Liens 101: What Subcontractors Need to Know
Posted May 16th, 2019
Lien rights in the United States are your security and protect your commercial construction business so that you can get paid for your work. It’s similar to a bank giving you a mortgage and then placing a lien on the property. The bank never forgets or fails to place that lien to protect their rights, and you shouldn’t either.
In this blog, you will learn the following:
- What a lien is
- Who has mechanics lien rights
- Why a lien is important
- How to file a lien & alternatives to doing it yourself
- How much it costs to file a lien or send a notice
- How the lien process works
What is a lien?
Liens are utilized for all sorts of property. When a person takes out a car loan, the loan provider is a lienholder that retains the title of the vehicle, preventing the owner from re-selling that car until they are repaid. If the car buyer fails to repay that loan, the lienholder has the right to repossess the vehicle and sell it to recover the amount borrowed.
It is not unlike what happens with mechanics liens. Contractors, suppliers and other parties perform work and then are repaid over time as they progress through the job. Due to the construction industry’s problems with payment delays, the subcontractor needs to have enough money available to cover their payroll, materials, bond premiums, equipment leases and more.
What is a mechanic lien?
A mechanic’s lien is a legal, public document that is designed to guarantee payment to builders, contractors and construction firms that build or repair structures. The term comes from the 18th century, when “mechanics” referred to various types of tradesmen. In most states, a properly filed and executed lien can ensure payment by holding up the property from being sold, transferred or financed. Liens are generally enforced in court and result in a hold on construction project funds as well as foreclosure of the property to pay outstanding debts to the lienholders.
Who has mechanics lien rights?
Builders, contractors, subcontractors, material suppliers, architects, engineers, design professionals, or anyone who performs work or furnishes materials on a job site all potentially have mechanic lien rights.
Why is a lien important?
A mechanics lien is an official document filed with a government entity, (typically with the county) that ensures that the people and businesses who contributed to the construction or renovation of a property are paid.
How do I file a mechanics lien?
Filing a mechanics lien can be a pain in the rear, especially since the rules around them vary widely depending on the state you’re in. You can access free templates of lien notices online, but if you go that route you still need to file the documents yourself. The easiest way to ensure everything is done right is to use an online lien solution like Levelset.
How much does it cost to file a lien?
Filing lien paperwork has some related costs. The recorder’s office, clerk of courts or similar entity for your locality will most likely issue a filing fee. Online lien solutions tend to be very affordable — some cost as little as $19 per recipient for the Preliminary Notice — and they deliver big value for your business in return.
We recommend Levelset to our clients for lien filing. With Levelset and other solutions like it, you provide some basic details about your company and your project, and their team handles all of your filings for you.
per recipient, as listed spring 2020
Notice of Intent to Lien
If you want to take the time to do it yourself, you can contact the state or county where your project is located and request information and assistance. But why the heck would you want to do that?
Here is a general outline of the process:
- 1. Send a Preliminary Notice via tracked, certified mail to the property owner that you are performing work or supplying materials on the job. Different states have different names for this notice, such as a notice to owner (Florida), a twenty-day notice (California), and a notice of furnishings (Michigan). The preliminary notice typically must be filed within 10 days of when you start the job.
- 2. After you have started the project, provided a Preliminary Notice AND a payment becomes overdue, the next step is to file a Notice of Intent to Lien, which is required in several states. The Notice of Intent to Lien is a warning to the property owner and if applicable, the prime contractor, stating that your business will file a lien on the property in the next 10 or 30 days unless you are paid. A Notice of Intent to Lien is a strong incentive to get the owner to make the payment, as they want to prevent you from filing that lien. Even if it is not required by the state, it’s a good idea to use it.
- 3. If you do not receive payment within those 10 or 30 days, you would then file a Lien on the property. Liens are filed in the county or municipality where your project is located, and in many states it is required to also send a copy of that lien to the owner and the prime contractor for the project.
Now that you’ve learned the basics of mechanics liens, you can start protecting your right to be paid for your work.
Have you had trouble with lien filings? Are you dealing with a general contractor that isn’t paying you for your work? Mobilization Funding’s knowledgeable team of experts are here for you. Click here for a free consultation, or call us today at 813-712-3073.