If you’re heading to mediation over a payment dispute, then you are likely in a position to file a mechanics lien. But should you should you file your lien before the mediation, or wait for the negotiations to play out? While mechanics liens are the construction industry’s most powerful tool for payment, deciding whether to file a lien can be tricky.
We recommend that all construction companies create a lien and notice policy to remove the guesswork and emotion from this decision. However, sometimes there will be variables that may not be covered in a lien policy. Should you file a mechanics lien if you’re already headed to mediation? Let’s take a look at the pros & cons in this scenario.
First, Know Your Deadline
Your deadline to file a lien should be the most important factor to consider when deciding whether to lien when a scheduled mediation is coming up. Mechanics lien laws are rigid, complicated, and often, unforgiving.
But the good news is that agreeing to mediate typically doesn’t prohibit a lien claim. So if a lien deadline is looming, it would be wise to do whatever it takes to preserve your lien rights, even if it will upset the other party.
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A mechanics lien creates leverage in mediation
Mediation creates a great opportunity to settle disputes without expensive litigation costs. But, at its core, mediation is basically just a non-binding negotiation with a referee.
Like any other negotiation, the side who is best prepared to argue their case will be put in the best position to succeed. The mediator will review the positions of both parties and leverage their positions against one other. Eventually, the hope is that this process will motivate both sides to settle the dispute in a manner that’s fair.
By filing a mechanics lien prior to the mediation, a claimant will have more firepower in the negotiation. Now, this is not to say you should file a bogus or frivolous lien just for the sake of leverage.
We’re pretty clear on our stance here – don’t file a fraudulent lien. But when payment is owed, and a lien claim is legitimate, there’s no reason not to use every tool at your disposal.
Plus, if mediation is successful, the lien may be removed. By giving your adversary more motivation to settle, the fruits of your mediation efforts will quite likely improve.
A mechanics lien can also create tension in mediation
Mechanics liens are incredibly effective at prompting payments because they’re so powerful. They threaten the title of an owner, and an owner’s fear of losing their property creates tension.
If mediation has been agreed to, it’s entirely possible that an owner will feel betrayed or misled. This could turn mediation into a fruitless shouting match, and this possibility should be taken into account when deciding whether to file a lien.
While the mechanics lien filing may give you leverage and help your claim – and likely will – you must be sensitive to your particular situation and the personality of all the parties involved. If the mechanics lien filing is going to backfire and turn a potentially protective mediation into something not productive, it may not be worth filing.
However, deciding not to file a lien solely to keep an owner happy is a dangerous proposition. (See what happened to a subcontractor who declined to file a lien because the owner promised to pay.)
If the ability to file a lien is lost, and then the mediation is unsuccessful, the only route left may be to file a lawsuit over the dispute. Going to court is generally riskier and more expensive than arbitration.
Missing your lien deadline out of fear that someone might get angry is not a good idea. You can always file the lien claim and simply apologize, saying that the lawyer made you do it because the deadline was going to expire. If the case settles, it gets canceled. Mechanics lien laws are there for a reason, so don’t be afraid to use them.