Here at Levelset, we talk to literally thousands of folks in the construction industry each and every week. Unfortunately, many of these hard-working people get in touch with us because they’re experiencing a payment issue on one of their projects or jobs.
Sometimes, these folks have already made an attempt to navigate the mechanics lien process on their own. This is not surprising since construction people are used to building things, fixing things, and getting things done. But sometimes, people who are used to being able to do everything on their own can get themselves into trouble when they try to take on a task that is outside of their expertise.
Sadly, this can-do attitude can end up creating a mess when it comes to a lien filing, and it’s not uncommon for them to tell us that filing a lien on their own did not work out like they hoped it would.
The 4 Worst Mechanics Lien Mistakes
From all of these conversations, we have compiled a list of the 4 most common mistakes that we see when people in the construction business attempt to manage mechanics liens on their own.
1. Filing a Lien When You Don’t Have Lien Rights
Just because you are unpaid and want to file a mechanics lien does not necessarily mean that you are allowed to. Generally, all parties that perform work for the improvement of property are able to file mechanics liens to secure payment for that work in every state in the country — this is exactly what mechanics lien rights are.
However, there are requirements and exceptions that occur on a state-by-state basis which may disallow a mechanics lien filing. Below are just a few of those potential requirements which may come into play depending on your specific situation.
> Preliminary Notice Requirements
The vast majority of states require some form of Preliminary Notice (which may also be called a Notice to Owner, a Notice of Furnishing, a 20-Day Notice, a Pre-Lien Notice, as well as a few others) in order to secure lien rights on a construction project. If the project you worked on is in one of these states where preliminary notice is required and you fail to send that notice, chances are your mechanics lien is going to be invalid. Sending the required notice late could also have the same negative effect since preliminary notice deadlines are strictly enforced. There are several other requirements associated with preliminary notices, including
- sending the notice to the required recipients,
- using the proper delivery method, and,
- including the correct information on the notice itself.
All in all, it’s a lot to manage, and the source of many complications for those that try take on the mechanics lien process on their own. So, beware!
> Impact of Project Role and/or Project Type
When we say “Project Role,” what we’re really trying to determine is whether you are the prime contractor, a subcontractor, a material supplier, etc, on the project at hand. Typically, prime contractors, subcontractors, and material suppliers are given lien rights in most cases across the country, though there can be exceptions to this on a state-by-state basis.
One example of an exception is that many states prohibit suppliers-to-suppliers from filing mechanics liens, but there can be others depending on the state.
“Project Type” in this context is really about determining whether a particular project is Public (which typically means the project is “owned” by either a state or the federal government) or Private (which is usually most any commercial or residential project).
Available Remedies for Payment Issues on Construction Projects:
- mechanics lien claims are the payment remedy on private projects, and,
- payment bond claims are the payment remedy on public projects.
Long story short, if you attempt to file a mechanics lien on a public construction project, you’re not going to get very far! However, we still see a lot of confusion about this in the marketplace — sometimes, it’s not so easy to tell the type of project you’re working on.
> License Requirements
Licensing is a key issue in whether or not a claimant is allowed to file a valid mechanics lien. If a party (typically a contractor or sub) is required to have a license in a particular state, they may not be allowed to file a valid mechanics lien without having a valid license in place. Some states don’t even allow unlicensed contractors to sue for non-payment (apart from the mechanics lien process).
Bottom line: ALWAYS GET YOUR LICENSE IF IT’S REQUIRED NO MATTER WHAT! You can find out more about the specific license requirements in your state here: Can Unlicensed Contractors File a Mechanics Lien?
2. The Lien Form Itself Is Missing Required Information or Includes Incorrect Information
Mechanics liens get invalidated by state officials (depending on your state, it could be the county recorder office, the clerk of court, and others) for all sorts of reasons, not the least of which are seemingly insignificant details like typos, document margins, and even something as simple as placing an address on the wrong side of a page. In the mechanics lien universe, one small mistake can invalidate your entire claim.
On top of that, every state has specific requirements for the information you need to include in a construction lien and many are very strict. As a result, any missing information or small mistake can invalidate your entire lien.
Here are some of the most common culprits that we hear about time and again:
> Incorrect Property Description
Identifying the property in the mechanics lien claim is far more difficult than it would seem. Simply jotting down the address won’t be enough in most cases. Many states require the property description to include what’s called the Legal Property Description.
Even if not specifically required, including a legal description of at least the block/lot/parcel on the lien claim is the best practice. You would be surprised how often an identified address on a building does not match city or state records, or how often it is confused with another property on a similar street (i.e. E. First Street, W. First Street, and First Street).
Bottom line: This seemingly easy step can be deceptively difficult.
> Identifying Yourself or Your Company Incorrectly
If you are a sole proprietor, this means you do not have a legally recognized company. You are an individual doing business under some type of tradename. If your name is John Doe, and you operate “Kitchen Specialists,” and this company is not incorporated or organized as any specific business entity, the formal and legal name of your company would be “John Doe doing business as Kitchen Specialists,” or “John Doe d/b/a Kitchen Specialists.” Be careful about identifying yourself as simply “John Doe” on legal documents, or as simply “Kitchen Specialists.”
