Frequently Asked Questions
FAQs
How long does a general contractor have to file a mechanic lien?
If you have a contract directly with a landowner to improve real property, then you are considered a general or original contractor. A general or original contractor has 4 months after the last day of work on the project to file a mechanic and materialmen’s lien.
The same rule applies if you are a material supplier. A material supplier who has a contract directly with a landowner to supply materials to a project has 4 months after it last supplies materials to file a mechanic and/or materialmen’s lien.
How long does a subcontractor have to file a mechanic lien?
If you have a contract with someone other than the landowner, then you are considered a subcontractor. A subcontractor has 90 days after the last day of work on the project to file a mechanic and materialmen’s lien.
When does your mechanic and materialmen’s lien timeline begin?
The mechanic and materialmen’s lien time begins to run from the last day of work on the job or the delivery of materials. The last day of work on the job is important as it will trigger the time limits for sending your pre-lien notices and lien statements.
Probably more liens are lost because they used the wrong last date than any other reason. As a general rule, the last date is the date you last supplied material or provided services on the original contract. Warranty or repair work will generally not extend the last date. In fact, I would not even use punch list work as the last date because often, punch list work includes repairs and warranty work.
Where do you get this information? The best method is to have the owner or original contractor acknowledge in writing the date of your last day of work. For example, this can be in the form of a substantial completion certificate or close out certificate. You can also use actual time cards of your employees or invoices from your subcontractors or suppliers. Again, I recommend that you cross-check and confirm the last date from several sources.
When do you have to send out a pre-lien notice?
A general or original contractor is not required to send out a pre-lien notice to the landowner. When a subcontractor or submaterial supplier provides labor or materials to a non-residential construction project or to an owner occupied dwelling, they must provide a pre-lien notice to the landowner and original contractor within 75 days of last providing the material or services. Failure to do so will render the lien invalid.
The exception is if the money owed is retainage or less than $10,000.00 or for residential projects. In those situations, a pre-lien notice is usually not necessary. The other situation where a pre-lien notice is not usually necessary is if the subcontractor or submaterial supplier sends a certified mail letter to the original contractor and requests the name and address of the owner and the legal description and the original contractor fails to timely respond. In that event, there is no obligation to send a pre-lien notice. (Even if you send this letter, I always recommend that you go ahead and send the pre-lien notice just to be safe.)
Are there reasons you should not file a mechanic and materialmen’s lien?
Why would a contractor not file a mechanic and materialmen’s lien? There are plenty of reasons. There may be legal reasons, such as allowing the time limits to file a lien expire or failing to send a required pre-lien notice. (Hopefully, this won’t happen after you set up your mechanic lien system!) You may have waived your lien rights in the contract or in the progress payment lien waivers.
In certain rare instances, the work you performed may not be the type that is lienable (Check with your legal counsel on this issue as that could be the basis for a whole new discussion). There may also be business reasons not to file a lien. For example, the owner may be getting ready to take bids on a new large project that you want to bid on. Filing a lien against the owner’s property may influence his decision to use you as a contractor.
Another reason might be that the owner’s property may have been fully encumbered with debt before the construction began, and there is no equity in the property. If you do not have priority or there is not enough equity in the property to pay your claims, it may be futile to sell the property if you are sure you will not get paid. (Again, this is a subject you probably need to discuss with your legal counsel as he or she can assess your particular situation.)
There may be many different business reasons not to file a lien statement. If there are legal or business reasons not to file a mechanic lien, then really spend some time deciding whether to go forward. Many contractors believe that if you do not file a mechanic and materialmen’s lien, you cannot collect your money, but that’s not necessarily true. All a mechanic and materialmen’s lien does is give you the right to force the property to be sold to pay the debts. Even if you do not file a mechanic and materialmen’s lien, you can still file suit against the party who owes you the money.
When should you collect the information for your pre-lien notice and mechanic and materialmen’s lien?
The best practice is to begin collecting this information as soon as possible. Many contractors wait until the end of the project on the belief that there is no need to spend the resources until a collection problem arises. However, experience teaches that waiting until the last minute creates opportunities for added expenses, mistakes, and missed deadlines.
If you miss a mandatory deadline, your lien will not be valid. An old country lawyer once told me that most mistakes in practicing law can be corrected except a missed lien deadline or limitation period. Quite frankly, I have never wanted to test that theory and have always tried to be proactive so as not to wait until the last minute.
Why do I need a contract?
TO MAKE MONEY AND STAY OUT OF COURT!!
Two of the main risks to a contracting company are the risk of not getting paid and the risk of getting sued. A contract is a powerful tool that helps you manage both of those risks. It allows you to document the agreement between the parties. Remember, oral agreements and conversations evaporate. A contract allows you to get rid of ambiguities and creates certainty. It also allows you to shift risk up front so both parties can work together with certainty.
How can I negotiate a contract?
We could spend hours talking about how to negotiate contracts (and we will in later articles!), but one of the most important ways to negotiate a contract that is presented to you is to negotiate with an addendum. I recommend that you do not red-line a contract. Most parties who prepare contracts spent countless dollars with a lawyer to craft a masterpiece. When you start marking through it with a red pen, negotiations often break down. Using an addendum lets you get your provisions and changes in without marking up the contract.
What is a risk management system?
While not exhaustive, we recommend five risk management systems in your contracting business. The systems are:
Mechanic and Materialmen’s Lien System
Early Incident Management System
Contractual Shifting of Risk System
Management/Policies System
Insurance System