The client stops making payments on the project and fails to respond to calls and e-mail. What to do? After much consideration, the remodeler decides he has little choice but to file a lien on the property to collect payment.
That was the case for one California remodeler who would prefer to remain anonymous. In business for 30 years, he says that although he has walked away from $20,000 losses on a project before, he could not ignore the $200,000 owed on this particular job. “I was very reluctant to file a lien,” he says. “We do not want to be driven to that point. It gets ugly for everyone ... but I came out of it with something rather than minus something. If I had to, I would do it again. If someone decides not to pay you, that is all you’ve got.”
Proceed With Caution
Liens are a builder’s ultimate protection, but it’s only a protection if you follow the lien laws. In the past, the California remodeler had found that when he said to clients, “I don’t want to have to file a lien,” that conversation was enough to get their attention. But, he points out, “the lien conversation throws the relationship into chaos — it’s like a divorce conversation.”
When this client’s attorney contacted the remodeler, the remodeler pointed to the mediation clause in the company’s contract that the client had initialed. Both parties reached a settlement and the remodeler released the lien.
Attorney Richard Feeley of Feeley Mediation & Business Law, in Marietta, Ga., says that remodelers should use the lien process sparingly and only for collection of larger sums of money. Filing and perfecting a lien is a complicated process with no guarantee of quick payment. Each step of the process must be carefully followed, and the final step includes filing a lawsuit to foreclose on the property, much like a bank would on a mortgage default. “If any of the steps are missed or done incorrectly, the contractor could end up with a lawsuit filed against him for filing a bad lien and could result in liability to the contractor for more than the lien was worth in the first place,” Feeley cautions.
Because there are numerous state-specific variations on the basic lien law structure described here, Feeley says it is imperative that whenever a remodeler considers using the lien mechanism, he should follow the specific state lien law requirements to the letter. Pursuant to this warning, the basic process is as follows:
1. The contractor provides goods or services to improve a property, for which he does not receive payment.
2. The contractor must file a lien within a specific number of days (generally 90 days) from the last day he performs work on the property.
3. The lien must be filed in the courthouse of the county where the property is located. The lien must identify the record owner of the property (who may be different from the person who ordered the work) and must include a legal description of the property from property records. The lien must state the amount the contractor seeks to collect for the work and must identify the person who ordered the work to be done.
4. The lien is sent by certified mail to the property owner.
5. To collect the debt within a certain amount of time — typically within 12 months of the lien filing — the contractor must file a foreclose suit, which ultimately may result in the property being sold.
6. If the foreclosure suit is not filed within the time limit, the lien expires (typically after one year of filing) and no longer has any power against the property.
Feeley says that contractors do not need a lawyer for the initial lien filing, as most courts have a standard form for that part of the process. If the remodeler is going to file a foreclose action, however, Feeley suggests that they consult a lawyer.
“The threat of a lien is usually enough to get people talking about payment,” Feeley says. Though the lien process is time-consuming and complicated, it can be a powerful tool if carefully used. Feeley says that remodelers should consider their company brand when making a decision about a lien. “Filing a lien could also be a bad public relations move — especially if you file multiple liens,” he says, noting that contractors should not use liens as a primary collection effort.
A small claims court case may be a more efficient and cost-effective method of collection than the lien process for some contractors. Most small-claims courts have jurisdictional limits for cases of $15,000 or less, and cases are typically heard by the court within 45 to 60 days of filing. Contractors considering using a small-claims court should research the local jurisdictional and other requirements for the courts in their state and locality.
—Nina Patel, senior editor, REMODELING.