If you are a subcontractor or supplier and you ignore your lien rights, you are losing money. A mechanic lien is a subcontractor’s and supplier’s best friend because it allows you to secure your debt by filing a lien against any private real property that you’ve furnished labor and/or materials to improve.
The reason many suppliers and subcontractors disregard mechanic’s liens is that the statutes governing them have become lengthy and unnecessarily complicated. No single blog post can cover the numerous deadlines, circumstances, and requirements related to mechanic’s liens (there will be many posts to come on this topic). The big picture, however, is not that complicated. It can be broken down into 5 basic steps:
1. Collect Project Information – to succeed in perfecting a lien, you must get as much information about the project as possible before you begin working or providing supplies. This is especially so for a supplier who may never actually visit the project site. The necessary information includes: the address of the project, the name and contact information of the owner and general contractor, the name and address of all parties in the chain of contract between you and the owner, and whether the project is covered by a payment bond (if so always get a copy of the payment bond).
2. Mail the Notice – There are different types of notices that may be required, including: notice of contractual retainage, notice of fund trapping, and notice of the unpaid amount. It is prudent to include all of the applicable notices in one letter and to send the required notice as soon as it becomes evident there is a problem or risk of nonpayment. The notice may be due as soon as the 15th of the second month after the month in which you furnished labor and/or materials. Several factors must be considered when determining how and when to send notice:
Tier – The notice deadlines and who you must send notice to depend on where in the chain of contract you fall.
Residential? – Notice deadlines are typically earlier for residential projects than for nonresidential projects.
The Clock starts on delivery – The deadlines run from the month you furnished (i.e., performed or delivered) the labor and materials, not the invoice date.
Continued Notice – You must continue to send notices if you continue to furnish labor and/or materials. For example, if you send notice for labor performed or materials furnished in January, and continue to furnish labor and/or materials in February (and are not paid again), then you should send another notice of the unpaid amount for the February labor/materials.
Who to Notice? Everyone in your chain of contract with the owner (including the owner).
Method – notice must be sent by certified mail return receipt requested.
Payment Bond – If there is a private payment bond then mail the notice to the surety as well.
3. Record the Lien Affidavit – There are numerous deadlines that govern the filing of this lien affidavit which depend on various factors. The best rule of thumb is to file your lien affidavit immediately upon substantial completion of your work if you suspect you may not be paid. This is especially true if your customer is behind on its account.
4. Send Notice of the Recorded Lien Affidavit – Within 5 days of recording the lien affidavit, send a copy of the lien affidavit to the owner and general contractor by certified mail return receipt requested to their last known business address or residence.
5. File Suit to Enforce the Lien – It is always desirable to resolve a dispute without litigation and a lien will provide you with the leverage to do so. However, be wary of the statutes of limitation—one year for residential construction and two years for general construction.
Perfecting a mechanic’s lien may appear daunting, but the process can be mastered by maintaining good documentation and implementing internal procedures and forms to comply with the requirements. Mechanic’s liens are more than worth the trouble. Enforcing your lien rights will provide you with many legal protections, and most importantly, it will dramatically improve your bottom line.