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Owners of construction projects, and their lenders, are
frequently anxious about the prospect of mechanics' liens being
filed against their property. Whether filed during the course of
construction or afterwards, these actions can be distressing for
owners, especially if all the money allocated to the project has
already been paid out. Mechanics' lien laws vary from state to
state. In some states, contractors and subcontractors must overcome
procedural hurdles to file a lien, a process that can act as a
safeguard for owners. Regardless of state-specific lien laws, the
following checklist will provide a few simple steps that owners can
take to protect their projects from mechanics' liens:
Be vigilant in scrutinizing all pay applications and supporting
documentation, and maintain a regular physical presence at the
project site. Does the project on the ground look like it has
reached the stage of completion that the contractor has claimed in
the pay application? Can you see evidence on the site of all the
subcontractors for whom payment is sought in the pay
application?
Require the general contractor to obtain a payment bond. While
the existence of a payment bond on a project does not automatically
prevent subcontractors from filing liens in many states, it does
act as a deterrent. That's because it gives unpaid
subcontractors a source from which to claim payment, other than the
filing of a lien on the owner's property.
Every time you make a payment, make sure you get lien waivers,
from everyone who could potentially claim a lien on the property.
The promise of a final lien waiver from the general contractor at
the end of the project is all well and good. But it is not
especially helpful when a project runs into difficulties halfway
through construction, and it turns out that none of the payments
made to the general contractor so far have been used to pay
subcontractors working on the project.
Consider reserving a right in your contract with the general
contractor to make payment by joint check. This can be a useful
tool if you suspect that the contractor is not using monies paid in
order to pay subcontractors entitled to payment.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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