As a homeowner you most likely have never heard of a construction lien let alone had to deal with one directly. On the other hand, if you are a contractor you have probably heard the term “lien” but may still be unsure of its proper use and implications. If you have been a contractor for any period of time you have most likely either filed a lien, or been in a situation where you should/could have.
The first thing to understand is that a construction lien is meant to protect the contractors, suppliers, or subcontractors of a project. Most lien situations arise when either an owner doesn’t pay a contractor or a general contractor doesn’t pay the subs or suppliers.
How to prevent a lien situation
As a homeowner you want to have a clear understanding of the project scope, materials used, and any subcontractors that will be working on your project. Don’t rely on a handshake deal even if you know the contractor well. The same goes for the contractor; do not skimp on the written agreement between you and the owner. It is best to have a detailed contract for EVERY project regardless of how simple, straightforward or small it may be. The contract should address the full scope, materials, subs, suppliers, how change orders will be addressed, when work will start and be completed, along with any other pertinent details. Be as detailed as you can. You can find sample contracts online or if you’d like, invest in the upfront cost of hiring a lawyer that can draft you a blanket contract form.
An added element that we use in our construction company is that we have our contracts notarized when both parties sign. This isn’t necessary, but it’s a feature that gives us an added level of comfort for both parties.
You’ll find that a well written and detailed agreement will address most situations that arise throughout a project. If a disagreement arises, it should be addressed clearly in the contract. If you find that you come across an issue that isn’t addressed in your contract, adjust it for future projects. As a contractor your contract should be a living document that evolves with you and your business.
If there are subcontractors or suppliers on your project, you as the owner should request a lien waiver or lien release from every one of them that has completed their work. The lien release states that the subcontractor/supplier acknowledges that they have been paid in full for services rendered. If the owner pays the general contractor for a project, but that GC doesn’t pay the subs, then the subs could file a lien on your property and you may have to pay twice—once to the GC and once to the sub.
1. Have detailed written agreements signed by both the owner and the contractor for every project.
2. Acquire lien releases from all subs and suppliers that have completed work on your project.
If you do these two you will remove the possibility of a lien on the vast majority of your projects. However, you may still encounter a situation where you are not being paid for work completed. If that is the case then you will want to follow these three steps:
Step One – File your mechanics liens
Every state will have specific rules around filing a lien and you will want to make sure that you abide by these strictly. Your local municipality should be generally helpful in walking you through what’s necessary. You will want to send a certified copy of the lien to all parties that are involved with your project. This could include the owner, GC, or lenders on the project. You will also want to pay attention to required time lines. Each state will have particular rules around when you have to file your lien and send certified mail.
Once you file the lien you’ll want to communicate with the individual that is most likely the one that would pay you. As in any instance of conflict you will want to keep communication open and negotiations moving forward. If you find that the other parties aren’t willing to talk, move on to Step Two…
Step Two – Send a Notice of Intent to Foreclose
A Notice of Intent to Foreclose will show that you are willing to enforce your mechanics lien. You will need to send this to all applicable parties via certified mail and then attempt one more outreach for direct communication.
Final Step – Foreclosure Lawsuit
This is when you will definitely need to get a lawyer involved. Find a lawyer that has a specialty in construction law in your state and hand the case over to them. In many states there is a possibility to recover attorney’s fees and court costs. Allow your attorney to direct and give you legal advice specifically around your case. This is not meant to be legal advice, but only a general overview of the process. If you need further info then you should reach out to your attorney.