Quick-Tips by Steve Gonzalez C.G.C.|
The Construction Lien Law: What It Is and How It Affects You by Steve
The Lien Law - What is the
Construction Lien Law?
The Construction Lien Law allows persons who have performed labor and/or
provided building materials on or for your property and have not received
payment for their goods and/or services to make legal claim for payment against
How can you protect yourself?
By becoming educated and understanding the law.
1) Be certain a Notice of Commencement (or equiva¬lent document, depending on
state law) has been filed before the start of your remodeling or con¬struction
project. The Notice of Commencement form is provided where building permits are
issued for your area. This form must be recorded with the Clerk of the Circuit
Court in the county where the property is undergoing construction or remodeling.
A certified copy should be posted at the job site (or an affidavit stating it
has been recorded with a copy of the Notice of Commencement attached). Make sure
all of the information listed on the Notice of Com¬mence¬ment is correct. The
Notice of Com¬mence¬ment identifies:
A) property owner E. lender
B) location of property F. surety
C) contractor G. amount of bond, if applicable
D) description of project H. date of commencement
Failing to record a Notice of Commencement or obtaining one with incorrect
information may add to the possibility of having to pay twice for labor or
materials, and/or may prevent the passing of code inspections.
2) Never make a payment without receiving a release of lien from the builder,
suppliers and subcontrac¬tors, as applicable.
What is a Notice to Owner?
Contractors or suppliers will usually send you a Notice to Owner form once they
are contracted to supply materials or labor for your project. It is not a lien
on your property, however it is a legal document advising you that they are
supplying materials and/or labor for your project. Be advised that not all
states require Notices to Owner to be sent to homeowners. Always request
releases of lien from any firm or individual who sends you a Notice to Owner.
Who is responsible for obtaining Releases of Lien?
You may want to stipulate on the project contract that the contrac¬tor is
responsible for providing you with all releases of lien. If this clause is not
included, it may become the homeowner's responsibili¬ty.
What is a Partial Release of Lien?
As each payment is made for a particular part of your job, you should receive a
partial release of lien for all materi¬als and labor to date. Upon completion of
the entire project, make sure you receive a final release of lien.
In what instance could a Lien be imposed against your
Let's say, for example, that you hire a contractor for a $10,000 bathroom
remodeling project. You pay the con-tractor the $10,000 in full, but he neglects
to pay three material suppliers who sent supplies used on your project. There is
no clause in your contract stating that the contrac¬tor is responsible for
providing you with releases of lien, and the contractor has neglected to supply
you with them. Each supplier who has not been paid may then place a lien against
your property until they have been paid.
How does a lien affect you legally?
You cannot sell or transfer ownership of your property until all outstanding
liens have been paid. You may also find you are unable to refinance your
mortgage or secure a home equity loan if you have an outstanding lien or liens.
In rare instances, property owners with outstanding liens may be required to
sell their property to satisfy them.
Lien law provisions vary from one state to another. To confirm lien law
provisions in your state, contact the Division of Consumer Services or the Real
Estate Commis¬sion for your area.
It is important to include a release of lien clause in your contract. This
clause should state that the contractor must furnish you with a partial release
of lien from all subcontractors and suppliers upon each payment, with a final
release of lien from all subcon¬tractors, suppliers and the contractor himself
upon completion of the project and final payment. Remember not to make any
payments without receiv¬ing lien releases. A sample copy of a final release of
lien is provided.
FINAL RELEASE OF LIEN
KNOWN ALL MEN BY THESE PRESENTS, that the under¬signed, for the sum of lawful
money of the United States of America, to the undersigned in hand paid, the
receipt whereof is hereby acknowledged, does hereby waive, release and
relinquish the undersigned's right to claim, demand or impose a lien in the sum
of $ for work done or materials furnished up to the day of , 20 on the property
described below and made a part hereof. Full payment reflects zero balance due.
Property COMPANY NAME
Signed, sealed and delivered
in the presence of:
Steve Gonzalez is a master home builder / consultant / and author of “Before You
Hire A Contractor” / ConsumerPress.com / Copyright 2008
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