Deciding whether to file a mechanics lien on a project is an important and scary moment, and it can be a complicated choice. You’re probably quite used to payments coming slowly and have tactics to manage those situations. But, when payment delays cross the line or you hear about big project troubles, you’re start staring into the face of difficult choices about how to move forward.
Filing a mechanics lien claim may be the right choice for you. This post will go through factors you should consider in the decision.
Do you still have time to file the mechanics lien?
You don’t have forever to toss and turn over the decision about whether to file your mechanics lien. The fact is that there’s only a short window of time to file a mechanics lien, and, to make things even more difficult, determining this timeframe can be a challenge. The filing window is dictated by a number of variables including the state where the project is located, the type of project, what type of work you’re performing, and finally, the meaningful date for your time window calculation.
There’s a lot of materials to help you learn about each of these factors:
- What type of project am I on — is it state, federal, private, or something different?
- Project type information is essential in the construction business
- Calculating mechanics lien deadlines: Last furnishing date or completion date?
- State-by-State Mechanics Lien Resources & FAQs
You may find it much easier to just use our free mechanics lien deadline calculator to see if you still have time to file your lien. Just enter some simple information about your troubled project, and the calculator will examine all of the above factors and return the deadline to file your lien claim.
If you’re past your mechanics lien filing deadline it’s highly likely that you’re unable to legally file a mechanics lien. You may find it helpful to consult with an attorney to see if you can claim some exception or if you’re getting something wrong about the calculation, but don’t hold out too much hope. The lien deadline window opens for a short amount of time, and it usually closes air tight.
Are you qualified to file the lien?
In deciding whether you should file the lien, it’s prudent to consider whether you are qualified to file the lien. This question has two core components: first, are you contemplated by the laws as someone who can ever file a lien, and second, are there any prerequisites to filing the lien that you failed to satisfy?
First, are you protected and ever able to file a lien? Generally speaking, if you provided labor or materials to a construction improvement project, you’ll be qualified to file a mechanics lien. This simple statement can get quite tricky, as there are questions about what constitutes a “construction improvement,” and even, what constitutes “materials” (e.g. is equipment rental “materials” qualifying it for a lien? or how about renting fences?). Learn more about this problem in the article “Can I File A Mechanics Lien For This?”
Second, are there any prerequisites to filing a mechanics lien that you failed to satisfy? To answer this question, you’ll mostly need to figure out whether you were required to deliver a “preliminary notice” at the start of the construction project. In a large number of states, contractors must mail a “preliminary notice” at the very beginning of work to preserve their ability to file a mechanics lien. If your state required a preliminary notice, and you didn’t send it, you may be completely out of luck and unable to file the lien. Learn about each state’s preliminary notice requirements in this guide: A visual guide to the preliminary notice requirements in each state.
Determining whether you’re qualified to file a mechanics lien is important in the decision about whether you should file a lien. After all, there’s no need to toss and turn over the decision if you’re not even qualified to file the lien, and therefore, without any decision to be made at all.
Will filing a mechanics lien negatively impact your reputation or industry relationships?
A while ago we wrote an article about the sensitive nature of mechanic lien filings, asking: Is “Lien” A 4-letter Word on Construction Projects? It is simply impossible to deny that filing a mechanics lien can create some relationship risk on the project or with your industry relationships, and this is a factor you’ll need to carefully consider when decision whether to pull the trigger or not.
There’s more to the story here, though, and that’s because not all mechanic lien filings are created equally.
In many cases, mechanic lien filings are pretty unremarkable and present very little reputation and relationship risk. If a project developer or general contractor files for bankruptcy, for example, resorting to the security rights of a mechanics lien is reasonable. Almost everyone on the project is going to try their hand at filing the mechanics lien, and the lien claims will all be managed by professionals.
The two touchiest situations for lien filings arise whenever there are workmanship disputes or when you’re expecting money from a desperate party.
In the workmanship dispute situation, the lack of payment is stemming from an honest (or dishonest) dispute about the underlying work. It’s common for the parties to get pretty entrenched in their side of the dispute. Disputes are rarely friendly, and while the mechanics lien filing will escalate the situation, it will at least give the unpaid party (i.e. you) some leverage. Learn more about liens in these situations with this article: FAQ: Can I File A Lien If My Work / Workmanship Is In Dispute?
The desperate party situation is more nuanced. This situation arises when your customer is desperate. Maybe they are unpaid on the project, too, or unpaid on a number of other projects, and they are stretched very hard for cash in their business. They’re walking on eggshells across their own customer relationships and a mechanics lien filing from a sub or supplier on their job could put them in a really, really tight spot. They could even lose the job. This is the hardest choice because your relationship with the contractor may be years-old and strong, and you don’t want to make their hard times more challenging. At the same time, if they are truly in a desperate state, it puts your payment at even greater risk. Here, you just have to make a judgment call.
How much damage will losing the money cause you?
In touchy situations when filing a mechanics lien may carry some relationship and reputation risk, you’ll have to balance the costs of that risk with the bottom line damage of not getting paid. Typically, filing a mechanics lien will put your company in an excellent position, as you can see in our Infographic and study showing that a large majority of liens get paid without any further legal action and within a short period of time after filing. Accordingly, in deciding to not file the lien, you should be prepared to walk away from the money. How much is that going to cost your business? And can you weather it?
In “Bad Debt is Very, Very Expensive For Your Business,” we discuss how much additional top line revenue you need to drive into the business to make up for just a tiny amount of bad debt. You can also check out the below video for a more in-depth explanation.
In deciding whether or not to file the mechanics lien, it’s important to consider just how much not getting paid will cost and damage the business, and make certain that you’re willing to trade that amount to avoid the potential negatives of the lien filing.
Ready to file a lien? Make sure you get it right
Well, that’s about it. When faced with payment problem on a project the mechanics lien decision can seem daunting, but just run through the above factors and make a decision.
If you decide to move forward with the mechanics lien filing, then it’s important to get it done right. Get yourself familiar with what goes into getting your mechanics lien filed in the how-to article we’ve published on the topic, “How To File A Mechanics Lien – A Comprehensive Overview That Applies To Any State.” And if you want to make sure you get it done right, and you want it done fast and easy, then just put in your project information and let our product walk you through it by clicking here to file a lien. Good luck!