THE FINE PRINT — How does a contractor use construction liens to protect its interest?

September 2, 2014

By Jan Pierce

janpierceIn a previous column about construction liens, I explained them from the perspective of the homeowner. A construction lien is a very special kind of lien that is intended to protect contractors and suppliers who do not get paid by owners or other contractors.  They don’t require the filing of a lawsuit, and upon filing, they relate back to the last date of work, and take priority over any subsequent liens or mortgages.

A contractor can place a construction lien against the owner’s property simply by filing the proper documents with the Clerk of Court. The tricky part is making sure the proper notice (or notices) are given within what are very strict timeframes. Construction liens can only be filed within six months of the last date of work. And at least 30 days prior to filing a lien, the contractor must deliver, to the owner, a notice of intent to file a lien. This is a warning to the owner that a lien will be filed if the balance isn’t paid. It effectively shortens the time to start action against the owner to no more than five months.

Also, within 10 days of starting work on a project, subcontractors on residential jobs are required to provide the owner with notice of the subcontractor’s lien rights. This notice requirement also applies to general contractors who hire subcontractors. The easiest way to make sure this requirement is not missed is to include the required language in a written contract. The leverage a construction lien gives a contractor is that it ties up property, making it virtually impossible to sell or refinance, while the lien is in place. A construction lien can also be foreclosed, just like a mortgage. To do so requires filing an additional lawsuit, and it must be started within two years after the date the lien was filed. Filing a lawsuit is expensive, but it tends to get action. The goal isn’t necessarily to get the property, but to put pressure on the owner to pay. Often the bank that holds the first mortgage on the owner’s home will put pressure on the owner to pay.

A subcontractor or supplier can also file a lien even if the general contractor has been paid. This may seem unfair, but it’s why owners should make sure they get lien waivers from subcontractors and suppliers when paying the general contractor. The fact that the owner needs to be this concerned about liens keeps the pressure on the general contractor to pay his subcontractors and suppliers. If the general contractor has been paid, but has not paid the subcontractors and suppliers, it is likely in violation of the Theft by Contractor law. Such violations are punishable both civilly and criminally.

Send your question to jan@janpiercelaw.com. To protect your privacy, your name will not be published. Jan Pierce, S.C. is a law firm In Milwaukee that was founded with the belief that people can make a positive difference in the world and make a profit. The firm’s emphasis is on assisting small businesses and social entrepreneurs in all aspects of launching and managing their ventures. Disclaimer: Advice in this column is general legal information and does not constitute, nor is it intended to be, legal advice.

 

image_pdfimage_printPrint
Copyright 2016 by Bay View Compass. All rights reserved.
This material may not be published, broadcast, rewritten or redistributed.

Comments

Comment on this Bay View Compass item.