“I signed a subcontract that said I could not file a lien, but you’re telling me I could have filed a lien for the $50,000 I’m owed?” Shane from Super Duper Subcontractor asked in dismay. Shane, one of our law firm’s clients, had listened to promises from the general contractor that his payment was coming for the last ninety days, but he had still not received payment. Now, the general contractor had filed for bankruptcy. Since Shane had not sent the required notices on time, he could not file a lien against the project because it would be invalid.
This scenario is, unfortunately, not rare, so it pays to know what to do when you’re owed money. In reality, if you’re owed money from your general contractor, you can always file a lien, no matter what your subcontract says. Let’s look at the myth about liens that subcontractors shouldn’t believe.
Why Liens are so Important
Let’s first explain why your lien rights are so important. When you are working on a project and are owed money, without a lien, the only way you can collect is by suing the general contractor for breach of the subcontract for not paying you. That is an unsecured debt. When you owe a credit card company for the money you spent at Home Depot, for example, the only way they can collect their money is to put your file into collections and sue you.
On the other hand, with a lien, you have secured debt. When purchasing a house, for example, you borrow money from a bank, and if you do not pay the bank, they would kick you out of the house and sell it for the money you owed them. A lien works the same way.
If you are not paid for labor or materials supplied to a construction project and you properly file a lien, you can force the sale of the property to pay your lien. About 99% of cases do not end up with the sale of the property, but the lien claims end up being paid—which is what you want.
Having a lien is such a powerful remedy, so you must follow the proper process. Many deadlines must be met to file a proper lien, but there is no penalty for filing a lien early. Meaning if it becomes clear from the circumstances that you will not be paid, no matter what phase the project is in, do not wait; file your lien.
Myth: You Can’t File a Lien Because Your Subcontract Forbids It
Now, let’s talk about the myth that Shane fell for in the earlier example. He believed he couldn’t file a lien because there was a provision against doing so in his subcontract.
The truth is that any provision in a subcontract that says you cannot file a lien is unenforceable. That means even if you sign a subcontract that states you cannot file a lien, you can still file a lien. Don’t let a general contractor convince you otherwise. Many unscrupulous contractors would probably love for you to not take this effective route to recoup your money because a lien gives you leverage.
Any project that has construction financing has to move from construction financing to permanent financing. Before a project can go to permanent financing, all liens must be taken care of. Even if the project is already in permanent financing, your lien will still have leverage.
No owner wants a lien on their property, and they will pressure the general contractor to take care of any liens. Owners especially don’t like to get sued for foreclosure of a lien that is against their property. That’s why you should file a lien as soon as you’re able. Because, like Shane, if you wait too long and miss the deadline, you’ll miss your chance to apply leverage in getting paid.
Our lawyers are here to protect you on the front-end and save you from any contract disputes that may arise. With offices in Houston, Austin, and San Antonio, we are your Texas contractor lawyer. Protect your business and call one of our experienced attorneys today at The Cromeens Law Firm at 713.715.7334.
Think Before Signing an Unconditional Waiver
The one exception to being able to file a lien is if you sign what is called an unconditional lien waiver. These waivers usually contain language like this:
This document waives rights unconditionally and states that you have been paid for giving up those rights. It is prohibited for a person to require you to sign this document if you have not been paid the payment amount set forth below. If you have not been paid, use a conditional release form.
Subcontractors are asked to sign unconditional waivers without being paid all the time, and most of the time, there is no issue and you get paid what you are owed. If you have been working with a general contractor for a long time and you have always signed unconditional waivers before you are paid, it most likely will not be an issue. However, do not sign an unconditional lien waiver if you have not been paid by someone you’re working with for the first time.
The unconditional lien waiver will be used against you when you are not paid and try to take further action to collect your money. You waive your rights to collect your funds when you sign the unconditional lien waiver, so do so with caution.
Find lien waiver examples in the Free Resources section of The Subcontractor Institute.
Conclusion: Always File a Lien
The biggest takeaway on liens (assuming you haven’t signed an unconditional lien waiver) is this: always file a lien as soon as you’re able.
You only have a certain amount of time to act before the deadline to file passes, so don’t waste it: the sooner you file the lien, the sooner you can get paid. Remember, a lien is leverage—it’s no wonder general contractors who intend to avoid paying you would try to convince you that you can’t file one. Don’t listen to them. A simple provision in your subcontract forbidding liens is unenforceable.
The truth is that if you know your rights and use the tools available to you, like liens, most of the time, you’ll get paid what you’re owed.