Construction professionals, in every aspect of a project, depend on timely payments to maintain operations and cover expenses. Unfortunately, one of the risks many construction projects face is that of late-paying clients, causing significant financial strain across the board.
In 2022, almost half of invoices sent by construction firms were paid late, according to a Creditsafe industry report. To help address this continuing problem, most states allow construction professionals to file a mechanic’s lien.
This is a contingency measure for contractors and builders against clients who refuse to settle their balance.
Before availing this remedy, though, construction professionals should enlist the assistance of a construction litigation attorney who can properly guide them through the process.
An attorney experienced with construction projects will first review the initial contract to determine if the right to file a lien was waived. If this right was surrendered, your attorney will outline other possible options for remedy.
Understanding a Mechanic’s Lien
At its core, a mechanic’s lien is a legal instrument designed to ensure that builders, contractors, and material suppliers will be paid for their goods and services.
It is a tool that protects the financial interests of construction professionals from non-paying clients.
This lien is recorded on the property where the work is being done; the contractor can “hold” the project property through the lien or use it as a form of security for unpaid balances.
Enforcing this instrument is different from collecting a regular debt or suing for breach of contract. The focus of a mechanic’s lien is the property itself — not the debtor. This means that if the client refuses to pay, their property may be foreclosed.
Mechanic’s Lien Process Overview
Rules regarding mechanic’s lien differ from state to state; therefore, an attorney can better determine the availability of remedy by lien in a specific area.
Regardless of the state, for a mechanic’s lien, enforcing it will follow more or less the same process. Generally, the first step is the filing of the lien in the county or municipal office where the project property is located.
In addition to filing, the property owner must be notified that you are enforcing the lien. The owner will be allowed to respond within 15 to 30 days; this timeline may vary, depending on the laws in the applicable state.
In the absence of a response, the lien will still be deemed valid, allowing the filing party to proceed to commence the foreclosure of the property. Litigation may also ensue if the owner refuses to pay or denies the validity of the lien altogether.
As with other legal remedies, enforcing a mechanic’s lien is subject to the statute of limitations in every state.
In New York, for example, construction professionals have until eight months from the completion of the project to file the lien. In Illinois, however, it can be filed within two years.
Protection for Unpaid Construction Professionals
The mechanic’s lien is designed precisely to protect the financial interests of construction professionals. Its purpose is to ensure you have a valid claim against a client for unpaid services.
Aside from the remedy of foreclosure, another significant effect of the lien is that it is recorded on the property title. In other words, it becomes part of public record, and third parties will be able to see it.
If the property owner attempts to sell the property or use it as security for another loan, potential buyers and lenders will be aware that it is still subject to a lien.
This way, the owner will be pressured into settling the balance in order to clear the title.
Role of Legal Counsel
An attorney experienced in construction litigation can file a valid mechanic’s lien that will be enforced in the event of non-payment, facilitate negotiations with the client, and represent your company during litigation should negotiations fail.
Even in cases where the lien is settled without disputes, the duty of a legal counsel does not end there. Once the property owner pays the balance, the mechanic’s lien over their property must be properly released to avoid penalties.
Potential Challenges and Disputes
In some cases, the property owner may also hire an attorney to challenge the validity of the mechanic’s lien. They may also argue that the work was not completed satisfactorily or that there were contractual breaches.
The property owner or their attorney may assert that the mechanic’s lien was not properly filed according to the court’s requirements.
Having an attorney with expertise in construction law is essential to properly document the assertions of the lien, accurately assess the related damages, and ensure timely filing of the required notices within statutory limits.
They can help you navigate complex legal procedures and ensure that every project is protected with reasonable contract terms.
In some cases, a mechanic’s lien could eventually end up involving multiple parties; having an attorney to effectively communicate with all parties involved can be the greatest factor for successfully resolving the dispute.
Protecting Your Interests
Before starting a construction project, your attorney can review and draft contracts with clear and legally sound payment provisions.
This proactive approach can minimize disputes down the road and other inherent risks in construction projects.
Your attorney can also make sure that every project is covered by a mechanic’s lien as an additional protective measure.
They will assist you in compiling, arranging, and presenting the necessary documents for the lien. This would entail collecting invoices, contracts, and copies of the project plan.
Cost-Effective Resolution
A mechanic’s lien can serve as the starting point for discussions and bargaining between the parties. Property owners may engage with contractors or suppliers to resolve the dispute or settle misunderstandings regarding the payment.
Hence, there is no need to go through a lengthy trial to collect unpaid balances. This can be expertly facilitated through the experienced guidance of a construction litigation attorney.
Protect Your Construction Business From the Consequences of Delayed Payments
It is important that your case is carefully reviewed and uniquely managed. Every situation is different, requiring expert interpretations and precise insights.
At KPPB LAW, our construction attorneys are capable, specialized, and ready to apply their expert knowledge on construction law to your individual case and needs.
Contact KPPB LAW for legal guidance on optimizing your payment processes and navigating the complexities of mechanic’s liens.