Construction Liens: The Perils Of Procrastination

In a perfect world, every property owner would promptly pay their contractor's bill. Of course, we do not live in a perfect world.
United States Real Estate and Construction
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In a perfect world, every property owner would promptly pay their contractor's bill. Of course, we do not live in a perfect world. For that reason, contractors are able to record construction liens to secure their payment rights. But just because a contractor has the right to record a lien does not mean it is advisable for the contractor to contact their lawyer and record a lien when a payment is a day late. At the same time, contacting the lawyer on the last day to record the lien is an even worse plan. How should contractors navigate the situation?

Under Oregon law, construction liens must be recorded within 75 days after the earlier of: (1) the last day the contractor provided labor or materials or (2) the date construction was completed.1 That gives contractors a window of time to attempt to work out any payment issues with the property owner before recording the lien. Generally, contractors should take advantage of that window. Recording liens costs money. If the property owner just needs an extra week or two to make the payment, there is little sense in incurring the costs of immediately recording the lien.

Waiting until the last minute is also a bad idea, however. Sometimes a demand letter from a lawyer will demonstrate to the property owner that the problem isn't going away, so they pay what is owed to avoid a lien. If the contractor delays too long before turning the matter over to their attorney, there won't be enough time for a demand letter. Even if the contractor does not want a demand letter, it takes time to accurately prepare the lien, get it notarized, and record it. If errors occur because the lien was prepared on a rush basis (for example, miscalculations lead to a gross overstatement of the lien amount), the entire lien could be invalid. The contractor should also leave enough time so that they can discuss with their attorney any potential issues on the project. It is not unusual for a lien recording to prompt an owner to hire a lawyer and decide they want to fight about everything they did not like about the project. Suddenly, rather than the owner being willing to resolve a payment dispute with, say, a $500 discount, as they might have done before the lien was recorded, the contractor might be receiving a demand letter claiming the contractor actually owes thousands of dollars due to allegedly defective work. By waiting until the last minute to ask for help, the contractor decreases their lawyer's opportunity to address and resolve such potential pitfalls.

In the ordinary case, a contractor should use the first 45 days or so to attempt to resolve the matter on their own. If the matter is still unresolved, it is probably time to turn the matter over to legal counsel. With 30 days left before the lien deadline, the lawyer will have time to assess potential risks in recording a lien, send a demand letter, and, if the matter is still unresolved, work with the contractor to prepare and record the lien.


1. ORS 87.035(1)

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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