Life at the Bottom…
of the construction food chain!
Some facts about mechanics and materialmen’s liens
Life at the bottom is not always pretty. As the smallest crustacean in the ocean quickly learns, it is a daily struggle just to stay alive. Life as a material supplier is not quite so different. Sometimes you have to fight and scrape to get anyone to pay even the smallest bills. Even your best clients sometimes find a reason to put you off until next month. So what do you do? What leverage do you have to get some attention from the big fish, so they stop always trying to take a bite out of you.
To help give some protection to the little fish in the sea, the legislatures of all of the states have seen fit to pass laws to give just a bit of leverage to even the smallest fish. These laws are called Mechanic’s and Materialmen’s Liens. The laws allow anyone who provides materials or labor to the improvement of another’s real estate to have a lien upon that real estate. And if that party is not paid for the work that was done, it allows that party to have the real estate sold at auction to pay the bills. In fact, that is pretty good leverage to have upon someone’s project if you are not paid. But how do you secure this lien, and how can you make it an effective part of your accounting procedures?
We have included a short summary below which provides some of the details necessary for perfection of a mechanics lien. However, the law is very specific and must be followed precisely to be valid. Do not rely on the summary when preparing your documents. Check the law. But overall, there are only a few key points in the application and function of lien laws. The key questions are, “Who did you work for?” and “How long has it been since you have delivered to the job site or worked on the project?”
Who you worked for is the most important question. Any party who performs work or delivers material to a site has a lien at the time the work was performed or delivery was made. However, you have to perfect that lien to be able to enforce it. Perfecting the lien has several important components:
- Who did you work for? Who is your contract with? If you did not have a direct contract or purchase order with the owner, the owner may not know that you have not been paid for your work or supplies. This may be true especially if the owner has been making regular payments to the general contractor. Therefore, the law requires that you first notify the owner of your intent to file a lien. If you did have a direct agreement with the owner, then no notice is required because the owner is presumed to know whether you have been paid.
- When did you do the work or deliver supplies? “When” you performed work or supplied materials is of the utmost importance. Timeliness is the key to mechanic’s liens. The date of last work or last delivery is the date of importance. In the case of single or double owner-occupied dwellings, you must notify the owner of your intent to file a lien within 75 days of the last day of work or delivery. This is a very short time period. In the case of claims less than $1,000.00, you must notify the owner within 75 days. In amounts in excess of $1,000.00, you notice must be given within 120 days. These time periods are absolute. One day extra and the lien is no longer valid.
- Filing of the Lien. Any time after the notice of intent is filed, you may file your mechanic’s lien. If you have a direct agreement with the owner however, no preliminary notice is required. In either case, all that is necessary to perfect the lien is the filing of the lien in the county clerk’s office where the work is located. The lien must be filed within six months from the last day that material was delivered or that work was performed. A copy of the lien must be mailed to the owner within seven (7) days of the filing.
We have indicated the information that must be contained in the lien document on the insert, and it is critical that all statutorily required information be included. Your attorney who specializes in construction matters can assist you in developing these procedures within your organization.
The key to effective mechanic’s liens is timing. Make sure you are aware of the time limits on each account, knowing specifically where you are in the construction food chain by knowing who you work for. Never be a supplier to a supplier, and never work for a sub to a sub. If those things are achieved, you can protect yourself a little better and avoid being a meal just a little longer. | |