Hiring A Contractor Without Getting Hosed

If you are thinking about hiring a contractor to remodel your home there are a few steps to take to protect your property. That’s because anyone who does work on your house can slap a lien on you before you can say “jack hammer”.

All they have to do is prove they haven’t been paid for the work they’ve done for you. Even if you have paid the bill, if they can somehow show that they haven’t received full payment, you are going to get sucker punched with a lien. Believe me, the last thing you want is to suddenly discover there is a lien on your home. How can you avoid this?

1. Understanding

When you hire a contractor he or she often hires a number of subcontractors and material suppliers. You might pay the contractor for everything. But if the contractor fails to pay all the subcontractors and material suppliers, those unpaid parties can (and will) come after you. When this happens, it’s generally known as a “mechanics lien”.

A mechanics lien is a claim against your property. You either have to pay the claim or get rid of the lien. If you do neither, the person with the claim can file suit and possible take your home away from you. Bad scene.

2. The Good News

Fortunately, mechanics liens aren’t all that much of a threat to you or your property if you know what to do.

First, they don’t show up on your credit report.

Second, they don’t stop you from selling or renting your house – technically. You can still do so legally. However most buyers and renters will be hesitant to do business with you if there is a lien on your house. That is because there is always the outside chance that they could sue to collect and get the court to give them the property.

Don’t be alarmed, this is actually really good news.

Why do I say that?

Because in order for that happen the person who successfully got the court to put the lien on your property has to sue you to enforce it (collect the money). As I said above, the lien is just the declaration that they are owed money.

And if they don’t sue you within 12 months the mechanics lien disappears. So unless the amount is sufficiently large and worth the trouble, time and cost, claimants aren’t going to pursue you. Indeed, most mechanics liens die exactly this way. The subcontractors who make these claims know this but they want to rattle your cage in the hopes that you’ll cave in and pay them their blood money. Don’t fall for it. Also, there are a variety of other steps you can easily take to remove a lien very quickly. I’ll be writing more on this soon. Don’t worry.

3. Some Not So Good News

If your contractor really didn’t pay his or her subcontractors or suppliers they do have a valid claim and you may have to cough up the dough. But there are several things you can do to make sure that never happens:

1. File a Notice of Commencement in Your County

Once you file this document, anyone who does work on your house or provides supplies must send you a notice to let you know about it. If they don’t do that, they can’t place a lien on your home. Happy Day.

2. Get Acknowledgements

Every time you make a payment to your contractor get him or her to sign an “Interim Lien Waiver” and make sure all the subcontractors and suppliers sign one as well. This will make it impossible for them to come back later with claims against you.

When you make your last payment, have the contractor sign an “Affidavit of Payment”. When he or she signs this document they are officially acknowledging that they have paid everyone else. Even if they haven’t paid the subcontractors or suppliers, the “Affidavit of Payment” protects you and makes it impossible for anyone else to file a lien against the property. Sweet.

If you take the two steps I outlined above it’s unlikely that you’ll ever have problems with contractors or liens on your property. But if you don’t take these precautions, you could be in for a world of trouble.

Has anyone ever filed a lien against you? How did you resolve it?