The construction business is tough enough without having to worry about getting paid. Fortunately, mechanics lien laws, which may vary from state to state, exist to protect you in the event a client does not pay for work completed. They give you the ability to file a lien against the property on which you have contracted to complete a project, if your client does not pay.
In order to be protected by mechanics lien laws you need to be very careful you are following the steps required by the laws in your state. Mechanics lien laws are very specific on the documents required, their content and the dates by which you must deliver or file them. The mechanics lien process is kicked off by the Preliminary Notice.
The Preliminary Notice is a document which puts the property owner, primary contractor and construction lender, if applicable, on notice that you intend to file a mechanics lien against the property if you are not paid. If you do not deliver a Preliminary Notice to the appropriate parties within the time prescribed by the mechanics lien law, you may not be able to enforce a lien on the property.
Depending on the mechanics lien law in your state, you need to deliver a Preliminary Notice within 20 days of first furnishing material or labor on a job site. The Preliminary Notice must be delivered to the property owner, primary contractor and construction lender, if applicable. Delivery must be made in person or by certified, registered or express mail or overnight delivery; and a receipt must be kept as proof.
The Preliminary Notice should contain information such as the following depending on state law:
- Name and address of the property owner, primary contractor and construction lender, if applicable
- Description of the job site including the address
- Your name, address and project role as the party (‘claimant”) giving notice
- Name and address of the party you contracted with.
- A description of the work you contracted to provide
- The estimated contract price
- A statement (the Notice) in bold letters. In California this statement is over 200 words long.
As with all legal matters, it is important to seek the advice of legal counsel regarding the requirements of and compliance with mechanics lien laws in your state.
Some contractors choose not to use the mechanics lien process because they do not want to create a possible source of friction with their clients. This should not be a concern. Many contractors use the mechanics lien process to protect themselves. As a matter of routine, they deliver or file the required documents on a timely basis.
Other contractors opt to not utilize the mechanics lien process because of the time and effort required to properly administer the process on a manual basis. If you do not have an automated accounts receivable system it can be difficult to keep track of the requirements, particularly if you have a number of active projects. An automated accounts receivable system with work flow, online notes and automated reminders makes the mechanics lien process much easier to administer.
Automated accounts receivable software, which includes these important features, is available from Lockstep Collect, a leader in the field with a track record of assisting construction firms with billing, invoicing and work flow. If your firm would like to learn more about how you can improve billing, invoicing and work flow please contact Lockstep Collect at www.lockstep.io.