Part of understanding construction loans is understanding risk mitigation. For subcontractors and individuals who perform work on a home, either a new structure or a remodel, they reduce their risk by using mechanic’s liens. What is a mechanic’s lien and how does it affect your building project?
A mechanic’s lien is a provision that allows subcontractors who perform work on a property to retain interest in the title for that property should they not be paid for their work. Sometimes, general contractors fail to pay their subcontractors for labor. When this happens, the subcontractor can file a mechanic’s lien, securing themselves interest in the property until their services are paid for. In the event of a mechanic’s lien, the homeowner must work out a solution with the subcontractor. Failure to do so may result in a lawsuit. Of course, if mechanic’s liens are filed, the homeowner can then sue the general contractor for failure to pay subcontractors, but it’s best to avoid the situation altogether.
How can you avoid mechanic’s liens?
- Pay both the general contractor and the subcontractor for services rendered with a joint check.
- Pay subcontractors yourself without going through the general contractor. This ensures that the right individuals get paid for their services and prevents any withholding of funds from the general contractor.
- Keep all paperwork you receive from individuals working on your project. This will allow you to follow up with subcontractors near the end of the project to make sure they’ve been paid.
Mechanic’s liens are generally enforced differently in different states based on statutory requirements. At Granite Companies, we have the tools and experience to help you mitigate your risk and ensure statutory compliance in all 50 states. Contact us today to see how we can help you finance your next project.