Lien Filings Don’t Have to Ruin Relationships
Mechanics liens make an impact. A lien can put the general contractor and other higher-tiered participants in hot water with the owner, can freeze project funds, and at the very least, will grab the attention of the other “up-the-chain” parties on the project.
When a lien is filed, it shows you mean business and that you won’t take nonpayment as an option. Plus, a firm deadline is put on resolving the claim. By drawing a line in the sand, a claimant takes control of the situation and says, “If I’m not paid by X date, this lien will be foreclosed.”
If the act of filing the lien doesn’t prompt payment on its own, then a claimant may send one final warning in the form of a Notice of Intent to Foreclose. And of course, foreclosing the lien is still on the table (but be sure to mind your deadlines).
But how do liens affect relationships? No, we’re not talking about mechanics liens and breakups (though we’ve done that before…). We’re talking here about industry relationships.
Good Communication Is the Key to a Good Relationship
Every project is different, relationships will vary depending on countless factors involved, and some people will just be patently unreasonable. Having said that, communication is the key to building strong relationships. By building the relationship through clear and effective communication, many payment problems on a project can be resolved before ever having to file a lien.
However, if a problem persists and a lien is necessary, there are other steps before foreclosure is in order. Ultimately, the more communication that occurs before a lien is filed the better – surprising an owner or GC with a lien is a surefire way to burn some bridges.
Utilizing Notices to Build the Relationship
Sending preliminary notice is a prerequisite to preserving lien rights in many states, but notice should be sent even when it’s not required. We’ve got lot’s of material on how relationships can be built and maintained through sending notice. The basic gist of it is this: sending notice promotes visibility on the project, and contractors should be ecstatic when they receive them.
Mechanics liens don’t only affect property owners – often a GC will be bound (by law or by contract) to defend a lien claim or to bond off liens that arise. GC’s have a vested interest in avoiding serious payment issues, and the first step to preventing a lien is having a thorough understanding of the payment chain for a particular project.
Check out this article for more on building relationships in the construction business by sending notices on your projects.
Notice of Intent to Lien
We’ve skipped a few steps to this point, but if you’re reading this post you’re probably already having problems receiving payment (plus who likes long blog posts?) – let’s talk about sending a Notice of Intent to Lien. Notice of Intent to Lien is required in some states, but like preliminary notice, sending this notice even when it’s not required can save many headaches.
Slow payment currently comes with the territory in construction, and we understand that it’s not always avoidable. However, most experienced construction industry members can tell when payments are slowed due to the nature of the game or if they’re indicative of a larger problem. Either way – sending a Notice of Intent to Lien will show that you mean business, and it will also be easier (and cheaper!) than filing a lien. As the cherry on top, up the chain parties will likely appreciate having one last chance to resolve the dispute before a lien is filed. Where Notice of Intent to Lien is voluntary, think of it as a final pre-lien courtesy.
When it’s time to file the lien, is the owner, GC, and/or developer going to hate you for it? Well, they probably won’t be happy. Then again, they’re the one(s) dropping the ball on making payment. It’s also important to keep in mind that mechanics lien deadlines are strict, and promises of payment won’t do anything to extend a deadline. If you miss your chance to file the lien, the remedy will be unavailable moving forward and you’ll lose your best leverage to get paid.
The Lien Filing
Anyway, the best way to anger someone with a lien is to have it pop up out of nowhere. This is where the first two sections of the article can help – if notices have been sent and all parties have been in constant communication, the owner won’t be blindsided. That won’t totally eliminate the pain of a lien, but it should soften the blow. Also, when communicating about the lien (either before or after it’s filed – or both), letting an owner know that the lien will be immediately released upon a resolution of the dispute should go a long way to calm their nerves.
Send Notice That The Lien Was Filed
This part is simple – send notice that the lien was filed!
Many states require such notice, but even when not required, you should let the owner and GC know that a lien claim has been filed. On one hand, it will prevent the lien claim from catching them off guard. On the other hand, it’s beneficial to the claimant. Foreclosing the lien is something neither side wants to do, so giving the other side a heads up that the lien was filed will allow for more time to resolve the lien claim.
Mechanics Liens And Credit Reports
Another question we’ve gotten a lot recently is, “How will a mechanics lien affect an owner’s credit score?”
The mere act of filing a lien won’t have a crippling affect on the owner’s credit, and it may have no effect on their report at all. But it’s possible. Ultimately, just about anything in public record can affect credit. Now, if the bill is passed along to collections or if the lien is foreclosed, this would almost certainly result in a negative mark against an owner’s credit report.
Notice of Intent to Foreclose
When recovering payment, foreclosing a lien should be the last resort. Mechanics liens can be filed in virtually every state without initiating a lawsuit, but to foreclose the lien, you’ll have to go to court. Litigation can be scary and expensive, but it’s even scarier (and potentially much more expensive) for an owner. Thus, even where payment issues have been unreconcilable, giving an owner one last chance at payment is a fruitful exercise – so send a Notice of Intent to Foreclose. It’s one final courtesy call showing that you mean business, and as an optional document, the Notice of Intent to Foreclose should be (relatively) welcomed by those who receive it – it’s better than just finding out the lien was foreclosed!