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Lien
Waiver | Contracts
and scheduling | Financing
"A lien is the legal
right to sell another person property to satisfy a
debt."
A Mechanics Lien
provides a legal means for workers, subcontractors
and suppliers a to secure payment for goods and services
provided in the improvement of real property. Workers,
subcontractors and suppliers can attach a lien on
a property. The lien allows the property owner a certain
amount of time (usually 60-90 days) to pay off the
lien holder. If the lien is not paid the lien holder
can sell the property to satisfy the demands of the
lien.
A lien waiver is a legal instrument that a property
owner or contractor uses to protect their property.
It is a document which when signed by a subcontractor
or supplier relinquishes their right to attach a lien
to the property. Generally, the entitled party will
sign a lien waiver upon receipt of payment for the
goods and services that they provided. It is imperative
that a owner, owner-builder or contractor use lien
waivers when paying for any goods and services used
on the property. Otherwise they can be double-billed
for thousands of dollars of material or labor costs.
Here is a common example
Protect yourself
with our
Fred H. (homeowner) hires Jim C. (contractor) to build
an addition to his house. They agree upon a price
of $10,550 for the job and that Jim will be paid upon
completion of the job. All agreements are put in writing.
So far, Fred has made the right decisions... don't
give money upfront to the contractor, and put everything
in writing. It takes Jim about 35 days to complete
the addition. At completion Bill is happy with the
work and writes Jim a check for $10,550. About 3 weeks
later, Fred receives a invoice from XYZ Building Supply
for $5200 the amount materials used in his addition.
Fred figures that it is some kind of mistake because
he already paid Jim $10,550 which covered labor and
materials. After talking with XYZ company Fred finds
out that the supplies were never paid for.
He figures that since he paid Jim for the materials,
it's Jims problem not his. WRONG! Jim skipped town
and didn't pay his bills...Now it's Fred's problem.
If he doesn't pay XYZ they can lien his home. If Fred
doesn't pay, XYZ can foreclose and sell his property.
So Fred ends up paying twice for the materials. How
could Fred have protected himself? He had a few options.
He could have gotten a materials list from Jim and
purchased the materials himself and had them delivered
to his property. Or he could have insisted that he
pay for the materials himself with a separate check.
His third option is to have Jim bring to him lien
waivers from all subs and suppliers before paying
him for the check for $10,550. This is probably the
best option.
We have two different
lien waivers that are necessary. A Release of Liens
to Date is used to make a payment to subs, suppliers
or a general contractor midway through a project.
A final Release of Liens is used at the end of a project.
As an owner-builder it is often advantageous to supply
as much of the material for the project as possible.
This allows you to make certain that supplies are
paid for, and prevents liens from materials suppliers.
The other advantage is that it may be easier to negotiate
lower prices from subs since you are taking on the
hassle of getting materials.
Before the project begins you'll need to set up accounts
at lumber companies, electrical, plumbing and roofing/siding
companies etc. Have each of your subs supply you a
materials list. This method requires a little more
bookkeeping but puts you in control.
If you choose the route of letting your subs supply
materials be certain that supplies are paid for, or
make arrangements with the sub to pay for the supplies
with a separate check.
Workers that are
employed by a subcontractor can also file a lien against
your property. If a subcontractor hasn't paid their
workers or "goes out of business" workers
can file a lien for payment of lost wages. There is
really no way of preventing this from happening. Usually
the amount is small that paying for a lien is not
worth it for the individual worker. The good news
is that the wages of a few worker usually will not
amount to a unbearable cost.
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