Every subcontractor knows that completing a project in a timely and professional manner is not always the end of the project. To provide subcontractors with a legal way to ensure they get paid after every project, state laws allow them to file mechanics liens against the property where the work was performed.
In fact, state laws have facilitated the filing of mechanics liens since 1791! In honor of the 4th of July, here’s a copy of the first Mechanics Lien Act of 1791.
What is a mechanics lien and how can it help subcontractors get paid?
A mechanics lien is an encumbrance on the title of the property to secure the debt of the person performing the work or delivering materials. This applies to work performed or materials provided to a private residential, business, commercial project and as lien on funds for public works jobs. A mechanics lien is designed to provide notice to the landowner that unless the GC or the owner pay for work performed the lien will be foreclosed upon and the land sold at auction.
Filing a lien as a subcontractor allows the subcontractor to get payment out of the real estate itself, and if necessary, allows the lien holder to go to court to force the property to be sold at auction.
What are the general requirements for filing a lien as a subcontractor?
There are 3 basic steps to filing a mechanics lien, that are consistent across most jurisdictions. Please contact us for the timelines and details specific to the state and locality where you do business.
- Sending a Notice to Owner or Preliminary Notice: Determine who your contract is with, and file notice as required.
Are you the contractor- that is, is your agreement directly with the homeowner? Or, are you a subcontractor- your contract is with an intermediary or general contractor who is leading the project or some part of it?
If you are the contractor, your contract with the owner serves as notice. The owner knows its contract amount they owe you. To protect your rights, the contract should include a detailed breakdown of the services to be performed and payment schedule, as well as the location and description of the property, and should be kept up to date if the scope or timeline of the work changes. A copy should be provided to the homeowner and lender.
If you are the subcontractor, however, you must put the homeowner on notice of your contribution to the project, and thus your right to file a mechanics lien. In every state, this must be done differently for example in Alabama and Virginia you can serve a notice before you commence work, In California and Florida its sending notices within 20 and 45 days respectively from when you commence work and many times 90 day of intent to lien must be sent like in Illinois or 120 days in Maryland after you complete work. Notice to the owner is required in advance of putting on the lien, and unless you comply with these notices you can’t record your lien -You’ll be learning that complying with your state’s notices is a very narrow window. It is the best business practice to provide notice on every project, and update it any time there is a change in the scope of the work.
It is very important that this notice be accurate- you need to have the correct address, description of the property, description of the work, and name of the general contractor, homeowner and lender. This notice must be provided to the owner, general contractor, and lender- and you should retain proof of this notice. The preliminary notice is required in 20+ states and the notice of intent to file a lien is required in virtually all states. These notices should include a detailed bill and statement that outlines all of the services that were performed for the individual on the property in question.
- Filing or Recording the Lien: What to do when you haven’t been paid (or are afraid you won’t be).
The mechanics lien must be timely recorded at the corresponding local or state office in the county in which the project is located. Usually, this means within 90 days of the last day you were on site performing work like Florida, Illinois and many other states. But, in some situations, it can be as little as 30 days from the date the owner records as in California a Notice of Completion. In New York you have 8 months if commercial but 4 months if residential. The recording of a mechanics’ lien can be complicated, and accuracy is important.
- File the Complaint: Getting the court to act.
Once the lien is filed, you must ‘perfect’ your claim by filing a complaint. A complaint is a legal document, filed with the court, that allows the court to take legal action on your behalf- to get you paid. In California, the complaint must be filed within 90 days of the filing of the lien and more typically the suit is brought within a year of the date the lien is recorded. It is filed with the local court (or in rare cases the federal court) and tells the court what you are asking them to do. Just like the lien, it can be complicated depending on the jurisdiction.
Subcontractors must understand the entire process and know all the requirements needed to file an effective lien. Each state has its own Lien Laws, and these requirements may differ. Over the past 35 years NLB has assisted contractors, subcontractor and supplying with the filing of the preliminary notice, notices of intent, lien and complaint.
This article has been updated from an original version published Sep 19, 2016.
This content is for educational purposes only and is not to be perceived or used as legal guidance.