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How do I protect my legal rights to be paid as this project comes to an end?

I am involved in the final stages of re-building of a residential home in the State of Tennessee. I have served as a 1099 Contractor, Project Manager... for a Restoration Company, that is also located in Tennessee.... for the past 15 months...completing other projects etc... (Relationship has "gone South..." over non-payment etc... (Owner of the restoration company has pleaded with me, begged me to finish this project and has promised multiple times in multiple formats that he would pay me as payments came in etc... ) May 1st will be three months since I have been paid...and...I know that the Owner has received multiple checks, not only from this job, but from multiple jobs during this same time frame. What do I do? Where can I get a copy of a Lien Release Affidavit? Can I file a Lien as an Indirect Lien Holder? (Home Owners are extremely happy with my work as is the Insurance Adjuster...Home Owners are willing to require an "All Bills Paid..." release from the GC if that will help me to receive payment for re-building their home...

1 reply

May 24, 2019

I'm really sorry to hear about that, and I'm sure that's incredibly frustrating - especially considering the property owners are cooperative and happy with the work that was performed. As far as lien rights go - Tennessee is extremely restrictive when it comes to filing mechanics liens on residential property, so pursuing a lien filing might not be an available option. But that doesn't mean there aren't options for payment recovery - and I'll discuss a number of alternatives below.

In Tennessee, only prime contractors are entitled to file mechanics liens on residential property. That is, in order to file a valid and enforceable mechanics lien, the lien claimant must have a contract directly with the owner of the property. In other states, lien rights may also extend to unpaid employees of a prime contractor or their subcontractors and suppliers, but that is not the case with Tennessee residential construction jobs. Though, in the event that a potential claimant has directly agreed with the property owner, lien rights may be available.

Of course, that doesn't mean the threat of a lien claim can't be leveraged - and sending a document like a Notice of Intent to Lien will often speed up payment talks. Property owners and contractors hate dealing with mechanics liens for a variety of reasons, so by putting a lien on the table, a lien claimant can put extra pressure on the nonpaying party to do the right thing and make payment. Of course, where there's an existing relationship with the property owner, that might be worth considering - property owners don't take kindly to lien threats, and potentially, working with an owner to force an employer to pay might be a way to go about making sure payment is made.

If final payment hasn't been made to the contractor, working with the owner and/or their insurance adjuster to condition the final payment and make sure you're paid might be an option. As mentioned above, before making payment, an owner could require their contractor submit a sworn statement that says the contractor has paid all of their employees. By doing so, the owner can ensure the contractor's employees are paid - and if the contractor lies in order to get their hands on payment, then the contractor would open themselves up to legal liability.

Another option may be for the owner to issue a joint check - at least for the amounts owed to the contractor's unpaid employee(s). By using a joint check, that check can't be cashed unless both the contractor and the employee have received payment.

Yet another option might be to request that a property owner make payment directly and to subtract that payment from the final payment that will be made to the contractor. That way, the employee is paid, and the contractor still receives the amount they were supposed to be receiving anyway. Of course, this might lead to a dispute between the owner and contractor as to what's owed - but it could still be a worthwhile solution.

Finally, it may also be worth considering making legal threats against a contractor if push comes to shove. Further, under Tennessee Code § 66-11-138, a contractor may face a felony for misapplication of payments received. So, by informing the contractor of their potential exposure to liability for damages or even criminal penalties, it might be easier to force them to pay up.

I hope this information was helpful! If payment issues persist and action may need to be taken, it'd be wise to consult a local attorney to review the situation, documentation, and any communications. They'll be able to advise on how best to proceed under your specific circumstances. Good luck!

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