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How does a "Waiver of Lien payments" clause in contract protect the home owner/payer?

MichiganMechanics Lien

I don't understand a "waiver of Lein" payments. I still have to check with the Better Business Bureau for complaints and call the Licensing Board to see if the contractor I've received an estimate from is a licensed & certified builder before hiring him. The estimate from the contractor does state his address and phone number. I have to check to see if it includes his tax identification number. I am having my master bathroom shower pan and shower & tub tiles replaced. I am going over my contractor's estimate. He did document the description of the work to be done, but it is significantly lacking in details. I have asked that he include copies of his liability & workman's compensation insurance certificates, Statement of Warranty ( is material & labor guaranteed, if so, for how long), start & approximate completion dates, payment procedure, brand names, style, model numbers, a list of costs spelled out clearly, and the grade/quality of materials using., and that he/they are to clean up behind their work daily. I am requesting a clause in the contract allowing me to withhold payment if work slows down or stops. I came across a statement that advised I include a "waiver of lien" for payments in the contract. I am confused. Is that to safeguard me from a subcontractor coming after ME after I've paid the contractor for the job, in the event the contractor doesn't pay the subcontractor? Also, how does one check out the financial stability of a contractor with these overly stringent confidentiality regulations in place? Can you help me regarding the "waiver of lien?" Is there anything more I should do to safeguard myself? I know there should be a "Right to Cancel" clause, but if everything is satisfactory and the contractor & I both agree to my detailed inclusions, he/they can start ASAP. What do you think? Thank you! Susan Pough

1 reply

Feb 10, 2020

Mechanics Lien Waivers

First and foremost, your instincts are correct. Mechanics liens provide contractors and subs the ability to file a lien against the property, granting them a security interest that can force the foreclosure of your property. For GC's this provides them additional recourse, besides a breach of contract and other claims, if you fail to pay them. For subcontractors, this provides them protection in case the GC doesn't pay them, even if you've paid the GC in full. By including a waiver of lien provision, you are requiring that the subcontractors and the GC waive a certain value of lien rights in exchange for each payment. For further reading on lien waivers see:

Researching Contractor Financial Stability

Conducting a bit of research before hiring a contractor is always a good idea. As you noted, there are some confidentiality issues in collecting this information, but that doesn't necessarily mean it's impossible. And it seems like you're already on the right track. Contacting the BBB and checking on the status of their license is a great start. There are other options as well, such as purchasing a credit report or contacting any previous subcontractors they've worked with. In addition to that, your prospective contractor may be included on Levelset's Contractor Payment Profiles. These provide payment history/speed, risk scores, and subcontractor reviews to help you make an informed decision on who to hire. See this article for more information: How to Check a GC's Credit Before Starting a Project

Contract Provisions to Include

Again, you seem to be on the right track here. Requiring licensing and insurance information is always critical, as well as including a lien waiver provision. Requiring a detailed scope of work and an itemized schedule or values (list of costs and brands) is also a good idea. And lastly, specifically outlining the procedure and notice requirements for change orders and termination/right-to-cancel, can provide extra protection. For a deep dive on construction contracts, here are some great articles/guides:

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