The Expert Podcast

so can a general contractor file a lien against you as a client and can you file it a lien against a general contractor. we can take a look at a couple different scenarios what the documents are. also gonna look at in the specific document called a notice of commencement from the state of Florida which is a very important and insightful document that may be able to be used in other states. and we'll see how this affects your contractor building project remember we're not attorneys we're not giving you legal advice. we're just giving you some ideas about how liens and contract protections work with regard to a building project and also how experience in that industry also insurance might protect you from having losses or having to pay for a construction project twice. so first in the building and contracting industry there is a process called a mechanic's lien or builders lien or construction lien that most states have in their statutes. and what that allows for is if a contractor a builder provides work on a piece of real estate they are automatically entitled to a lien against their property until they get paid. now they don't have to file a lien on the property up front but if they don't get paid they have the legitimate right to put a lien on the property. this can even happen after the property sold where this comes in if the seller has work done on a house they don't pay their contractor the house gets sold and now the contractor goes and files a lien afterwards that lead could be valid against the new owner. in addition there is a process for liens to benefit other types of companies that don't even work on the house. if you are a materials supplier a lumber yard if you deliver materials to that piece of real estate you are covered by mechanics liens or builders liens. now if the builder picks up the materials at your warehouse or you lumber yard different story but if you deliver it there you may be entitled to a lien. in addition if you provide equipment if you're a rental company that rents pay loaders or excavators or cranes and you provided that material or equipment to the job site you may have an implied lien against that property. how do you account for this if you are client if you are a person or company your homeowner that hired a general contractor. well the way that you protect yourself is to get lien waivers and here's why that's important. if you hire a general contractor to put addition on your house and you pay them a hundred thousand dollars for the addition even if you pay them in full if they did not pay the sub contractors like electricians or plumbers or the lumber yard even if you've paid the general contractor completely per contract if that plumber comes forward and said look I did twenty two thousand dollars with the work on this property and I did not get paid they can actually file a lien against their property even though you as a property owner paid the general contractor. so if you want to do is get what's called a lien waiver from all of the subcontractors to make sure that the property is clear. So all of that sounds kind of scary the good news is that almost every state requires that a licensed general contractor gives you disclosures at the time of beginning a job. and here's an example from Hawaii disclosure of lien rights. and it says homeowners take notice big bold letters all capitals top of the page any person who furnishes labor materials for home improvement and it's not paid can file a lien just like we talked about in order to obtain a leaning at your property they must go to court and show that the products have been supplied but not paid for you'll be notified as a homeowner. if a lien is obtained you have to have the burden of showing that it's paid. so what can you do and this Hawaii form gives you some good examples make certain that the contractor is licensed that's number one. make sure you deal with a licensed contractor. on bigger jobs ask the contractor to explain to you about getting a bond we'll talk about surety bonds before a surety bond is a relatively inexpensive piece of protection kind of like an insurance policy that can be obtained on a bigger job to keep you as a homeowner from having to pay for work or materials twice. the general contractor will probably have to be the one to obtain it because you're the one who is being protected by this that the principal. so you may want to ask them about getting that if it's you know a job that's five or six figures. should not make any oral agreements make sure everything's in writing. and get a lien release of subcontractors. mechanic's lien can be placed on your home by subcontractor if the general contractor pay failed to pay his bills. even though you have paid for the work suppliers can still claim a lien against you. so get lien waivers from all the subs as they're being paid. and make sure they are being paid. here's a generic form where in Idaho in connection with a contract to do construction the homeowner has certain rights. the right to get a lien waiver from any subcontractors. the right to receive a general liability policy from the general contractor for workers comp. here's another example where you want to make sure that your G. C. is properly licensed and has worker's compensation insurance for their employees because if somebody gets hurt on the job and they're not covered you might be liable.
might be able to get a title policy which provides extended coverage from liens. you have a right that you can get a surety bond at the property purchaser's expense just like we talked about bond is a good way to solve this problem for a small amount of money. now most general contractors in most states already have a bond on their license. so if you ask about a surety bond they might say I already have a surety bond but in most states the surety bond is twenty thousand forty thousand sometimes ten thousand. so here in Washington state they give you a disclosure that says the bond might not be sufficient to cover claim that might come from work. because if it's a twenty thousand dollar bonds and you have subcontractors claiming a hundred thousand it's not going to be enough. so you may want to withhold your contract until you get lien waivers big letters again capital bold italic your property may be liened if a supplier to your property does not get paid your property maybe liened and you could pay twice for the same work. you may request that the contractor provide you with a lien release document from each supplier or subcontractor. how do they do to Florida. the process in Florida is kind of interesting. what they do that the beginning of any job the general contractor even small contractor if you're getting gutters put on your house or roof put on your house they're going to sign this document called a notice of commencement. and it basically says there is work being done on this house its notice of beginning of work they do this before they even start the process. and this document notice of commencement is actually recorded in the land records in the title records of that property. is not a lien but it puts everybody on notice that there's work being done on this property.
and that's exactly what notice of commencement means it's be aware we're starting something that's kind of what it means. and it gives you a description the property who the owner is a general of improvements estimated date has all identification on it's it's kind of like a place holder. so that the owner can't sell the house other liens can't go on top of it in front of it higher priority. and what this does is it gives the homeowner a little bit extra protection too because when you make your final payment you can get a release of the notice of commencement from the builder or from the contractor. and you can get lean waivers before you pay them. so it's kind of like a check and balance. it's not required in every case but smart builders and contractors will always do this because it protects their interests. and if you're a homeowner make sure that prior to paying the last payment or paying significant amounts that you're getting lien waivers and release of this NOC see notice of commencement. surety the bonds are always a good go to back up for this. you're probably not going to have your general contractor offer to get you a surety bond because there's an expense involved plus it does not get them off the hook. here's why if you have a general contractor that you hired for a hundred thousand dollars to build an addition and they did not pay some subcontractors and you have a surely bond. your surely bond will kick in and will pay off the contractors clear your title no problem. but then the bonding company will go after the general contractor to get the money back from them. so get you off the hook as a landowner property owner but the general contractor still liable for that payment. so there's no real benefit to the general contractor to providing a surety bond specific for this construction project. it only benefits you. and even if they build the price into the job cost if it adds three or four hundred dollars and they add that to your bid it still does not benefit them because if they're gonna skip out on the bill it doesn't help them get it get away with it. so you may be the one as a homeowner or a a project manager to suggest or demand or require that the contractor G. C. building company gets you a surety bond. because they're gonna be the ones that are negotiating with you to get the contract. it really doesn't cost them anything especially if they build that into their price is not an extra expense but if they were planning on skipping out on you it actually makes it worse because instead of you trying to sue them to get money from them it's a bonding company which has a lot more resources. so if you run into a builder general contractor that's holding back on maybe getting a surety bond for your project you might want to do some research and find out what's the reason for the downside what's the disadvantage for them to do that surety bonds mechanic's liens builder liens they're separate but they are inter related and how they affect the building process in working with a general contractor