When a homeowner decides to move forward with a major home improvement or remodeling project, taking one simple precaution can help protect both you and your home from unwanted legal issues and potential project delays.
Many homeowners do not know, if subcontractors, vendors, laborers or materials suppliers are not paid on any home improvement, residential installation or remodel project, they can legally file a “construction lien” against the residence, even if the primary contractor has been fully paid.
What does this mean for the homeowner?
The homeowner needs to give careful consideration not just to the project itself, but to protecting their home as well. Often times, homeowners rely upon the primary contractor, sometimes referred to as the “general contractor” to take care of ALL project payments to subcontractors, laborers, vendors and material suppliers.
In most cases, this will prove to be effective, however, it leaves the homeowner open to significant risks related to potential project payments not being made and the possibility of construction liens being placed against their homes.
What is a construction lien?
Construction liens are designed to protect professionals from the risks of not being paid for services and materials provided to a construction project. In legal terms, they are a “lien filing” placed against an underlying asset, in an attempt to secure a payment owed to the lien filer.
For the purposes of our discussion, the underlying asset is the home of the owner for whom the project is being completed and the lien filer can be any subcontractor, laborer, vendor and materials supplier who has NOT been FULLY compensated for materials provided and/or services rendered.
Current laws differ slightly from state to state, so please check with your individual state for complete accuracy, but the State of Washington mandates that for a lien filer to place a construction lien against your home, it needs to been done within 90 days completion of services and/or delivery of materials.
Additionally, the State of Washington clearly stipulates that any lien claimant MUST send (by certified or registered mail) a copy of the “claim of lien” to the owner within 14 days from the time the lien is officially recorded.
It is also extremely important to note, that during this process, the homeowner is well within his or her legal rights to withhold from the primary contractor the same amount of money for which the lien has been filed by the lien claimant.
Why is this important to the homeowner?
We have already established the State of Washington provides a clear legal remedy for those who work for and/or provide materials to any residential or commercial construction project and do not receive payment by placing a “construction lien” against the underlying asset, for the purposes of this discussion, the home itself.
Our goal is to help the homeowner better understand and navigate this process by taking the appropriate steps to protect both themselves and their property from any potential liens.
Remember, as the homeowner, you have the responsibility for making sure ALL bills related to your project are completely satisfied, regardless of whether your primary contractor has already been paid in full.
Helpful information for homeowners
When and how to pay your contractor is an important decision and should be taken very seriously. Often times, homeowners tend to focus on the larger, more impactful decisions of the project and rely upon their contractor to handle subsequent vendor payments.
This is a huge mistake, as project payments should be given the utmost consideration by the homeowner, especially when they can adversely affect both their home and their credit, if a construction lien is placed against your property.
However, taking one simple precaution and following these quick and easy tips can prove extremely helpful in avoiding any possible lien issues on your next home-related project.
The best way to ensure avoiding any construction liens being placed against your home is by asking your primary contractor to provide a full list of ALL potential lien claimants associated with the project. This should be completed prior to the project start date.
Who are these potential lien claimants?
They are professional contractors, vendors and suppliers who will be providing labor, materials and any other services necessary to complete your project.
Once you know all the potential claimants who will be working on your project, you as the homeowner may then secure a completed “lien release form” from each and every claimant that will be working on your project, well in advance of making your project’s final payment.
What is a lien release form?
A lien release, which may also be referred to as a construction lien waiver form, is a legally binding document, that can be signed by both parties (prior to final project payment) after all contract obligations have been met and the project has been completed successfully, including the general contractor having made all necessary payments to materials suppliers, subcontractors and any additional project vendors.
Deciding to add a lien release form to the project’s initial contract, should help provide oversight and ensure both contractor and vendor expectations are the same, while helping avoid any unwanted surprises.
It is also important for the homeowner to know, Washington State law clearly articulates that once a lien claimant accepts payment for the total amount due, the homeowner now has the right to an “executed” release of all lien rights by that particular lien claimant.
Meaning, once the lien claimant accepts payment, their right to file any liens against your property evaporates. This clearly highlights the importance of obtaining and executing lien releases for each and every potential lien claimant on your project.
Another reason the homeowner should always request a list of ALL potential lien claimants involved with the project, is to ensure checks are made payable to both the primary contractor and the specific lien claimant JOINTLY.
This helps the homeowner avoid a whole host of issues; including making sure the primary contractor uses the funds for their intended purpose, while also providing a record for the payment to both parties.
Some homeowners may also want to consider using an escrow agent to help with project payments and disbursements as an additional layer of protection from potential liens being placed against their home.
It is also vital to only work with credible contractors who are licensed, bonded and insured, while always remembering to add a lien release waiver or subcontractor lien release clause to the initial project contract.
In a final note, it is important to highlight, that construction liens and lien releases may be handled and enforced differently in your area of the country. Although the general principles are similar in most states, there may be subtle differences in their application and oversight across various states and municipalities.
As the homeowner, always ask for a full list of disclosure statements to help inform and clarify your rights and responsibilities depending on specific states and local municipalities prior to beginning your next major residential remodel and/or home improvement project.
Helpful tips for homeowners:
The homeowner may also request their primary contractor post a performance bond in the amount of the total project cost. If the contractor were to fail to honor or complete the building agreement, this could provide a path for recourse.
For extra protection, the homeowner is encouraged to withhold a pre-agreed upon amount and/or percentage of the contract until completely satisfied with the project.
When dealing with a lending institution that provides interim or construction financing, the owner may also request lender supervision to help provide additional project oversight.