Business Articles - Legal and Insurance

As a subcontractor, general contractor, material supplier, architect, engineer, or any other number of home improvement professionals, your right to file a mechanic lien is an invaluable device to ensure the profitability and well-being of your company. A mechanic lien is a legal document that usually gets filed with the county clerk or county recorder where the work was done, and will give the petitioner (the person who files the lien) a security interest in the title to the property that was improved. In laymen's terms, you are not unlike the bank that holds the mortgage. If your lien is justified and the party refuses to pay, the property can actually be sold to generate the money you are owed.

To properly file a mechanic lien, it's imperative that you keep track of the lien's statute. Some states, for example, require a notice before you start the job, while others may give you up to eight months after your last day on the job to file your lien. Though you should learn about the purpose and benefits of mechanic liens, the specific statutes can be confusing. It is typically best to let a professional company file these documents for you.

Hiring a Professional to File Your Mechanic Lien
Some professional companies focus on the statute requirements of specific states, while others have the expertise to file claims in all 50 states. Different states can have more or less complicated lien procedures. You may be able to educate yourself about the process in your state, but the worst thing you can do is misfile your lien, invalidating it. The golden rule remains the same, no matter what state you live in: When in doubt, when your client isn't answering the phone, when promises are made but money doesn't show up at your doorstep, file your lien.

In the end, the objective is to collect your money with the least amount of headaches, wasted time, and legal fees. Paying a small fee (and one substantially less than paying for an attorney) to get your lien filed is the best insulation you can give your company. Only about 20% of delinquent cases require extended legal action and far fewer than this ever make it in front of a judge. Typically, debtors are even more reluctant than you to get involved in the expensive endeavor of litigation.

The Relationships between General Contractors, Subcontractors, and Homeowners
As a subcontractor, you should be wary of any general contractor who shows unease about your mechanic lien. While general contractors must often collect from homeowners, they also know the score and should have no problem with you protecting your own company's interest.

Ruffling the feathers of homeowners who are less versed with the nuts and bolts of the financial well-being of a home improvement company can be a little trickier. One way to alleviate the concerns of homeowners is to use the convention of mechanic liens to your advantage with customer relations. Explain to the homeowner that your company files a mechanic lien as a general policy to reduce lost revenue. This way, your company doesn't have to overcharge each homeowner to compensate for a few irresponsible homeowners. Most homeowners may, in turn, actually appreciate your own responsible actions.

Though you don't need a homeowner to agree to file your lien, many contractors are worried about off-putting homeowners when they discover a lien has been filed. It's a difficult concept to accept for many contractors who have spent years worrying about their relationship with the customers and general contractors who are at the heart of their livelihood. To this end, the small fee that you pay to a professional mechanic lien company includes much more than accurately and timely filing your lien. When the inevitable happens and you have a customer who doesn't pay on time, the most effective resolution is to bring in a third party to mediate the situation.

Communication, Mediation, and Resolution
Remember, there are always two sides to every coin. While you might think that the work or service that you provided was stellar, without any just cause for back-charges, the owner might have an entirely different opinion which has resulted in non-payment. That is why the best way to get everyone talking again is to create an incentive, by filing your mechanic lien, for the homeowner or general contractor to talk about the money you are owed.

At the same time, companies who specialize in filing and enforcing mechanic liens for service professionals can apply pressure to the homeowner or general contractor. They will create a buffer that protects your "good-guy" image, while eliminating the headaches and stress of pursuing the money yourself. Unfortunately, it may take only one non-paying customer to change the fate of your business, and diligently filing mechanic liens can often make the difference in the financial stability of your company.

Content provided by Todd Golin with Contractors Business Network Corporation