It’s an unfortunate reality for any business owner: sometimes a client doesn’t pay their bills.
It’s a frustrating experience. You’ve done good work. You’ve delivered materials requested. You’ve completed projects to spec and on time. You’ve even paid your team. But still, the builder or homeowner is dragging their feet getting you a check.
The good news is that you have options when it comes to collecting what’s owed to you. It’s called a construction lien, or some may call it a mechanics lien. It allows you to take legal action to get paid for services rendered and supplies delivered.
There is a catch, though. Construction liens have a strict set of procedures to follow, and some of the requirements for filing one must be established long before you ever know you’ll need one.
What is a Construction Lien?
A construction lien is a claim made by a tradesman, organization, or supplier who has provided work against a property. It is a legal remedy for professionals who have performed work or materials but has not been paid. Some may also call it a mechanics lien, but that shouldn’t be confused with a legal lien against an automobile.
However, “not been paid” is a moving target, depending on the state in which the work was done. This is not a remedy for those that have been waiting a week or two for a check. Instead, it’s a legal action for when payment has clearly been withheld. Typically, this is 90 days or more, but again, it varies from state to state.
What a construction lien does is prevent the current owner of the property from being able to sell or transfer the property. It can also pave the way for a further court case for parties to seek further legal action.
Who Can File a Construction Lien?
Construction liens can be filed by contractors, subcontractors, and material suppliers who have not been paid within the state’s allowed time.
Those working for a subcontractor do not have a right to file a construction lien. These entities are employed by the subcontractor and should be paid by them regardless of when the general contractor, builder, or homeowner pays them.
What’s the Process of Filing a Construction Lien?
Again, lien procedures and timelines differ from state to state. If your work takes place completely in one state, this can reduce the complexity of understanding the process. However, if you perform services or deliver materials to multiple states, you’ll need to be aware of that particular state’s requirements for construction liens.
In almost all cases, the ability to file a lien requires a signed contract that outlines the work to be done or materials to be supplied. At the beginning of a job you may not feel like you need a contract, but if you get to the point where you must file a lien, you’ll be glad you have one.
Next, there must be a period of time between when the work was completed (or there was a work stoppage) and when the lien is filed. This time period can vary by state, but it prevents a contractor from finishing a job and then immediately filing a lien against the property. It also allows for ample time to collect without legal action.
Most, if not all, states require providing notice that you’re moving forward with placing a lien on the property. Referred to as an “Intent to Lien” notification, this must be provided before a valid lien can be filed.
Once the pre-requests are met, the lien can be filed in court. What is important to note is that construction liens have a time limit. Once the lien is filed, you have a limited time to take further legal action, such as suing the builder, contractor, or homeowner.
When the outstanding balance has been settled, a release of lien should be filed. This officially removes the lien from the property.
It cannot be stressed strongly enough the importance of understanding these procedures and timelines within the state in which the work was done. Missing a deadline or a step can invalidate your lien, leaving you no legal recourse for recovering your losses.
Note, also, that this is not intended to be a comprehensive list. If you need assistance with a lien procedure, look to a service that provides specialized help in this area. There are experts that know the ins and outs of the construction lien process and can keep you from missing your opportunity to receive the payments owed to you.
A great resource for all things mechanics liens is the BICA - National Construction Notices website.