Imagine this: You are building a home 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 paid the subs and all the supplier or you have fully paid the general contractor. It was hard but you did it. But, out of the blue, one day, you receive a lien notice (a lien is a legal claim against your home for an amount stilled owed) for a some bill that was never paid. Since you know you paid everyone, you are in disbelief.

Wouldn’t this be a horrible feeling? Perhaps it would be similar to coming home to a ransacked home. The results are similarity. You check further and discover that some subcontractor or supplier, perhaps one you never even knew existed, was not paid for his or her products. Yep, you paid your people, faithfully. But they have long disappeared and left you holding the proverbial sack.

“This is not my problem”, you say. Think again. It is, legally, 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 person who hired them.

Owner-Builders should avoid “hand-shake” deals. Written agreements are important and these agreements should delineate what is being supplied – both labor results and materials. You should find out the suppliers’ name or names and contact these suppliers to assure that their accounts with the subcontractor are up-to-date. If the sub has no account and pays cash, this is usually not a problem.

When paying your subs or supplier, as an Owner-Builder, it is wise to get a release of lien from them. It can also be helpful to obtain a written affidavit they have paid all their bills associated with your job. While the affidavit may not be worth a lot, it can be that extra measure of written certainty that you at least believed and were assured that all bills were handled. Note that the above two points and the next one are 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.

The main thing is to know who is involved with your project; know the laws and keep your eyes open. Awareness is the key.

Enjoy the process.

You can leave a response, or trackback from your own site.