Category Archives: liens

A lien on the construction can lead to serious problems

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You take up a big project, complete the work on time but forget to pay your contractors their dues. This can lead you to some serious problems in the future. If you do not pay your contractor for their work, they have every right to place a lien on the construction project and you will then find it difficult to get a completion certificate. More to this, banks will not entertain you when it comes to refinancing or for that matter any sort of financial assistance. Banks do not get into projects that have issues. They want projects whose title are clear and have no issues whatsoever. It can cause several other issues to the constructor when it comes to selling the apartments in a condominium which he has constructed for residential purpose. If the title on the property is not clear, he will find it absolutely difficult to sell it to the public.

The construction company has to ensure that he clears the dues of the contractors should also ensure that the contractors are also paying to the sub-contractors because if they are not paid then they can also adopt the same methodology and create issues for the company. The sub-contractor can also place a lien on the project and can put a halt to the sale proceeds. It has been seen that liens are ideally placed as a last resort when contractors do not see any other option to get their money they go for placing liens. Once a lien is placed on any construction project, it gets recorded in the credit rating of the company. This means that credit rating of the company gets hampered which eventually affects the overall goodwill of the company. Construction companies do not want to play with their goodwill and therefore they do not want to take any potential risk by not paying their creditors or contractors.

Further to this, a dip in their credit rating can also cause problems to them when it comes to getting loans from banks. Construction companies with poor credit rating do not easily get loans and if at all they manage to get it from any financial institution then the interest rates will be really high. This in turn will have a negative impact on their business. They will never want such things to happen and therefore should try everything to avoid getting a lien on their project.

There have been several instances where construction companies have paid the contractors but they in turn have failed to pay other concerned parties to the project. This can be a big pain for the project owner because here he may not know all the parties who are associated with the contract and then all of a sudden you get to know that someone has placed a lien as they are not being paid. However, you check your records and see that you have paid all the parties involved in the transaction on time. You can file a complaint and state that you are clear in paying everybody and can disclose the records in front of the concerned authority. But this is unquestionably a big pain and in order to avoid this, you should pick contractors of good reputation.

Placing a lien when you are already paid can be a serious problem

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There was a time when construction companies once having taken a project will complete the entire project on their own. They will not like the involvement of any other party in the work. However, the dynamics have changed completely. Now big construction companies only take up projects and let it to other construction companies who further sub-let it to small construction companies or contractors. So one big project is worked by many different companies and the main company who initially took the work has to ensure that all the parties involved in this work are paid in full because if either of the party is not paid then it can have serious repercussion on the project.

The parties who are unpaid can place a lien on the project which means that only when they are paid first that the owner of the project will be able to sell anything to anybody. It also means that the parties who are unpaid and have placed a lien are in a way the actual holders of the property. However, once they are paid in full they will withdraw their lien and then it becomes lien free. As a lien on a project can have serious impact on the project owner in the same fashion if someone has wrongfully placed a lien to harass the project owner, it can again have serious impact on the person for taking incorrect advantage of the lien. Contractors and sub-contractors are allowed to place lien so that they can safeguard their interest if they are not paid by the project owner. But this should not be in any way misused or else the entire purpose of having a mechanism like this goes for a toss.

The law in the United States is strict enough to weed out any menace like this. People who take place wrong liens are punished once they are proven guilty. However, an equal opportunity is given to both the project owner and the contractor to prove their point and if it is found that the project giver has paid in full but it was because of some kind of confusion the contractor did not receive the money and placed a lien, then the court tries to clear out the confusion and at times also gives the contractor a warning to check things first before placing a lien.

Ideally, a lien is supposed to be placed after a series of discussion between the project owner and the contractor and nothing has come out of it. One can’t just go and place a lien when things can be solved via discussion. Placing a lien should be the last option. Therefore, it is suggested that the contractor gives ample of time to the project owner to pay him for his work. If he places a lien without giving sufficient time, it may back-fire him. By no means should the contractor do anything that will place him into problems. If proven guilty he may end up paying good chunk of money as penalty and may also have to be behind bars for few months.

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