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Suppliers of labor and materials hold significant financial sway on construction residential projects and frequently demand an upfront deposit payment. In any other industry, this would not be unusual. However, in the construction industry, payment delays and lengthy billing cycles make it necessary for contractors and subcontractors to wait an average of roughly ninety days. Consequently, contractors frequently start a job with a substantial financial load minus their deposit
Contractors, subcontractors, building material suppliers and labor providers frequently enter a new project in double debt because they are still awaiting the final settlement from the previous project and must utilize, their own funds, aloan or credit to compensate for the supplies, materials, labor and other expenses for the new project. The financial load increases as a contractor take on multiple projects at once.
Fortunately, taking advantage of the Lien Laws in their State and sending a Preliminary Notice on each project is a straightforward approach for construction firms to relieve the strain on their cash flow. Here, we explain what Construction Preliminary Notices to Owner are, why they are used, and how to send them.
Lien rights refer to a contractor’s, subcontractor’s, or supplier’s authority to file a mechanic’s lien against property owners legally. It’s a means of enforcing payment for work performed or rendered services in the event of prolonged delays or reluctance to pay.
In other words, lien rights provide a form of security against financial risks as they provide a legal claim on the property title and revoke the owner’s right to sell it or refinance the property, until they are paid what they are owed for the job performed.
Unpaid parties providinglabor and materials for a private commercial or residential project can also file a mechanic’s lien to protect their interest and eventually receive payment from the property owner by perfecting their claim in court. In layman’s terms, enforcing your lien’s rights is equivalent to placing a wheel clamp on the property on which you’ve just completed work. .
Mechanic’s liens can also enforce a lawsuit that could prompt property owners to pay more than what they owe, depending on the damages caused to unpaid parties during the period, such as project losses, failed loan payments, etc.
However, to establish your lien rights, you must be highly proactive and do your due diligence to ensure you’re well prepared by providing the property owner and all parties involved in the project with a Preliminary Notice to Owner; without one being provided or filed, you cannot establish your Lien Rigts to begin with. Read further…
As with anything involving courts and legal proceedings, you must adhere to certain rules and regulations. In most states, you must provide the owner with a preliminary notice outlining all the parties involved in the job and the total amount owed for the project.
The Mechanic’s Lien will be filed with the county where the property is located if the property owner does not pay the full amount by the deadline, ranging from a few weeks to a whole year following completion, depending on the state.
The Preliminary Notice to Owner must be sent days so many days in advance or within the timeline provided by each State when providing labor or materials. The Preliminary Notice is to be sent to all the parties involved in the job besides the property owner.
Some states require Preliminary Notices to be sent during the project or following completion, such as Arizona (20 days after starting), Arkansas (75 days before completion), and Indiana (60/90 days after completion). Moreover, it’s also smart to send a Preliminary Notice to establish your Lien Rights even if your State doesn’t require one at all or requires one in certain circumstances. States with these conditions include Texas, Hawaii, Nebraska, Idaho, and Pennsylvania.
After sending the notice, you need to preserve your Lien Rights by following strict deadlines and not missing out on tasks or documentation. Otherwise, you could lose your Lien Rights.
The following are some valuable tips you can use to preserve your Lien Rights to ensure you’re paid what you’re owed for work performed or services rendered:
The last thing you want is to have relevant information missing from your Mechanic’s Lien. Remember, judges are instructed to review these documents carefully and identify, invalidate, and even scrutinize any inaccuracies. Hence, you need to ensure the Mechanic’s Lien contains precise information related to the project type, property owner, contractor, licensing information, lender, bond, if applicable, etc.
Preparing multiple contracts is among the best strategies you can use to preserve your Lien Rights. The process involves drafting separate purchase orders and labor contracts with one master contract so you can file multiple Mechanic’s Lien claims.
When filing a Mechanic’s Lien claim, make sure you pay attention to the property’s description and remove any bare land that may not be a part of your project to ensure the courts enforce your contract. This is one of many loopholes owners try to exploit to delay or refuse payment.
To preserve your Lien Rights before beginning work, make sure the owner is aware you’re the contractor working on the project, especially if you don’t have a direct contract. Ideally, you should send Notice to the Owner at least 45 days before procuring labor or materials for the job site.
Most Lien Release forms have through dates that free owners of any rights contractors, suppliers, or other unpaid parties have up over them during the lien period. So, before you sign it, make sure you check the amount on the form and ensure it matches your calculations. The last thing you want is to sign a document without reading the fine print first.
As mentioned earlier, you can’t establish and preserve your lien rights unless you issue a pre-lien notice to all responsible property owners. Moreover, you need to ensure your Preliminary Notice is drafted correctly as per your State’s laws and delivered timely.
Therefore, there’s little margin for error, as even the smallest mistakes could stop you from getting paid what you’re owed.
i-Lien is a game-changing software solution designed to help automate and authenticate the Preliminary Notice drafting process. The solution has been integrated with different State laws and regulations.
