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Seems to me that this is an easy way for a subcontractor to get paid twice. Say the contractor pays him, but he wants more. He says the contracter didn't pay him and puts a lien on your house.
Seems to me that this is an easy way for a subcontractor to get paid twice. Say the contractor pays him, but he wants more. He says the contracter didn't pay him and puts a lien on your house.
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Smart owner/builders will ALWAYS get a \"lien release\" form signed by the subs upon completion of the work. Although there are some questions as to whether such a contract is supported by consideration and enforceable as such... it is much better than not doing it at all.
@ptkdude:
Most states proscribe large penalties for the unlawful filing of a mechanic's lien... attorney's fees, etc. This does not include civil penalties for fraud. As for subs getting paid twice, I have never seen this. I have however seen subs who get partial payments for substandard work putting the lien on for the full balance... as this is a common occurrence.
^^^
prescribe not proscribe sorry!
@Crazytree: My point went directly to the comment in the article that most people just pay it because it is cheaper than getting a lawyer.
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\"fundamentally stupid\"
Priceless... I'll have to remember that.
You should always be holding back a % from the final bill for 30+ days to ensure all subs are paid before you give out the final $.
If the contractor your hiring balks..find another contractor.
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Open a joint checking account with the contractor so that you can keep track of the accounting yourself.
you can't be serious. really? i know a lot of reputable contractors - enough that i could rebuild my house a dozen times w/o using the same one twice. i don't know a single one that would ever agree to this. ever. plus, it seems to me that you are just increasing your liability by becoming joint on an account used to pay subs.
get referrals, check licensing, MAKE SURE THEY HAVE INSURANCE!!!, only use reputable contractors. i know saving a few grand seems like a great idea, but you get what you pay for. that few grand could end up costing you a lot more in the long run.
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Open a joint checking account with the contractor so that you can keep track of the accounting yourself.
Agreed; this sounds insane.
Joint checking with the GC could also render you vicariously liable for any misconduct by the GC... IE the favorite GC game... disappearing with your money. This can be especially disastrous if he kites a bunch of checks from YOUR JOINT ACCOUNT.
Love this website very much, but this is just the latest example of \"not so great\" legal advice that has been featured here. Sorry. :[
The \"why\" is pretty simple: There is a strong public policy that laborers should get paid for their work. In this case, the worker benefits at the expense of the homeowner. Unfair, perhaps, but that's the underlying rationale (at least according to the law books). This is a real problem that often works against the homeowner.
However, there are strict statutory requirements and deadlines to bring and enforce a mechanics lien. If the lien is filed, it must be properly served on the homeowner and then \"perfected\" (by bringing suit to enforce the lien) within a set time or the lien automatically expires. To be sure, read your State statutes.
One recommended alternative is to write the check to the contractor AND the subcontractor, so both are required to endorse the check. Of course, this requires you to know that the subcontractor exists. Another alternative is to withhold final payment until the time to file a lien (3 months in my State) expires.
Oh, yeah, I ain't your attorney and this ain't legal advice.
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First, not only am I not an attorney, I'm not a homeowner and I've never dealt with contractors of this type. So I'm about as unqualified as a person could possibly be to say anything. But I've always wondered if it would be possible to do the following: whatever your job is, whether or not it involves subcontractors, when you receive the quote -- say $9,000 -- why not offer to pay $10,000 on condition that you will pay nothing until after completion, including materials. Sure, you'd probably be hard-pressed to find a contractor willing to do this, but if I were a legit contractor I'd go for it... Wouldn't that help weed out the bad apples? Or am I not only stupid, but ignorant?
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Laws vary by state, as a matter of fact they can vary GREATLY. Many states require a contractor or sub-contractor to file a \"Notice of Commencement\" of some sort. This lets the homeowner know that there is a person or entity out there who will be starting work on you home. In FLA this has to be filed with the County Clerk. In LA it needs to be sent to the homeowner. Check the laws in your state to see what kind of notice needs to be used. If proper notice is not given then they cannot file a lien. Most un-educated contractors do not file notices, and un-licensed ones are prohibited from filing a lien or notice of any kind.
When work commences, have a sign-in sheet and require all persons working on the site sign in and out, even delivery men. Include the name of the company they work for. This can also help with your insurance of someone tries to file a claim against you.
When your contractor asks for a \"draw\" (a payment), have him/her submit a written request listing the percentage of work completed on each phase or by each sub-contractor. Tell him/her that you want a \"Partial Lien Release\" for each sub or supplier paid in that phase of the work.
