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no payment from GC

I am a subcontractor worked on 7 projects for GC. Was paid on 2 but late, was partially paid on 1 more, but not in full. Most recent project is 30 days late on payment. The oldest is 120 days late. Contacted the owner about GC not paying. Owner took all jobs away from GC, but no communication with us. GC is threatening to sue us for talking to the Owner because "it cost us our jobs" and claims we breached contract after we didn't show up for the job. We didn't show up for the job because lots of projects have been completed and not paid, so we finished the last project and didn't start the next one. GC has been told for weeks prior that we have no more cash to continue working. I know GC will be paid this coming Friday by the Owner. I am trying to see if Lien on Funds will help us, so we could get paid too. Thank you,

1 reply

May 18, 2020

If the GC hasn't yet been paid in full, then it'd typically be wise to send a lien on funds before that happens. A North Carolina lien on funds will only be effective to secure payment against funds that haven't yet been paid out. Once all funds have been paid out, recovery options will be limited for subcontractors.

How does a North Carolina lien on funds work?

A lien on funds serves as a formal claim to the owner showing that payment hasn't been made to the claimant. It instructs the owner to withhold that unpaid portion until the payment issue is resolved. And, if the owner receives that lien on funds then pays their GC anyway, then it will allow the claimant to file a mechanics lien claim directly against the owner's project property. However, if there aren't any funds to lien in the first place (i.e. if the owner fully pays their GC first), then both payment claims will generally fall by the wayside. So, by sending a North Carolina lien on funds, a claimant makes a payment claim on the project and also reserves additional mechanics lien rights if that initial claim isn't given the appropriate respect. You can find further discussion about how liens on funds work here: (1) NC Lien on Funds; (2) Lien on Property or Lien on Funds? It’s Two Different Collection Tools; and (3) North Carolina Has 3 Different Types of Liens.

If a lien on funds or mechanics lien isn't claimed, claimants can still force payment with legal claims

Liens on funds and mechanics lien claims are designed to resolve construction payment disputes without entering into litigation. Generally speaking, that means they're both much cheaper ways to force payment (at least in most situations). But, if a lien on funds or a lien against the project property isn't available, then other claims might need to be pursued. Legal claims can obviously be really effective, though. Breach of contract claims and prompt payment claims both come to mind as potential legal claims when the GC has been failing to make payments. And, merely threatening those claims with payment demand letters might lead to payment. Additionally, if the dispute is under $10,000, then small claims court could help to keep costs and time for recovery down. But, if demands don't work and if the claim exceeds $10,000, then traditional litigation may become necessary.

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