How a Mechanic’s Lien Can Impact Your Construction Business

Construction company owners and project managers have to deal with subcontractors in their projects. Many times, these subcontractors put a mechanic's lien on the project to ensure payment once the work is completed. What they often fail to understand is how this lien can impact their project and the entire business.

Who Can File a Mechanic's Lien?

All subcontractors and suppliers who provide products or services for a general contractor may file a mechanic's lien. Architects and engineers may also have a lien if their design becomes part of the actual project.

What Happens to the Project When a Lien is Filed?

Anyone who has filed a mechanic's lien can also send a Stop Notice to the financing company or lender who is providing funds for the project. This alerts the lender to withhold all money until the lien has been paid. This means the construction company won't receive funds to pay workers or purchase new supplies. A lien can basically put a stop to the project until it is satisfied.

If the project has been completed and all funds released, equipment that has been used for the project may be the subject of the lien. On the other hand, a lien may be placed on the actual property where the project is being completed. The owner of the property may halt all construction until the lien has been removed, which would delay the company's ability to complete the work and get paid to move on to the next project.

Timeline

Anyone who wants to submit a lien must follow a timeline. Depending on whether they are a second-tier or third-tier subcontractor, they have a deadline for filing a lien following completion of the work. They must follow correct procedure for the lien to be valid.

While you can have a lien waver signed, it may not be valid until payment has been made. If the company still does not make the payment to the subcontractor, the owner of the property can file a lawsuit against the business.

The best situation for your construction company is to pay the bills as they come in or within 30 days. This helps you avoid the costs and complications that can arise from a mechanic's lien against the property or the business.