If you are not a sole proprietor, then you must know what type of entity you are. If you are a business entity, it can be a fatal mistake to not include your business entity’s designation within your business name. Generally speaking, the company you work for (or own) is either a Limited Liability Company, a Corporation, a General Partnership, a Limited Partnership, or a Limited Corporation. The name of your company includes this designation or an abbreviation of the designation. (For example, Apple’s legal name is not “Apple.” It is “Apple, Inc.”)
When it comes to identifying yourself or your company in a lien filing, perhaps the most important thing you can do is to be consistent. You can avoid many of the problems associated with misidentifying your company by simply identifying your company the same way every time. So, be consistent, or be in trouble! Accurate, complete project information matters in the construction industry, and it’s an essential component of effective lien rights management.
> Inflating the Lien Claim Amount
At first glance, setting forth the amount of your lien claim seems quite simple. It’s the amount you’re owed, right? Leave it to the law to make matters complicated. When listing the amount of your mechanic lien claim, it’s important to think about which of your specific expenses associated with the payment issue at hand can and cannot be included.
Some examples include attorneys fees, lien costs, filing fees, interest, collection costs. Many of these expenses are “legitimate” in the sense that you may have actually incurred them as the payment issue unfolded. However, the question is: are these types of expenses allowed to be included in the total amount of money you are claiming in your mechanics lien claim?
In many states, the answer is no. And the consequence for making a simple honest mistake may be the complete invalidation of your lien.
That is not to say you can’t collect on those other amounts. Whether you can collect attorney fees, costs and other expenses is a different question from whether you can include the fees in your mechanics lien. If you foreclose on the lien, the court may award the prevailing party the money paid for recording the lien, attorney’s fees, and the necessary expenses incurred by the attorney, as costs.
A good rule of thumb: file your mechanics lien for just the principal amount due, and leave the costs, interests, fees, penalties, etc., out.
3. Missing a Deadline (filing too late or allowing the lien to expire)
So many small contractors, tradesman, and supply companies think they can file a mechanics lien whenever they want so long as they’ve gone unpaid. They think the mechanics lien remedy is always available to them, ready to be used at the drop of a hat.
However, that simply isn’t true. The fact of the matter is, all states require mechanics liens to be filed within a certain amount of time, often based on either the date you last furnished work/materials to the project or the completion date of the project.
When determining how long you have to file a mechanics lien, there are 2 main points to consider:
- 1. What is the time period that the state where the project is located allows for filing a lien? (For example, many states give a time limit in days, i.e., 90 days, 180 days, etc.)
- 2. When does that time period begin? (Could be “the date of last furnishing,” or “project completion date,” etc.)
However, answering these questions can be much more difficult than it appears. Here are some examples that show how complicated this can be:
- Does the project completion date mean the date that you completed your portion of the work, or the date when the project was substantially complete, or the date when the project was fully complete?
- Do punchlist items extend the completion date? What about warranty work that may come weeks or months after the fact?
- Is the last date of furnishing the day when the materials left your yard or the day they were delivered to the jobsite?
Each state answers these questions differently, and so knowing when the period starts can be just as important as knowing how long the period actually is.
At the other end of the mechanics lien timeline, a mechanics lien will generally expire after a specific amount of time. After that expiration date, the lien will no longer be enforceable, and while the lien will not automatically disappear, it may become invalid thus losing the power it had to help you get paid the money you earned.
Bottom line: the deadline to enforce a mechanics lien is determined by the lien expiration date, and this date is different for every state. Be sure to know how long a mechanics lien remains valid in your state!
4. Neglecting to Send a Notice of Intent Before Filing the Lien
Here’s the thing about mechanics liens — filing a lien is a pretty serious step! A lien is like a heart attack in that it has the potential to grind a construction project to a halt. While filing a lien may indeed be a necessary step, ideally, a lien filing should only come after every other avenue to get paid or resolve the payment issue at hand have been attempted.
One of these “other avenues” is to send a “warning letter” in the form of a Notice of Intent to File a Mechanics Lien prior to the final step of filing the mechanics lien.
A notice of intent to lien is a lot like a demand letter. It is a document sent to certain parties on a construction project warning that if payment isn’t made, the claimant intends to file a mechanics lien.
Most payment problems are not the cause of a bad actor or some sort of ill intentions. Quite the opposite in fact: many if not most payment delays and problems are caused simply by miscommunication. This is especially true for big projects with several tiers of hiring where parties at the top of the chain may not know of your involvement in a project.
For example, if you were hired by a subcontractor to provide materials, it is very possible that the general contractor and property owner are unaware of your involvement and how much you are owed.
By sending a Notice of Intent to Lien, you are alerting the parties funding a project that you worked on a project and are still waiting to get paid. And since everyone involved will likely want to do anything they can to prevent a lien filing from happening, a Notice of Intent will usually get the message across enough to resolve your payment dispute.
Ready to File? Levelset Is Here to Help!
Levelset has filed thousands of lien documents across the United States. The best way to avoid making a mechanics lien mistake is to use a service like Levelset to file your mechanics lien.
Instead of having to navigate the waters yourself to figure out what forms to file, what goes into the forms, and more, Levelset simply asks you simple easy-to-understand questions about your business and the construction project at issue. You answer those questions, and our system prepares your lien claim and has it electronically recorded.
Additional Mechanics Lien Resources
a Free Tool: the Payment Rights Advisor helps you determine your best option for getting paid