Often, those in the construction industry must perform first before they will be paid. In essence, many jobs are done “on credit” with the hope that payment will be received when some or all of the work is completed.
American law recognizes this payment predicament. As a result, almost all states have laws allowing designers, builders, and suppliers to file liens against property to which they have supplied services or goods. Liens provide extraordinary leverage to the construction entity seeking payment; a valid lien can be “foreclosed” or enforced against a piece of property. If this occurs, the land is taken from the owner and is sold. The resulting funds generated by the sale are paid to the designer, the builder, or the supplier to satisfy the debt owed them. As you might expect, the owner of the land doesn't want this to happen and is highly motivated to ensure that the party who filed the lien is paid what is owed.
States have different rules and procedures regarding when liens can be filed, as well as what must be done to “perfect” or properly put a lien in place. The rules regarding liens against residential jobs in some states are more strict than those against commercial projects. In general, most states require that the designer, builder, or supplier provide advance notice to the owner of the property to which they are supplying services or goods. This notice allows the property owner to monitor payments to ensure that parties are being paid for their work and supplies. Indeed, landowners often require designers, builders, and suppliers to sign “lien waivers” as they get paid, which act to discharge any lien rights they had in connection with their contributions to the job up to that point.
If a designer, builder, or supplier doesn't get paid in a timely way, and he or she has followed the correct procedure to put a lien on the property, the party can then either threaten or actually go to court to ask that the land be seized and sold for payment of the outstanding debt. In many cases, the landowner sees to it that the aggrieved party receives payment in short order.
Liens are a powerful tool for designers, builders, and suppliers to ensure that their hard work and good efforts result in praise and payment.
—Ed Glady Jr. is a Phoenix attorney with Shughart, Thomson & Kilroy, P.C., who practices law in a number of areas, including construction, contracts, intellectual property, and insurance.
This article is for informational purposes only and should not be construed as legal advice.