How do you protect yourself from sub-contractor lien?

Question

Hi fellow BP members.

We are looking to hire a contractor for our next flip we are working on.

I've heard plenty of horror stories about home owners paying the general contractor and then the contractors not paying their subs which causes the subs to place liens on the property.

Then it becomes a "I paid"  "I wasn't paid" battle.

Does anyone have any suggestions on how to protect yourself from this type of situation?

Jay Hinrichs · Answer

@Jennifer Jacobs  see my first response

if your really worried

have your GC provide a list of the subs..   IE abc roofing  CBS siding  NBC plumbing.

have GC provide you with the subs bill..  make out dual check to  GC AND ABC roofing they must both sign to cash.

Jay Hinrichs · Answer

yes  ,, dual check... is one way.. make it out to the general and sub.

two is you don't give the next draw until you have uncondional lien releases in your possession from each sub who worked on your home.

very good your asking this can be a HUGE nightmare.

out our way our contractors are able to carry jobs.. so they do not get paid in advance.. so when we pay monthly we send a lien release with the check and if we are worried we make them come to the office to pick up said check and sign lien release before we give them the check.

your GC should be OK with this if they are not then good chance they are kiking dough.

Wayne Brooks · Answer

Your first protection to know the lien laws in your state.  This will tell what notices are required, and when, from "unknown" subs/suppliers. This way you know who to get signed releases from, other than your GC.  It wiil also tell you what You need to do to protect yourself under these laws.  For instance, subs must give a Notice To Owner form to the owner within 45 days from starting work(or before the GC is paid in full, whichever is sooner) here, in order to be able to file a valid lien later.  But, if the owner doesn't record a valid Notice Of Commencement in the records office, the "45 day clock" doesn't start until it is properly filed.

Jeff B. · Answer

Have the GC get a receipt from the sub & his telephone number.  Verify the sub was paid and THEN pay the GC.

No liens will be filed

Jay Hinrichs · Answer

@David Faulkner  in new construction we really don't run into this subs are professionals

if your doing johnny lunch bucket rehab contractor then all bets are off. you get what you pay for

Jim Hiler · Answer

To expand upon Wayne's comments. In most municipalities the GC is required to file a Notice of commencement prior to submitting your permit application. Most all renovations will require a permit unless you are doing less than$2,500 of work but that's another discussion in of itself. All liens are then tied to the NOC.

You really only need to be concerned with suppliers and subcontractors that file / send you as the owner of the property a "Notice to Owner". This document serves as a notice that they are providing material or services for your property and filing the NTO is the only way they are entitled to lien rights (as far as I know, this should be verified by an attorney). On the NTO they should state the name of the company that they are providing their materials or services to, typically a subcontractor. You should keep the notices on file and make sure you obtain a lien release from each company through your GC or subcontractor prior to (or in conjunction with) paying your GC or subcontractor.

If you're still concerned I believe you can have an attorney or maybe even a title agent do a search and verify there are other outstanding notice to owners on file at your county.

That's been my experience but I typically deal with somewhat respectable subcontractors.

Brian Garrett · Answer

Wayne I see you are in West Palm Beach. I just sent you a colleague request. Would love to see if you have any good GC recommendations in the area for someone new to REI.

Doug Woodville · Answer

@David Faulkner  To address your first post- I would make sure to document everything and communicate with the GC the entire time. It's not in your interest to let poor work, not meeting schedule, failed inspections etc. go without holding the GC accountable for it.

Sorry for taking the post a little off topic.

Mike Salisbury · Answer

The Notice of Commencement advice above is good. If a Lien is filed always ask for a NOC. They are usually not filed at the right time nullifying the Lien.

Laws on this vary by state but- adding a Release of Lien Rights to the endorsement part of your business checks ensures that by endorsing the check you have a signed release. The bank keeps the images on file so you don't have to keep up with the releases but can get them online if needed.

Brian Garrett · Answer

This sounds like an easy, safe and effective method assuming the GC will provide you with a list of subs and those subs are actually legitimate licensed companies.

How do you protect yourself from sub-contractor lien?

Most Popular Reply