Imagine this: You are building a home with either on your own or with the help of a general contractor. The project is finished and you take possession and move in as a happy owner of a brand new custom home.
You have faithfully paid every bill that was due. You finally pulled it off. It’s done.Then, out of the blue, you get notice that your brand new home has been slapped with a lien (a legal claim against your home for an amount stilled owed) for sums still owed for some materials or labor (or both) for which you are certain you have already paid.
How would you feel? Violated? Like after a burglary? You bet you would. After checking further you find out that one of the material or labor suppliers, a company that you may never have heard of, supplied products for your home and was never paid. Of course you paid your bills. But the guy you were paying did not. And that person is gone!
You might say, “That shouldn’t be my problem!”. Not correct. It is your problem.
The good news is that there are ways to avoid this painful situation. Here are a few suggestions (the last one most important):
- If you are the owner-builder (ie. contracting your own home) make sure you know how every subcontractor (“sub”) who you hire is hiring their own labor forces and from whom they are obtaining materials. This may be tedious, but it is worth knowing. Your checking will put the sub on notice that you are watching. Find out if his workers are employees or is he sub-contracting (“subbing”) to them. If he is subbing, each sub has the legal right to lien your property if he or she is not paid. If they are not paid by the sub, they can come after you – even if you paid the sub.
- If you are the owner-builder be sure to have a written contract with each sub. Do not go for “hand-shake” deals. If he is supplying materials as part of his agreement find out who the supplier is. Contact the supplier and make sure that the sub has an account which is up to date. If no account, then he is likely paying cash for the material which is totally fine.
- If you are the owner-builder, when you pay a sub, get a release of lien from them and an affidavit that they have paid for all labor and materials that were part of their contract with you. This affidavit may not be worth much but it is another assurance that you can us. The above two and the next one are the most important.
- And the last point, likely the most important, applies, whether you are the owner-builder or have a contractor who is building for you. All subs and material supplier who are not in direct contract with you are required, by law, in most states, to supply what is called a “Notice to Owner” document to you before they can place a lien on your property. This is a legal notification, sent to you by certified mail, that they are supplying materials or labor, or both, to your new home. So you should check your legal address routinely, during construction, and watch for these documents. There are certain time requirements and you should check your local state laws to determine these. Once that time has passed they can not lien your home, regardless if they were paid or not. If you get such a notice pay attention. Assure that that entity is paid before releasing funds to your contractor or sub. If he can’t do it, then double-party checks can work. You can find a way. Just remember that it is, ultimately, your legal responsibility to assure that these folks are paid.
Know the players, know the laws and pay attention. Awareness is the key.