's first-lien position.
How it's used in investor lending
Construction lenders typically require lien waivers as a condition of each draw — no waivers, no money. As the investor, you should collect waivers from every party you (or your GC) pay, not just the GC, because any unpaid lower-tier sub can lien the property. Track them carefully: missing waivers can hold up your next draw, delay the final certificate of occupancy sale, or create title commitment exceptions that complicate your exit. Use conditional waivers tied to cleared payments to avoid signing away rights before money actually arrives.
This is general information, not legal advice; lien laws vary significantly by state.
Frequently asked questions
Why does my lender require lien waivers on draws?
Because anyone who supplies labor or materials can file a mechanic's lien if unpaid, and that lien can threaten the lender's first-lien position. Collecting lien waivers with each draw proves the contractors and suppliers are being paid and keeps the title clear, protecting both the lender's collateral and your eventual exit.
What's the difference between conditional and unconditional lien waivers?
A conditional waiver only takes effect once the specific payment actually clears, so it protects you if a check bounces. An unconditional waiver is effective immediately upon signing, regardless of whether payment clears. Sign unconditional waivers only after you've confirmed the funds are good.
Do I need waivers from subcontractors or just the general contractor?
From everyone who could file a lien — including subcontractors and material suppliers, not just the general contractor. A sub who wasn't paid can lien the property even if you paid the GC in full. Collecting waivers down the chain is the only reliable protection.