HELP! A contractor is try holding me hostage!

[Matt Speer]

I'll make a long story as short as possible. 

• Just as I thought our refi was complete - we realized we had to pay off a lien to our contractor for $4,000 that we owed him from the original rehab. It was interest free money and at the time, made 100% sense for us to take. 
• Now he's just being sketchy - we realized after the fact that we shouldn't have agreed to the terms of the lien. If we're just one day late he could try to seize our property appraised at $167K over just a few thousand dollars. 
• He's trying to say we owe him an additional $1K, even through we have record that it's absolutely false. He has a sleazy lawyer that is dragging his feet even after we proved we paid the full amount - we think he dragged his feet thinking we'd forget to make the 8/31 payment today.. didn't happen. 
• At the end of the day, we can deal with this issue and get it resolved, but it's keeping us from closing on the refi that will put $125K+ back in our pockets so we can roll it into the next deal(s). 

What should we do?? 

Part of me wants to just let it work itself out because we're clearly in the right. The other part of me wants to find a lawyer to put a scare into them for trying to push us around. 

Any help would be highly appreciated and if you're a lawyer that wants to make a quick $100 to send them some sort of legal magic, please help!! 

[Wayne Brooks]

First of all, one day late, or one month, doesn't let someone seize your property.  I've never been one to yield to threats. Standard procedure to exchange, in person, your final payment for a properly executed Final Release......not send a check then hope you get the release. First of all, does he have a recorded lien, and if so, for how much?  Find out your lien laws.  In most states, not only would there be penalties for filing fraudulent liens,mothers usually is a Specific process for "bonding off the lien" ie. placing funds equal to 110% of the lien in a court registry, removing the lien from the property.  If you've paid him in full, and someone is demanding more in order to release the lien, I'd send them a quick certified letter letting them know it is paid in full, and if any delays in removing the lien cause you any king of damages, you most certainly will be coming them for those costs, along with attorney fees.