Requesting, tracking, collecting, and chasing lien waivers is a pain in a neck, and it’s a pain for everyone in the construction payment chain. Construction lenders, property developers, general contractors, and subcontractors are all juggling this intricate and misunderstood process.
And the worst part? It gets in the way of everyone’s payment on a job.
Cash flow is a problem for virtually everyone in the industry, and payment takes a long, long time. The lien waiver tracking and collection process is a big reason why.
- Do you want to make this process easier and faster?
- Want to better understand why you’re chasing these pesky documents around in the first place?
- Want a simple lien waiver tracking spreadsheet or technology to reduce your headaches?
Then read on. This comprehensive article will explain everything you need to know about requesting, collecting, tracking, and managing lien waivers, and walk you through the best practices that can save you time, headache, and make the job of construction payments faster.
Table of Contents
#1) Know What You’re Looking For When Tracking Lien Waivers
The first step to requesting and tracking lien waivers is simply knowing what you need, and who you need it from.
It’s surprising how much time and energy is spent chasing around unneeded lien waiver documents! Since the lien waiver concept is so complicated, there is a ton of misinformation and misunderstanding out there. It’s common for stakeholders to take a “shotgun approach” to lien waiver compliance and go overboard with requirements.
As we’ll explore in this article, the shotgun approach can do more harm than good for two reasons. First, it makes the process more complicated, time-consuming, and ripe for error. And second, the “include everything under the sun” approach can actually run afoul of state restrictions, rendering worthless all the work collecting these documents.
The Biggest Misconception About Collecting Lien Waivers
The biggest misconception about lien waivers breaks down into these 2 false beliefs:
False Belief #1: If you get a lien waiver from a contractor it protects you against lien claims from that contractor’s subs/vendors/suppliers.
The graphic on the right does a nice job of explaining how lien rights actually work, and it can be downright scary. In the graphic’s example, an owner can pay the general contractor (and get a waiver), and a general contractor can pay the subcontractor (and get a waiver)…But, if the subcontractor fails to pay the supplier, the supplier can file a lien and make the owner pay for the work. The lien waivers collected from the general contractors and subcontractors are absolutely useless against the supplier’s claim!
This false belief is dangerous because it leads companies into breaking their back in collecting lien waivers from some people on the job (i.e. those they know) thinking the waivers will protect them from others on the job (i.e. those they don’t know). We explored this challenge more completely in the article, Contractors: Collecting Lien Waivers From Your Direct Subs Isn’t Enough.
False Belief #2: You need to collect lien waivers from contractors/subs/suppliers that you hire.
Lots of time and energy goes into tracking and collecting lien waivers from companies that you hire directly. But think about it — you don’t need a lien waiver from someone you are directly paying. As we explored in more detail in our Ultimate Guide to Lien Waivers, lien waivers are simply a “receipt” that payment has been made. If you are actually making the payment to a contractor or supplier directly (including through a joint check), then it’s simply unnecessary to get a lien waiver from that party. You don’t need the lien waiver receipt to prove you paid them…you have direct proof that you paid them, and that will protect you against them filing a lien.
With regards to a homeowner, when requesting a lien release upon each payment made to the contractor, it's recommended by government agencies (Contractors Boards) to also request a lien release from the subs and material suppliers who performed work or materials for that part of the work for...
Hello, I am new to lien waivers and I discovered an error on a waiver that was sent to a customer. It’s a Chicago title partial waiver. The top half of the waiver has final waiver language. However it’s dated only through what we have been paid. The...
Hello, I am building a house in Texas and the builder has his own cabinet maker and Installer. I am wanting to use my own cabinet maker to make and install the cabinets. The builder wants a lean release from my Cabinet Maker to release Builder from any...