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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.
Lien Release or Waiver
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?
- Internal Revenue Service. "Understanding a Federal Tax Lien." Accessed Sep. 18, 2020.
- Experian. "Tax Liens Are No Longer a Part of Credit Reports." Accessed Sept. 18, 2020.
- Experian. "What Affects Your Credit Scores?" Accessed Sep. 18, 2020.
- Federal Trade Commission. "Fair Credit Reporting Act 15 U.S.C § 1681," Page 22. Accessed Sep. 18, 2020.
As a native Californian, artist, journalist and published author, Laurie Brenner began writing professionally in 1975. She has written for newspapers, magazines, online publications and sites. Brenner graduated from San Diego's Coleman College.