Keep a running tab, at the end of the job prior to \"Final Draw\" ask for \"Final Lien Releases\" from all companies on your sign-in sheet. If the contractor does not provide them do not pay him/her.
Always withhold 10% of each draw. Hold this money from the contractor for 30-90 days after completion, the maximum time period you can negotiate from your contractor.
I am not a lawyer but I am a contractor. Any contractor worth hiring will not have a problem with any of this.
My husband almost filed a lien against a house once right before we were married. He had not been paid by the contractor for three months of work (yes, this was stupid of him but the contractor was someone he had considered a very close friend). He needed his paycheck and he had no money to hire an attorney himself and honestly, didn't have the time to wait for the money at this point.
He approached the homeowners and told them what it had come down to. They forced the contractor to pay my husband or they would and then take this douche to court (they had money and time).
And yes, the contractor pretty much lost his business over this. And my husband never associated with him again, professionally or personally.
I used to work for a company that sells construction supplies. we put liens against property all the time when we didnt get paid for the supplies.
Another point about mechanics' liens is they are very hard to get rid of, even in bankruptcy. Mechanics' liens take priority over almost every other kind of debt, and have first dibs on any liquidation payouts.
As the name would imply, Mechanics' Liens are not limited to builders, and can be applied by pretty much anyone that adds value to your property, be it your home, your car, or a painting you have restored.
Mechanic's liens take priority over everything but tax liens and some Mello-Roos liens in CA.
Also there are time limits, as has been mentioned... have to file X days after a Notice of Completion is posted, or Y days if none is posted.
Another thing to consider when hiring a GC is not only his liability insurance, but his workers' compensation insurance. In California for instance, if a contractor is not licensed, bonded or insured for workers' compensation, the injured employee of that contractor may \"sue\" you (the property owner) under the administrative court system set up to adjudicate workers' compensation claims in CA.
I work for an Applicant's attorney, and we unfortunately are forced to do this often.
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The system isn't really all that stupid. You hired a dude to do work, he, as your hire, got other people to do the work. You are the top level here, so of course your house has to be part of the collateral. Seems like it would be fair to at least require that the subs have to sue the contractor first though, rather than jump a level. But the overall rationale here seems to be, you started the work, it was for your benefit, therefore its your mess. If the subs don't get paid by the contractor, you need to pay them or force the contractor to pay them.
i do bookkeeping for a general contractor. i create lien releases all the time. all of our subcontractors MUST sign an 'unconditional' lien release when they receive payment. it basically says that they have received payment in full for all materials, work performed, etc. i send a release form with the check, they must sign + date it and send it back to me. it then goes in the file with the invoice. if it's a sub who we haven't worked with before, they must sign the release before receiving payment.
before you hire a GC, find out up front if they generate lien releases. you can also ask them for signed copies from all their subcontractors.
also very important: make sure your GC + subs all have current/valid worker's comp + general liability insurance. CYA in case any accidents happen on the job.
I would say to remember to include a clause in the contract requiring the general contractor get a surety bond to ensure the payment of the subcontractors.
P.S. This is not to be considered as legal advice in anyway, just something I read about previously.
A friend got his roof fixed and this very thing happened. He had to pay the sub-contractor, after he had paid the contractor. The contractor was legit, and bonded and insured so my friend went after the bonding agent. It took more than a year, but he got his money back. Licensed contractors have to be bonded and insured for just this reason.
As a construction lawyer, my unofficial advice (b/c laws are different in every state) is to include a provision in your contract that says that the contractor is required to discharge any and all leins t
I agree with mdkiff. Or more directly, you as the primary contracting party should require the general contractor that you personally meet and have the subs sign a release that any payments come from the GC and they wave their right to place a lein.
The subs beef is with the GC not you the homeowner. Built 3 houses doing this. Subs don't like it but these days they are agreeing as there is not much work out there.
The theory behind \"mechanic's liens\" is that your property benefited from the work, in that the work was incorporated into your property... adding value.
Therefore it is seen as a reasonable remedy to put a lien on your property in the amount of the benefit that your property received only.
I have seen plenty of these types of situations where subs do not get paid. MOST OF THE TIME, it is because the homeowner used an UNLICENSED CONTRACTOR, and got ripped off. Rarely have I seen someone SAVE money by using an unlicensed contractor, in the end... with non-conforming work, overruns, scams and ripoffs... it almost always will cost you more.