Tag Archives: lien

A lien on the construction can lead to serious problems

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You take up a big project, complete the work on time but forget to pay your contractors their dues. This can lead you to some serious problems in the future. If you do not pay your contractor for their work, they have every right to place a lien on the construction project and you will then find it difficult to get a completion certificate. More to this, banks will not entertain you when it comes to refinancing or for that matter any sort of financial assistance. Banks do not get into projects that have issues. They want projects whose title are clear and have no issues whatsoever. It can cause several other issues to the constructor when it comes to selling the apartments in a condominium which he has constructed for residential purpose. If the title on the property is not clear, he will find it absolutely difficult to sell it to the public.

The construction company has to ensure that he clears the dues of the contractors should also ensure that the contractors are also paying to the sub-contractors because if they are not paid then they can also adopt the same methodology and create issues for the company. The sub-contractor can also place a lien on the project and can put a halt to the sale proceeds. It has been seen that liens are ideally placed as a last resort when contractors do not see any other option to get their money they go for placing liens. Once a lien is placed on any construction project, it gets recorded in the credit rating of the company. This means that credit rating of the company gets hampered which eventually affects the overall goodwill of the company. Construction companies do not want to play with their goodwill and therefore they do not want to take any potential risk by not paying their creditors or contractors.

Further to this, a dip in their credit rating can also cause problems to them when it comes to getting loans from banks. Construction companies with poor credit rating do not easily get loans and if at all they manage to get it from any financial institution then the interest rates will be really high. This in turn will have a negative impact on their business. They will never want such things to happen and therefore should try everything to avoid getting a lien on their project.

There have been several instances where construction companies have paid the contractors but they in turn have failed to pay other concerned parties to the project. This can be a big pain for the project owner because here he may not know all the parties who are associated with the contract and then all of a sudden you get to know that someone has placed a lien as they are not being paid. However, you check your records and see that you have paid all the parties involved in the transaction on time. You can file a complaint and state that you are clear in paying everybody and can disclose the records in front of the concerned authority. But this is unquestionably a big pain and in order to avoid this, you should pick contractors of good reputation.

Not any lien to be placed for not receiving the dues

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There are few construction companies who think that they can get away for not paying their contractors for their work but they can be absolutely wrong and can fall flat on their faces if they ever intend to do it that way. Contractors or any sub-contractors who have worked on a project can place a lien on the property if they are not paid their dues in full. They only need to submit the invoices to the court and then the court will give a ruling in their favor. So there is nothing known as getting away so easily from the strong clutches of the law of the land. However, every state in the US has some variance in their laws and the contractor who is placing the lien must be aware of these laws or else he might invite trouble for himself.

There are different types of liens that a person who has done work can place on the person who is not willing to pay him. But as far as the work of a contractor is concerned, the lien that he can place is known as “Mechanic Lien”. Other than this lien he can’t place any other kind of liens on the property and if at all he does try to place any other lien, it will go against him. Therefore, before he does anything with the lien, he needs to update himself with the process on how a lien works and how he can go ahead with placing it.

He may not know everything about it but some very basic details which ideally every contractor is expected to know. For instance, within how many days he can place a lien on the property and if at all he exceeds those number of days, will he be able to place any lien or have to follow a different process altogether. These small details are important to be known. Other than this, the detailed knowledge about the matter is to be known by the attorney. So if a contractor has to place a lien on a property, he has to first consult his attorney about it and on his advice he may take further action.

In a mechanic lien, a contractor or a sub-contractor or anybody who has worked on a given property and is not paid his dues can place a lien on the assets of the property. Once the lien is placed, you have to send the notice to the project owner and have to keep the notice in public so that no one later can say that they did not know about any such lien on the property. Especially the banks or any financial institutions have to specifically know about any liens on the property. If there is any lien then they will not refinance the property or will not give any loan keeping that as mortgage.

So before you place a lien, it is important for you to know the kind of lien to be placed and not haphazardly place any lien.

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Don’t let contractors put lien on your construction property

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If you are thinking to not pay your contractors for their job for whatever reason, you should think twice about it. You may find their work to be of poor quality but when you see the progress of the construction, you can let the contractors know that you do not like their work and they need to focus more on the quality part. Just not paying them their dues can drive you into serious problems. The contractor can place a lien on the construction property and can make the entire thing quite messy for you. It is better to counter them upfront and tell them you do not like their work rather than not paying them their dues.

Let us first understand what a lien on a property is all about. Having first lien on a property means that it completely belongs to you and in case if you want to sell it off and go back home with all the cash you are free to do so. Now if someone puts a lien on your property, it means that if you sell the place you can’t get away with the entire cash amount. You have to first clear the dues of the person/entity that has put the lien on your property and then whatever is left belongs to you. It eventually means that you do not have the absolute right on the property.

This is perhaps just the tip of the iceberg. You may be further entangled with more such complications that will act as a big distraction in your business. Your credit rating goes for a toss. You are also not able to refinance the property with any financial institution. This means that you can’t even keep this place as LAP (Loan Against Property). Moreover, when you are letting you the construction work to a contractor and if he sub-lets it to another contractor, you need to ensure that the contractor pays all the dues to the sub contractor or else that particular person will place a lien on your property. It simply means that whosoever person who has any interest in your property can place a lien on it if their dues are not paid.

In case you come across a contractor who does not carry a good record and you unfortunately give the work to him. In this case, you got to be absolutely sure that you keep records of your payments to him. Such people can create nuisance even after they have received all their dues. In case you are clean, you hire an attorney who will take such guys to task. But before you hire any contractor, it is important that you do a research on their conduct. You can check things like how long they are into this business and how their relations have been with other construction companies. You can check with people in your business circles and hire someone who will not unnecessarily put liens on the property to create problems for you.

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Liening construction job sites

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Imagine you get a contract to work on a site. You invest good deal of money into the work. All your labors have worked hard, day and night to make sure that the work is completed in time and then once the work is completed, you get to know that the company who has given you the work can no longer afford to pay you. That will come as a lightning bolt out of a clear sky. You may wonder how all of a sudden he does not have any money to pay you and what you have now to protect your interest. To be frank, you got nothing to protect your interest. You have to pay your workers for their labor and you get nothing out of this entire deal. On the contrary, you just end up spending all you have.

Well, this is not how things work in the construction industry. When you take up a work, you make sure that you get the payment regularly. However, before that, you have your lien on the property so that in case the project owner is unable to pay you, he can’t use the property and you can sell it off to any financial institution or do whatever to claim your money back.

Now take the same example other way round. Let’s say that you have taken the contract and you sub contract it to a third party. For some unfortunate reasons, you are unable to pay the sub contractor his dues. This will result him in placing a lien on the said property. Therefore, it is believed that placing a lien on the property is perhaps the only method by which you can secure your payments.

Placing a lien can have serious implications once it is placed on any given property. The first major implication will be banks or any financial institution will lend money to refinance the property. Banks want them to be having first lien if they are giving any loan on an existing property. So if there is already a lien on the property, you cease any scope of getting loans from bank. Not only this, you credit rating also takes a beating. This has a huge impact on your borrowings.

It has also been witnessed that some contractors fraudulently place liens on a property even though they have received all the payments. This is a serious issue and is also dealt stringently by the forces. However, you have to go through lot of hassles till the time it is not proven that the money is paid to the contractor. Work at other jobsites is also stopped as contractors fear that they will not get paid for their work. It is crucial that you scan the contractors well by checking their work history and then give work.

Liens on property can have damaging impact even if it is fraudulently put on you. Therefore, always ensure that you pay your contractors well in time so that they do not impose a lien on the given property.

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