Understand contractor liens before starting home improvement project

From Home Service Store For AP Weekly Features
Friday October 05, 2001

It’s among the worst surprises to confront homeowners: a contractor files a lien to collect unpaid money on a home improvement or remodeling job. 

Whether the claim is valid or not, the resulting court action can add hefty legal bills to home improvement projects that already are stressful enough. 

The chief legal counsel for the nation’s largest home improvement services company describes liens as “a legal and financial minefield,” yet homeowners can — and should — take steps to protect themselves and their property. 

“The homeowner first needs to find a reputable contractor,” says attorney Hans Huessy of the Home Service Store (HSS), “and second, they should weigh all the options to head off a dispute before it leads to a lien.” He says liens are necessary because homeowners often refuse or neglect to pay legitimate invoices. 

Huessy suggests prior to selecting a contractor, pay a personal visit to the candidate’s last few jobs followed by a call to the Better Business Bureau to learn if the contractor has any history of customer complaints. 

Most liens filed in local or county land records against homeowners are mechanics liens, where the contractor pursues money allegedly owed for labor or materials. Most liens must be filed within a few weeks or months, or at most a year, after work is completed. Once a lien is filed, the contractor has a certain amount of time to bring an action to enforce the lien. The amount of time varies widely by jurisdiction and if a court docket is packed, a case can drag on for years. 

In some instances, Huessy says, “sleazy contractors hold a homeowner hostage by filing spurious liens, a sort of ’low grade extortion.”’ The problem for homeowners is that unresolved liens might jeopardize a credit rating and can hold up the sale or refinancing of a home. They might also put the homeowner’s mortgage in default. 

Issues related to the lien — length of time before it must be filed, where and how it must be filed, paperwork, etc. — vary widely from state to state. 

Liens can also be filed by materials suppliers or subcontractors hired by the general contractor. Huessy says because it’s common for contractors to pay suppliers and subcontractors, the homeowner must be diligent in managing project purse strings. It’s a mistake, he says, to pay a contractor the full amount in advance of the project, or even before all the work is completed and inspected. Often, the contractor won’t manage the money appropriately or won’t use the funds to pay off suppliers or subcontractors. Jilted workers and suppliers have the legal right to seek payment from the homeowner. In the worst-case scenario, a homeowner can be ordered to pay for the same work twice, once to the general contractor and, if the GC fails to pay the subcontractor, again to the sub. 

Huessy recommends homeowners adopt a pay-as-you-go stance with contractors. Once work is completed to the homeowner’s satisfaction, funds are then disbursed to the general contractor to pay for materials and subcontractors. As will be explained in the next column, a homeowner can avoid most of the worst lien problems by insisting on lien waivers from all contractors involved in the project.