Here's a scenario that is common practice amongst unethical
contractors: The homeowner pays the General Contractor who in turn is
supposed to pay the sub contractors for work performed. But the
contractor decides to pocket all the money and later down the road, the
homeowner gets hit with a mechanics lien against their property from
the unpaid sub contractor. This is when panic sets in which then leads
to anger. Perfectly understandable and warranted.
But there are a few checks the homeowner can do to see if in fact the sub has the
right to actually perfect the lien. That's what you need to find out first because if they don't have that right to perfect the lien then it's just going to sit there until it becomes null and void and then you can go about the business of removing the lien. You can petition the courts to remove the lien yourself (the paper work required is a bit of a hassle) or you can hire an attorney to do it for you.
You can read more about mechanics liens in this section on my site.
Anyone can file a mechanic's lien but the letter of the law must be followed
in order for the person to actually make good on the lien. Sub
contractors must first send the homeowner what is called a "Preliminary
Notice" of the right to lien if they are not paid by the contractor.
Though each state has different time lines for this, in California it
is 20 days once the sub has begun work on the project. If he sends it
out 30 days later that would be too late and he missed his chance to
legally lien if he doesn't get paid by the contractor.
If the sub is outside of the time lines he will likely file the lien anyway as a way to get money from the homeowner, hoping they don't know about the law and required time lines and if they do and challenge the sub on it they'll likely ignore you and just let the lien lapse. Happens alot and it's one of the top complaints I receive each month.
The problem with the filing of fraudulent liens by a sub can be avoided by
requiring "Unconditional Lien Releases" from each sub on the job who
has performed work when you pay the general contractor for each invoice
you're presented. This is a separate lien release from the one the
General will present you with that he signs for his part as he cannot
sign for the subs: the sub contractor needs to acknowledge he's been
paid by the contractor with their own release and signatures. So it can
get easily overlooked but it's one of the best ways to stay in control
of the money being paid out.
The following email I received from a homeowner in New York is a good example of a sub who was not paid by the contractor and is going after the homeowner even though he did not file a Preliminary Notice within the required time lines for that State:
The contracting services is a private residential in new york. Job was completed 7.5 months ago. I have paid contractor in full but disagreed to the amount on the extras as he did not invoice me until the very end. Read More...