Here are two words that can strike fear into the heart of any residential or commercial property owner: mechanic's lien.
A mechanic's lien is a legal claim that subcontractors and suppliers can file against a property when the general contractor doesn't pay the subcontractor or supplier. Subcontractors can be anyone who is involved in a construction project, including plumbers, carpenters, painters, electricians, landscapers, masons, roofers, and even architects and interior designers.
People who are unfamiliar with mechanic's liens often are astonished to learn that property owners can be held responsible for a contractor's failure to pay its subcontractors. But mechanic's liens protect subcontractors and give them a measure of security.
Why are mechanic's liens a big deal?
There are at least two reasons why mechanic's liens can be a serious matter. The presence of a mechanic's lien on a property can prevent you from:
- Selling the property
- Using the property for financing
Mechanic's liens can be complicated, time-consuming and contentious, and they're obviously something you want to avoid.
How to prevent mechanic's liens
The risk of a mechanic's lien can't be eliminated, but here are steps you can take to protect yourself against the possibility of mechanic's liens:
- Pay with joint checks that are made out to the contractor and the subcontractor. When you pay with joint checks, payment is made only when the subcontractor presents the check to the bank.
- Check local court records to see if the contractor has a track record of not paying subcontractors. If the contractor has a history of being sued, then you might want to find a different contractor.
- Ask the contractor for a list of the subcontractors and suppliers who will be used on your project.
- Ask local subcontractors about the contractor's reputation for paying its subs. If reputable Austin-area subcontractors refuse to work with a contractor, then it's best that you stay away from the contractor, too.
- Get a written contract with the contractor that includes a schedule for construction and a schedule for payment to the subcontractors.
These preventive measures can feel overwhelming to some people. If you don't have time to worry about mechanic's liens, consider hiring an experienced real estate attorney to help you.