In an earlier article, we discussed the unforeseen damage from construction projects to your properties. If you aren’t careful, an unscrupulous contractor could easily abscond with your money and not pay the subcontractors.
The result? A construction lien has been filed against your home. If the subcontractors are not paid, you could lose your home in foreclosure.
It sounds unfair, and it is. After all, you can do everything right, pay all your bills and still lose your property if you don’t pay double what you were counting on paying.
To be clear, this can happen on just about any construction project you undertake.
Whether it is a simple repair to your structure, a renovation to your home’s bathroom, a complete remodel of an investment property, or the construction of your new home, you can suffer from the effects of a construction lien.
However, the chances of losing your property to a construction lien are greatly reduced if you take simple steps to protect your project and your investment.
The attorneys at The Orlando Law Group specialize in helping homeowners understand their rights in construction law in Orlando, Sanford, Winter Garden and Kissimmee. When it comes to homeowners facing construction liens, an attorney is essential.
What is a Construction Lien?
The construction lien is basically a legal tool that companies in the construction industry use to ensure they are paid for their work. If they are not paid, they have the right to file a lien and eventually take control of the property.
In most construction projects, a lien will never be filed. That’s because generally people pay for the services they were delivered and companies pay the firms and employees they use to build.
However, that’s not always the case.
A case in Southwest Florida is a worst-case scenario. Late last year, a company building hundreds of houses there closed, saying it was more than $11 million in debt. More than 200 subcontractors were not paid, and dozens of houses were not finished.
Now, those homeowners are facing foreclosure and having their property taken by subcontractors who have legally put a lien on the property in an attempt to be paid for their services and materials.
The laws overseeing the use of construction liens are very specific and must be followed exactly, so homeowners should not be surprised by liens. And there are a few steps you can take to minimize your risk of having a construction lien placed on your home.
Step one – find a legitimate contractor
It may sound like an easy step, but you would be amazed at how many warning signs there are about bad contractors that are overlooked or simply not researched.
When hiring a contractor, ask for between three to five references. Letters of reference are nice, but you want to be able to talk to a past customer to ask them about their experience and how the project was closed.
You should also ask for a list of subcontractors as part of the bid. Reach out to the subcontractors and find out how many projects they have worked on with the contractor, looking for long-term relationships and repeat business.
Of course, you want to do a Google search for any news about the contractor or any bad articles. But don’t just Google the company name. Google the company’s ownership. After all, a criminal can change the name of their company fairly easily to start the slate clean.
You’ll want to verify all of the company’s licenses are up to date, along with all required insurance, like property damage and workman’s compensation insurance.
You can research court cases at the clerk of the court for the area where the contractor is headquartered. While many contractors experience litigation, you’re looking for any financial lawsuits, especially ones over non-payments.
Reach out to the Better Business Bureau and see if there are complaints. Generally, companies can purchase good listings from the Better Business Bureau, but it is difficult for companies to hide complaints.
Finally, if you still have a nagging doubt about someone you are going to hire and don’t want to just trust your instincts, The Orlando Law Firm can certainly run a background check on the company and its owners.
Step two – keep great records
In the last article, we talked about how Florida law requires construction companies to notify any property owner of the ability to place a lien on the property if they are not paid.
A key part of avoiding a construction lien is to watch for this notice from your contractor.
WARNING! FLORIDA’S CONSTRUCTION LIEN LAW ALLOWS SOME UNPAID CONTRACTORS, SUBCONTRACTORS, AND MATERIAL SUPPLIERS TO FILE LIENS AGAINST YOUR PROPERTY EVEN IF YOU HAVE MADE PAYMENT IN FULL.
UNDER FLORIDA LAW, YOUR FAILURE TO MAKE SURE THAT WE ARE PAID MAY RESULT IN A LIEN AGAINST YOUR PROPERTY AND YOUR PAYING TWICE.
TO AVOID A LIEN AND PAYING TWICE, YOU MUST OBTAIN A WRITTEN RELEASE FROM US EVERY TIME YOU PAY YOUR CONTRACTOR.
The notice will always come by mail and must be sent no later than 45 days after commencement of the construction project.
It’s essential that you make sure to watch your mailbox when you are undertaking a construction project. The notice from subcontractors about the ability to place a construction lien is often the only way to tell exactly who is working on your project.
When it comes, save it in your files. Save any other correspondence, including receipts of payments, change orders and anything else. Having these records will be essential in proving your case if you have to fight your liens.
There may be some issues in delivery, so just because you did not receive a notice, it does not put you in the clear. If you do not receive it, after 45 days, you can always ask for the notification and how it was sent.
Step three – Ensure you have a great contract
For most construction projects, you should have a contract either drafted by an attorney or reviewed by an attorney. Most construction companies will have a standard contract, but you should still have an attorney review it to ensure there are no loopholes that are atypical.
What we’re looking for here is a clear definition of the scope of work, the payment procedures, deadlines, change order procedures and anything to do with construction liens. It will also have some outline of recourse for both you and the construction company in case the contract is broken.
As an addendum to your contract, you should have a list of all subcontractors or other companies that may be working on your property. This list should only be changed with approval from both parties, following specific contract language on changes to the list.
It may sound simple, but a great contract can eliminate so many issues during the closeout phase of your construction project.
Step four – Get the waiver
When the construction project is finished and it’s time to make the final payment, ask for lien waivers from all parties on the project.
Do not make any final payment until this is complete!
A common mistake people make is accepting a lien waiver only from the general contractor and assuming it covers all the subcontractors on the project.
It doesn’t.
You need to request a lien waiver from every subcontractor before you make the final payment, as they have the right to place a lien on your property if they are not paid by the general contractor.
Then, you need to correlate every lien notice you received with every lien waiver you receive. It only takes one subcontractor getting stiffed to cause major problems for you.
This is what happened in Southwest Florida. The homeowners paid the contractor, who did not pay the subcontractors before closing the company. Now the homeowners will need to pay twice.
Your attorney can inspect all notices, including the notice of commencement, to ensure all laws are being followed. It can also help when final payments are due to ensure there are as few issues as possible.
When you are paying thousands of dollars for any improvement on your property, you want someone who has dealt with the legal requirements for construction liens on homeowners throughout their entire career.
In the next article, we’ll discuss your options if a lien is placed on your property after a construction project.
The attorneys at The Orlando Law Group help with all types of legal issues for homeowners and property owners in Orlando, Waterford Lakes, Altamonte Springs, Winter Garden, Lake Nona, St. Cloud, Kissimmee, and throughout Central Florida.
If you have questions about anything discussed in this article or other legal matters, give our office a call at 407-512-4394 or fill out our online contact form to schedule a consultation to discuss your case. We have an office conveniently located at 12301 Lake Underhill Rd, Suite 213, Orlando, FL 32828, as well as offices in Seminole, Osceola and West Orange counties to assist you.
The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney-client relationship. If you are seeking legal advice, please contact our law firm directly.