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.

Don’t let contractors put lien on your construction property

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If you are thinking to not pay your contractors for their job for whatever reason, you should think twice about it. You may find their work to be of poor quality but when you see the progress of the construction, you can let the contractors know that you do not like their work and they need to focus more on the quality part. Just not paying them their dues can drive you into serious problems. The contractor can place a lien on the construction property and can make the entire thing quite messy for you. It is better to counter them upfront and tell them you do not like their work rather than not paying them their dues.

Let us first understand what a lien on a property is all about. Having first lien on a property means that it completely belongs to you and in case if you want to sell it off and go back home with all the cash you are free to do so. Now if someone puts a lien on your property, it means that if you sell the place you can’t get away with the entire cash amount. You have to first clear the dues of the person/entity that has put the lien on your property and then whatever is left belongs to you. It eventually means that you do not have the absolute right on the property.

This is perhaps just the tip of the iceberg. You may be further entangled with more such complications that will act as a big distraction in your business. Your credit rating goes for a toss. You are also not able to refinance the property with any financial institution. This means that you can’t even keep this place as LAP (Loan Against Property). Moreover, when you are letting you the construction work to a contractor and if he sub-lets it to another contractor, you need to ensure that the contractor pays all the dues to the sub contractor or else that particular person will place a lien on your property. It simply means that whosoever person who has any interest in your property can place a lien on it if their dues are not paid.

In case you come across a contractor who does not carry a good record and you unfortunately give the work to him. In this case, you got to be absolutely sure that you keep records of your payments to him. Such people can create nuisance even after they have received all their dues. In case you are clean, you hire an attorney who will take such guys to task. But before you hire any contractor, it is important that you do a research on their conduct. You can check things like how long they are into this business and how their relations have been with other construction companies. You can check with people in your business circles and hire someone who will not unnecessarily put liens on the property to create problems for you.

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