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What exactly is a mechanics lien and how can it help my business? -- II

In our last post, we began discussing how building outfits that provide requested services and suppliers that fill material orders have the option of filing a mechanics lien when the general contractor overseeing a particular project fails to remit payment.

To recap, a mechanics lien is a legal claim filed by an unpaid subcontractor or supplier against a particular property that has undergone an improvement or renovation. The legal rationale for allowing the subcontractor/supplier to hold the property owner accountable for the transgressions of the general contractor is that 1) their need for compensation is greater and 2) the aggrieved property owner can always pursue their own lawsuit against the general contractor.

What are some ways in which a subcontractor/supplier can seek to ensure payment?

Some of the ways in which a subcontractor/supplier can seek to ensure payment from the general contractor and, by extension, obviate the need to file a mechanics lien, are lien releases or waivers, or joint checks.

What is a lien release?

A lien release or waive enables property owners to monitor whether the necessary payments have been made by requiring the general contractor to secure signed conditional releases from all subcontractors/suppliers they are responsible for paying.

If these unconditional releases are not secured, the property owner can withhold the next payment until unconditional releases for the previous payment are secured, meaning all subcontractors/suppliers have been paid.

Here, putting the onus on the general contractor to secure the signatures helps ensure the necessary payments are made to subcontractors/suppliers.

What are joint checks?

The issuance of joint checks involves the property owner making out checks for payment to both the general contractor and the subcontractor/supplier. Here, payment is largely ensured, as the check can only be cashed if it is endorsed by both parties.

What needs to be done to file a mechanics lien?

In general, a subcontractor/supplier must give the property owner a preliminary notice outlining the services provided or slated to be provided, and their intent to file a mechanics lien in the event their services go unpaid. This must typically be done within 20-30 days of the actual services provided.

In the event payment is not received, the subcontractor/supplier can file a mechanics lien in the county in which the property is located. Thereafter, the parties have several months to work out a solution and, if these efforts prove unavailing, the subcontractor/supplier can proceed with a lawsuit.   

If you are a subcontractor/supplier with questions or concerns relating to unpaid services, consider speaking with a skilled legal professional.

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