At one time or another, most of us have been the javelin catcher at the mechanics lien track meet for one or more of the following no-fun events: (1) a requested no-lien contract; (2) a supplier or sub sends a pre-lien notice or notice of intent to our client without our knowledge and; (3) a lien is filed on our job by one of the trade contractors.
The word “lien” has the same number of letters as the word “ugly.” Recently a friend’s supplier sent his client something called a pre-lien notice. While this perfectly legal document can scare the asparagus out of your client, we think it makes us look bad. What is this poisonous piece of paper, this “pre-lien or notice of intent to lien”?
When states enacted a mechanics lien law, the legislators provided a way for property owners to know who might have the right to place a lien on their property — the “mechanics working on it.” The statutes usually provide a form letter or language informing the client that they (your trade contractor) have been chosen to do work on the premises; the idea being those suppliers who notify the property owner have preferential lien rights because they have spoken up. It also lets the owner know with whom to check to see if they have been paid. The notice gives subs and/or suppliers preference ahead of non-filers. It is good policy for subs to do, but most don’t send it. However, if you know it’s coming, a simple explanation will help your client understand how harmless it is. Simply address it and defuse the issue before it becomes a bomb.
If a client doesn’t pay his or her bill, filing a lien on property for nonpayment is a solution — better than nothing but not a good solution. The pecking order for a lien is — first you file the notice of intent; you don’t get paid so you file a lien on the property. No, that’s not all you need to do. The next thing is to prosecute the lien, which is a formal but unproven charge against property. By doing this, you actually sue to perfect the lien into a judgment by the courts so it can be recorded against the property. At that point the property cannot be sold without the lien judgment getting paid. You can foreclose on the lien and actually force a sheriff’s sale.
Note: If a lien has to be filed, the job has gone south and the best thing to do is to settle as early as possible for as good a deal as you can negotiate. Going through the process outlined above can take two to three years, and you’re waiting around for the obese madam to yodel, if you know what I mean. The most you’re going to collect is the amount of the lien, plus 6 to 8 percent interest, less all the costs of processing. Swallow hard and get out early; put it behind you.
Contact your suppliers to see if they are planning to file notices of intent. If they are, you might even suggest some wording to soften things a bit. Maybe even show them a copy in advance to explain what it is. By discussing it for clarity, it becomes benign and probably no problem — if one ensues, you are ahead of the game.
There is no legitimate reason why you should be asked to agree to a no-lien agreement if you are established. You can agree to furnish partial releases of liens for amounts, say over $2,500, provided the clients pay on time. When asked for a no-lien contract my standard response is, “Why, aren’t you going to pay me?” There is no legitimate reason for you to give up your lien rights. If your credit sucks, the client can make checks payable jointly to you and the major subcontractor until you get established.
If a lien is filed on your job, bond it off the job if you have the capital or find out the basis and help get it settled ASAP. If you’re getting paid and you’re not paying the sub, you probably deserve the heat — while you’re here ...