Construction is a tough business. It takes a strong work ethic, great problem-solving skills, and a dedication to customer service to survive. Ask most contractors about it, and they’ll tell you that it’s all worth it to make their customers’ visions come true. It’s even better when that check hits the bank account. When a contractor performs work on a property, they have the right to get paid for their work. That’s the entire reason construction liens exist.
What happens when contractors don’t get paid? I know it’s hard to fathom, but there are people in this world who don’t hold up their end of the deal. The contractor could perform the work according to the agreement, only to be left empty-handed by the customer.
In these situations, a contractor might have to file a construction lien to see any of the money owed to them for their work.
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What is a construction lien?
A construction lien, more commonly known as a mechanics lien, is a type of security interest in real property provided to contractors, suppliers, and others as a tool to collect payment on building projects.
Every U.S. state has construction lien laws that govern the notices, deadlines, and procedures that construction professionals must follow to file a lien claim.
A construction lien provides so many benefits to contractors and suppliers that make it one of the most powerful payment tools in their administrative arsenal.
Construction liens date back to Jefferson
We owe the creation of modern construction liens to Thomas Jefferson. As a lawyer and architect, Jefferson knew well the pay-related dangers builders faced. To encourage the construction of the new capital in Washington, Jefferson created construction liens as a recourse for abused contractors.
A construction lien is filed on real property
In most cases, when a contractor creates an improvement on real property, they have a right to payment for their time, materials, and efforts. If the property owner or hiring party decides not to pay them, the contractor can file a construction lien against the property.
Notice that the lien is against the property, not the property owner. Because the lien attaches to the property, it can be very difficult to sell it or refinance. It can also be difficult to secure further financing for the project, should the owner need another infusion of cash to finish it.
A construction lien is public record
There are certain requirements that the contractor must meet to be eligible to file a lien, and these requirements vary from state to state. However, in most states, the contractor files the construction lien with the county clerk or recorder’s office in the county where the project lies. This makes the lien part of the public property records.
Learn more: How to file a mechanics lien in any state
Anyone who looks for the property information at the county recorder’s office will see the lien against the property. This includes prospective buyers or business partners.
You don’t even need to know the contractor
It’s entirely possible to have a lien filed against your property by a contractor that you haven’t even heard of.
Say you hired a general contractor to handle your project. The GC will most likely hire subcontractors to work for him to complete the project. It’s your responsibility to pay the general contractor, and it’s the GC’s job to pay his subs.
But this isn’t always how it goes. On occasion, a GC will hold onto payments for many reasons: They could be dissatisfied with the sub’s work. They could be holding onto payment cash to shore up their account or front another job. They could just have no intention of paying the sub for their work.
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Whatever the reason, a subcontractor who goes unpaid has the right to file a construction lien against your property, even if you didn’t hire him.
File a lien now
Levelset takes all of the guesswork out of the filing process. We’ll research the project information and ensure your claim is done right.
How to prevent a construction lien
By now, you understand that construction liens are something worth avoiding. The good news is, with a bit of knowledge, research, and effort, you can minimize the chance of a construction lien attaching to your property.
Get financing set up in advance
Many a construction lien resulted from a good, honest person running out of cash or getting in over their head. It’s not that they didn’t want to pay the contractor; they just didn’t have the money.
Line up your financing before the project begins. Whether this means securing a loan or liquidating an investment, be sure that you’ll have the cash on hand when progress payments pop up.
Prequalify your contractors
Prequalifying your contractor can be a huge step toward safeguarding your property from a construction lien. By checking into your general contractor’s payment and credit history, as well as their subcontracts, you’ll get a clearer picture of their payment practices.
Ask around before you enter into a contract with a GC. While isolated issues shouldn’t be much cause for concern, consistent issues across several projects should be a red flag. Even if those projects didn’t end up with the filing of a construction lien, the writing might be on the wall.
Levelset’s Contractor Payment Profiles make this process easy. It can serve as an incredible source of valuable information when vetting your contractor. You’ll learn about payment issues and overall payment speed. You can also read reviews from subcontractors and suppliers they’ve hired.
Communicate with everyone
Communication is the most important — but unfortunately most poorly handled — aspect of construction projects. Don’t let that be the case on your property.
If you want to ensure that the project is going well and that everyone is receiving fair treatment, talk to them. Ask your general contractor about the other contractors on the project. You can ask them to get a list of subs and suppliers from their subcontractors.
Speak to your GC about requiring a preliminary notice for everyone on the project. Even if it’s not a requirement in your state, a preliminary notice from every sub and supplier attached to the project will allow you to build a roster of project participants.
Pay on time
The easiest way for you to do your part in warding off a construction lien is to simply pay your contractors on time. If progress payments are due, send them out. Don’t be afraid to ask for lien waivers from subs and suppliers as well.
Ensure the GC has a plan for paying all the subs and suppliers
Talk to your GC about paying the other project participants. This is another good time to ask for a list of subs and suppliers, as well as making lien waivers a requirement on your project.
How to remove or release a construction lien
There are a few ways that a property owner can remove or release a lien, and it often depends on whether the lien is valid or not.
Removing invalid construction liens
Individual states have regulations that determine whether a lien is or is not enforceable. Essentially, they determine whether or not a lien is valid. It’s entirely possible to have an invalid lien filed against a property.
Here are some ways to fight an invalid lien:
- Immediately file preliminary objections if the lien claim doesn’t meet the state’s requirements, and let the court decide.
- Some states don’t allow liens on single or double residential projects if the property owner paid the GC in full.
- File a lawsuit against the lienor.
Removing valid construction liens
For all of your best efforts, things do happen. If you do end up with a construction lien against your property, you do have some options.
Here are some ways to remove a valid lien:
- Negotiate with the contractor. Communication is key in avoiding construction liens, but it can also be key in resolving them.
- Enlist the help of a surety to bond off the lien. The surety will provide the county with proof that you can pay the lien’s amount if the court rules that you have to. The lien will attach to the bond at that point, not the property.
- Hire a construction lawyer and take the contractor to court. Even if the lien meets all of the state requirements, you could have a case validating non-payment.
Enforcing a valid lien
If you’re the one filing the mechanics lien, it might not always be clear about what your next steps are after filing.
Check out The 4 Steps to Take After Filing a Mechanics Lien for guidance on what to do, and how to enforce your lien.