Picture the scene: there’s contractual work being done on a property. Then when it comes time for payment, the money isn’t there.
What happens? Do all balusters break loose? This isn’t a scenario we’d like to imagine, but incidents can happen and cause issues for contractors and property owners alike.
The remedy for this is a mechanic’s lien, which ensures that payment goes through when needed. If you’re wondering how do mechanic’s liens work, this guide will explain the basics.
Here’s what to know:
What Are Mechanic’s Liens?
Mechanic’s liens is a payment made to a general contractor or construction company before the work begins. This is seen as insurance for both the contractor and the client.
The contractor wants to get paid for their hard work even if there’s a project interruption. The property owner wants to avoid any litigation if they can’t make a payment after the work gets completed.
If you’re a contractor, it’s also crucial that you respond in case you don’t receive your payment on time. Make sure you send a preliminary lien notice to the property owner.
How Do Mechanic’s Liens Work?
Now let’s look at the entire process of how mechanic’s liens work in practice. Let’s look at different scenarios so you can see when you’ll need to request one.
Let’s say you’re a contractor hired to renovate a house. You might outsource part or all the work to a subcontractor. What happens if the work gets completed and you have to pay the subcontractor?
You’ll first need to wait for the property owner. You’ll take a portion out of your fee to pay your subcontractor. But you can only do this if you get your payment on time.
You might want to send a mechanic’s liens to ensure such an issue doesn’t arise. Otherwise, you can expect a lawsuit from your subcontractor.
Another situation is when you work on a project that gets interrupted or canceled. Even if you didn’t start, it’s likely that you had to do some labor. You had to inspect the property and draft a plan. You might have had to buy equipment and materials for the project.
In such scenarios, many property owners simply won’t pay. They’ll think because the project wasn’t completed, it’s not an issue. But they don’t realize the loss of hours and expenses you’ll have to incur.
You might have to consider filing mechanic’s liens in such a scenario. Make sure you hire a legal expert to help you whenever there’s such an issue.
Now You Know About Mechanic’s Liens
Now you know how do mechanic’s liens work and when to use one.
They work to ensure that a contractor gets paid for a project. This is insurance for the contractor as well as the property owner. It prevents either party from having to worry about litigation.
You can look at our examples of what scenarios warrant filing mechanic’s liens. If you’re planning on working as a contractor, be sure to connect with legal assistance for mechanic’s liens.
As a contractor, you need more knowledge to set a solid foundation. You’ll find more relevant blog posts on our website.