Getting payment on outstanding invoices for completed work can be very frustrating for contractors. Typically, contractors prefer performing their trade and building their businesses. Contractors have several tools to effectively obtain money owed. It is often said, that “the best offense is a good defense.” This is certainly true about getting paid.
Contractors can avoid chasing outstanding bills by communicating effectively with owners or the entity that hired them. For example, explain the work to be performed, how much it costs, and when payment is due to help ensure that all parties are on the same page.
Require Advance Payments
Also, to avoid payment issues require a portion of the contract costs to be paid in advance with the balance due upon completion. A good standard procedure is to require payment at the pace work is performed or materials are ordered. Requiring payment throughout the project helps safeguard the contractor from bearing the full cost after the project is completed if payment issues arise.
How To Use Construction Liens To Get Paid
Construction liens are powerful tools contractors can use to collect money owed. Construction liens are powerful because they give the contractor a security interest in the real estate. Liens allow contractors to file a foreclosure action on real estate to receive payment that is owed.
Notably, contractors rarely need to actually foreclose on a property. In most cases, merely filing of a lien works wonders for obtaining payment provided that the contractor takes the appropriate steps after filing the lien.
A Contractor Should Not Be Afraid to File A lien
Some contractors fail to file liens because they fear filing will make a bad situation worse. In our experience, this is a mistake. Not asserting lien rights does not make the underlying dispute go away. The contractor simply loses the ability to leverage their lien in a favorable manner. Please note, there are important statutory requirements for filing a lien.
What Contractors Should Do After Filing A Lien
Most contractors are aware that they have lien rights but many are not sure what to do after they file their lien. Murdock Law has a couple of suggestions for contractors
Send the lien to All Interested Parties
After filing a lien, send a copy of the lien to every interested party on the project. Liens can be helpful to get multiple parties involved to pay a debt. For example, a subcontractor should make sure that both the general contractor and the owner receive copies of the lien. On some construction projects, there may be statutory requirements to provide notice to all interested parties. However, even if you are not required to send notice to all interested parties, doing so can be helpful in obtaining payment. In our experience, an owner will often force a general contractor to resolve the subcontractor’s lien claim.
Pick Up the Phone After Filing the Lien
Contractors may receive the run around prior to filing a lien, but after the debtor sees they are serious enough to file a lien, they may reconsider their non-payment. Contractors should also call the property owner and inform them that a lien was filed on their property. Property owners are responsible for lien debt if whoever is responsible for payment does not pay because lien rights are held against the property.
File a Lawsuit
Liens can often be resolved without filing suit. However, in some circumstances it is necessary to file suit to foreclose on the lien. In Wisconsin, a contractor must file suit to enforce the construction lien within 2 years of the date of the lien.
What Can A Contractor Do If they Did Not Timely File A Lien
When a contractor does not timely assert their lien rights, they are unable to obtain a security interest in the property. The contractor still would have the ability to enforce its contractual rights to the payment by filing a lawsuit for breach of contract.
While avoiding non-payments issues is always preferable, they exist in the construction industry. Contractors can reduce their risks by using mechanics liens to recover the payments they are owed.