When a general contractor takes on a job, he assumes the responsibility of hiring and paying for all subcontractors. In the construction industry, when a contractor or subcontractor does not receive payment for work completed, he may choose to file a lien on the property where the construction occurred. Filing a lien avoids the cumbersome task of going to court, but it may take longer to pay.
Known in the construction industry as a mechanics lien, this document places a hold on real property for the amount owed to the subcontractor for work completed upon that property. If a general contractor fails to pay a subcontractor, even though the general contractor received payment from the homeowner, the subcontractor may choose to file a mechanics lien against the homeowner’s property. This could force foreclosure, depending upon the lien amount, if the homeowner doesn’t pay the amount owed.
Some states such as California require a preliminary notice before a subcontractor files a lien. The notice indicates that the subcontractor plans to provide services to upgrade a homeowner's property and has the option to file a lien, if not paid timely. This notice may occur a few days before or after the service occurs. In California, subcontractors who do not provide this notice cannot file a lien.
Because the homeowner is ultimately responsible for payment of all construction bills, regardless of the agreement he makes with the general contractor, the subcontractor -- by filing a notice of a lien -- allows the homeowner the opportunity to pay the invoice before a lien occurs on the homeowner’s property. If the homeowner paid the general contractor, he will need to seek legal recourse for repayment. Alternatively, he can file a complaint with the state's contractor licensing board.
When a subcontractor files a lien at the county’s assessor or auditor’s offices and receives full or partial payment of the requested amount, he must also provide a lien release or lien waiver to the homeowner when payment occurs. Homeowners are allowed to withhold final payment until they receive the unconditional lien releases for previous payments.
Read More: What Information Goes on a Lien Release Letter?