Since we haven’t published in a couple of weeks, we are taking a break from re-runs. Today, we have a brand-new article for you in our Real Estate Law series. Today, we’ll be discussing the Contractor’s Lien.
Snafus In Home Improvement:
The Contractor’s Lien
There are many issues that can arise during a home improvement project. One of the worst of these is a Contractor’s Lien. Also called a mechanic’s lien, a Contractor’s Lien is filed when a contractor or subcontractor claims you have not paid for work or supplies. It places a security interest on your property, something that could lead to foreclosure.
When planning any type of construction project, it is best to be aware of the pitfalls of a Contractor’s Lien. With proper planning, you can decrease the likelihood of incurring one yourself. If one is filed for any reason, understanding these liens will better prepare you to fight them, should they occur.
What is a Contractor’s Lien?
A Contractor’s Lien is a document, filed with the courts, that gives the filer a vested interest in the title to your real property. A contractor, subcontractor, or supplier may file this document when s/he claims any portion of monies due have not been paid. It is a vehicle for home improvement providers to force payment for work performed. Generally, these liens are valid for a year, and may be extended if necessary.
Who Can File a Contractor’s Lien?
Pretty much, anyone who had worked on the project and/or has provided supplies can file a Contractor’s Lien on your property. This includes General Contractors, roofers, plumbers, electricians, general laborers, and anyone who supplied materials to these individuals.
In Connecticut, you only need to owe that person more than $10. New York has no minimum amounts.
What if There is No Written Agreement?
Simply put, when you engage a tradesperson for a home improvement project of any kind, you are forming a contract. This is true whether the agreement is oral or in writing. When you agree on the scope of work and the price, you are forming a contract, regardless of if you write that out or not. The presence or absence of a written contract does not preclude a Contractor filing a lien. However, it is ALWAYS better to have a written contract. It will be much easier to defend yourself against such a lien with a written contract.
I’ve Paid My Contractor, So I’m Safe…Right?
Not necessarily, Your contractor may have bought your materials on credit, or he may have used a subcontractor or laborer in the process. If you have paid your contractor, but s/he has not paid his workers and/or suppliers, you may still find your real estate being attached.
What If My Contractor Has Done Substandard Work?
This is a very common scenario. You hire a contractor, lay a deposit, and let him commence. Midway through the job, it’s clear s/he is not doing things according to plans, or you are not happy with the quality. You decide to withhold a portion of the payment until the quality issues are addressed. Unhappy, the contractor leaves your property, heads to the courthouse, and he files a lien on your property. Maybe the contractor blames the issues on a laborer, and dismisses that laborer without paying him for the day. That laborer has the right to file a lien, not against his boss, but rather against the property on which he worked.
In other words, even if you are not happy with the quality of the work, in the eyes of the law, it does not justify non-payment. It is better to negotiate with a contractor than to withhold payment if you wish to protect yourself from liens.
What Can I Do to Protect Myself from Liens?
In an ideal world, you would hire a professional, s/he would do his/her job, and s/he would pay all suppliers and workers. Since we don’t live in an ideal world though, there ARE steps you can take to protect yourself.
Have Written Agreements for ALL Home Improvement Projects:
Written agreements, with clear deliverables and costs, are one of your BEST protections against contractor’s liens. Have a Real Estate Attorney review these contracts to ensure they are worded to protect you, rather than the contractor. It will cost far less to have a lawyer review the initial contracts than it will to have him/her defend you against a shady lien.
Ensure Your Contract Has Clear Payment Schedules:
EVERY contract needs to include clear payment schedules, with incremental payments being made when certain tasks are completed to satisfaction. Ensure EVERY payment is made according to schedule, and have the contractor sign-off with EVERY payment. If you are making a payment to cover the cost of supplies, ensure the contractor signs something indicating the supplies are paid for, in full.
Incorporate “Lien Wavers” Into the Contract:
A lien waiver is a document from a contractor, subcontractor, supplier, etc. that states they have received payment and waive any future lien rights to the property. These should be supplied by your contractor at no additional costs to you. Having the contractor sign a lien waver with EVERY payment is perhaps the BEST way to protect you from claims on your real estate.
Document, Document, Document:
Documentation is your BEST proactive defense. Document everything. Take lots of photos, including before, during, and after photos. Save EVERY invoice, purchase order, and receipt. Pay everything with credit cards or personal checks. Avoid cash payments, money orders, and other forms of payment that are hard to trace or prove. And whenever possible, make payments directly to suppliers or subcontractors.
What Do I Do if I am Subject to a Contractor’s Lien?
Do NOT try to handle this yourself. You will need to consult with a skilled property attorney. The first thing the attorney will do is check to see if the lien is valid. Be sure to provide your attorney with ALL of your documentation. Contractors have to follow very specific policies and procedures, and if they err at all, the lien will be invalidated. Often, they can be overturned on a technicality. There are very specific time-frames that need to be followed.
If you can prove you have paid in full, on time, and according to the contract, your attorney will prove the lien is invalid. In this case, the lien will be dismissed.
If the lien is found to be valid, you will need to defend yourself against it. This could involve proving substandard work or breech of contract, negotiating a settlement, or even paying off subcontractors and filing suit against your contractor to recoup those costs. Most often, your attorney will try to negotiate a settlement that will remove the lien.
Home improvement projects can be very stressful, and many difficulties can arise among the way. Perhaps the worst is a contractor placing a lien on your home, something that could potentially lead to foreclosure if you are not proactive. A Contractor’s Lien, or a mechanic’s lien, is legal action, giving your worker(s) a vested interest in the title to your property when it is alleged that money is owed. You will need to prove the lien invalid before it is dismissed.
The best thing to do is protect yourself from Contractor’s Liens at every step of the way. It is always preferable to have a written contract, rather than an oral one, with all payments specifically delineated. This should include payment schedules. Whenever possible, incorporate lien waivers into construction contracts. Document every payment and never pay with cash. Have your attorney review the contracts before you sign them. And if you receive notice a lien has been filed against your home, call an attorney immediately. Never try to defend a Contractor’s Lien by yourself.
Here at the Law Offices of Heath D Harte, we have extensive experience with home improvement contracts. We have seen it all, and have been dismayed at how many shady contractors get licensed by the State. We are working with a group now to try to establish a bank of contractors for our own Real Estate Law clients, so that they will not have to suffer some of the poor work that we, ourselves, have suffered. (Stay tuned to this blog for updates on this project.)
We have defended many bogus Contractor’s Liens, getting them dismissed with little fanfare for either party. And we have successfully negotiated valid liens so that both the homeowner and contractors are satisfied. Too many dishonest contractors use liens in a retaliatory fashion. People get scared, try to handle it on their own, and end up losing terribly. As Real Estate Lawyers, our goal is to take the fear out of the process. We will get your title cleared quickly and efficiently.
As always, we are here to help if you are subject to an invalid lien. If you are in the New York-Connecticut area, and you are planning a home improvement project, contact us today. We’ll review your contracts and set you up so that Contractor’s Liens will not be a worry on your project.