Hence, you can save hours of research and avoid any costly errors. i-Lien also enables you to create a wide array of other legally-binding documents, Lien Warning Notices, Waivers and Releases, , Commencement Notices, and more.
So, get in touch with our team and explore what our innovative mechanic’s lien solution has to offer.
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WHAT IS A CONSTRUCTION LIEN?
The construction industry is competitive. To succeed, one needs to have a commendable work ethic, superb problem-solving abilities, and a commitment to providing excellent customer service. Most contractors would tell you that realizing their customer’s’ visions is worth it if you ask them about it.
When the check is deposited into the bank account, it’s even better. A contractor has a right to compensation when they work on a customer’s property. That is the sole justification for construction liens.
What happens if contractors aren’t paid? It is hard to believe that it still happens, but people in this world don’t uphold their end of the bargain. The contractor may do the work per the contract, but the customer would still be unwilling to pay.
A contractor may need to file a Construction Lien in these circumstances to obtain any payment due to them for their work. Here, we will explain a Construction Lien, the rules for construction liens, and the different ways they may be used.
A Mechanic’s Lien, often referred to as a Construction Lien, is a security interest on a real estate granted to contractors, suppliers, and other parties to collect payment on construction projects.
Every U.S. State has Construction Lien laws in place that specify the Notices to be given, due dates, and steps contractors must take submit a lien claim and how to file it.
A contractor, subcontractor, building material supplier, equipment or labor provider, who has not received payment for a job done on a property may file a claim for a Construction Lien. It is intended to protect contractors and other professionals in the construction industry from the possibility of not being paid for their work.
A Construction Lien clouds the title of a property, making it hard or impossible to sell or get refinancing. In the worst instance, it can compel the house to be sold to pay the compensation owed to the contractor or subcontractor.
Refusing to make the payment will only fix the problem if a property owner is happy with the work performed by a contractor or other professional; the law does not allow it though. The property owner may also be responsible for paying subcontractors used by the contractor to perform a part of the job but were not paid for their work; a Mechanic’s Lien may be used in both these scenarios to guarantee payment.
A Mechanic’s Lien must typically be filed within two months of the completion date of the contentious project, depending of the State where the job was performed. Suppliers and subcontractors may also file liens in addition to general contractors on a contract with the property owners.
In other words, if a general contractor receives payment but neglects to pay suppliers or subcontractors, the suppliers and subs themselves may use a Construction Lien to compel payment. Property owners should be conscious of this and ensure they have access to all invoices and relevant payment documentation related to a construction project along with a Joint Check Agrement for both General Contractor and Sub-contractors to sign. Payments must be made to suppliers and subcontractors to avoid issues for the property owner.
Different states approach Construction Liens in varied ways. The contract that specifies the kind of construction and the work to be done must typically be included when filing a Construction Lien. The Contractor, equipment rental, material supplier or professional has the right to record the lien within the time frame allowed by the State.
A Construction Lien or Mechanic’s Lien can often only be filed if a written agreement specifies the type of work to be undertaken, the materials to be used, and the agreed-upon amount for the job, and a Preliminary Notice to Owner has already been provided for the job However, State laws differ, so it is best to check the law on construction liens in your state before filing a mechanic’s lien.
A Construction Lien is one of the most effective payment instruments in a contractor’s or supplier’s administrative toolbox since it offers many advantages to both parties. Here are some of the ways a construction lien may be used.
A contractor typically has a right to compensation for their time, materials, and labor when they make improvements to real property. The contractor may put a Construction Lien on the property if the landlord or hiring party chooses not to pay them.
You should know that the lien is against the property, not the owner. Selling or refinancing the property might be extremely challenging because the debt is attached to it and it must be paid off, in order to clear its title. Should the project’s owner require additional funding to complete it, it may be challenging to find new funding sources without paying off the previous debt.
To be entitled to file a Mechanic’s Lien, the contractor must fulfill several standards, which differ from state to state. However, in most states, the recorder’s or the clerk’s office in the county where the project is located is where the contractor files the construction lien. As a result, the lien is now included in the public property records and anyone can search for it.
Anyone involved in making alterations to a property is eligible to file what is also referred to as a Construction Lien or a Mechanic’s Lien, as long as a Preliminary Notice to Owner has been provided. Be ware of Mechanic’s Lien forms filed by unlicensed contractors or on projects that Preliminary Notices were NOT provided and without a proper procedure being followed. These requirementscan apply to those working on construction project, providing rental construction equipment, labor and materials used in a construction project and attorneys defending their property owner clients can be a stickler with the laws and procedures, trying to find any loophole.
For all these parties involved in the project, the i-Lien software makes it possible to prepare Mechanic’s Lien forms without spending too much time or effort on it, since the software maintains a database of the parties involved, dollars and dates and it is as easy as selecting the form to print from its menu. The i-Lien software automates and streamlines the process of creating Construction Lien Notices & Mechanic’s Lien documents to save time, safeguard your rights, and to quickly help you get paid!
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