Construction Business with Unpaid Invoices? Perfect your Lien

By: Danielle Palardy – Published in the BizWest Thought Leaders column in July 2020.

The economic recession during COVID-19 has left many people struggling to pay their bills. How can you make sure your construction company gets paid for the labor and materials you already provided?

The most powerful tool in a contractor’s toolbox is the mechanic’s lien. A mechanic’s lien protects any person or company who provides labor and materials to improve real property. If a strict statutory procedure is followed, a lien attaches to the property that the contractor improved and gives the unpaid contractor the right to foreclose on the liened property to recover unpaid invoices. When a contractor files a lien, they are also protecting their interests in the event the customer files for bankruptcy by securing the priority of the debt. A mechanic’s lien can also give the contractor more leverage to demand payment without involving the courts.

Did you know that a lien must be recorded within four months of the completion of the work? Before you record your lien, you must give the other party ten days’ notice of your intent to record lien. Your lien will have to be recorded with the county clerk and recorder of the county where the property to be liened is located. Create an action plan for dealing with unpaid invoices that fits your company’s needs.

There are specific requirements that apply to different types of property and different types of services. Under certain circumstances, the property owner may be able to disclaim liability for the lien. Do your research to find the appropriate lien statute for your specific circumstances and follow the requirements for enforcement to ensure you are able to exercise your right to lien.

Danielle Palardy