What is a Mechanic’s Lien?
There are a lot of parties that are involved in a construction project. With a typical project, there are contractors, subcontractors, laborers, material suppliers, and many others. Property owners and building owners are legally obligated to pay for all work completed on the project as long as there is a valid contract or agreement in place, and when a responsible party fails to pay, a mechanic’s lien can be filed.
Mechanic’s liens a/k/a materialmen liens are very useful tools for unpaid parties in a construction project. If the owner fails to pay the amount owed, a lien is attached to the property, which means that the property cannot be sold until the lien is satisfied.
If you are dealing with an owner who owes you money for materials or services provided on a construction project in Alabama, Stone Crosby, P.C. is here to help. Our attorneys have helped numerous contractors, subcontractors, and materialmen effectively enforce their legal rights, and we have an in-depth understanding of the mechanic’s lien process. Call our Daphne, AL office today at (251) 626-6696 to speak with a member of our legal team.
What is a Mechanic’s Lien?
A mechanic’s lien is a legal document that is often used by various parties to help recover payment for materials or services that they have been commissioned to perform. The name “mechanic” is a bit misleading in this context. Although auto mechanics are among the parties that may seek a mechanic’s lien, this remedy is most often used by those who are connected with the construction industry.
A mechanic’s lien attaches to the title of the property that was constructed or renovated, which becomes part of the public record. This makes it very difficult for the owner to sell the property until the lien is paid or otherwise dealt with. In addition, nearly all lenders are unwilling to refinance the property or approve a second mortgage/equity line of credit if there is an unsatisfied lien.
For these reasons, mechanic’s liens are a major nuisance for property owners to have hanging over them, and they provide a significant amount of leverage for unpaid parties. Although they may not get paid immediately, there is a good chance that they will receive payment at some point in the future if they have a lien on the debtor’s property.
Important Things to Know About Alabama Mechanic’s Liens
A mechanic’s lien is often a very effective legal remedy for an unpaid party from a construction job, but before pursuing this avenue, there are some important things to be aware of:
There are Two Different Types of Mechanic’s Liens in Alabama
The types of mechanic’s liens that can be filed in Alabama are a full-price lien and an unpaid balance lien. A full-price lien allows a claimant to file a lien for the entire contract balance that is owed for the project. Only certain parties are allowed to file a full-price lien, which includes an original contractor who has a direct contract with the owner and materialmen who have furnished the owner with a required preliminary notice before supplying any material.
An unpaid balance lien is used to recover the remaining balance on materials supplied or services rendered through the date that the lien is filed. This type of lien applies to subcontractors and other parties who do not have a direct contract with the owner and did not furnish the owner with the required preliminary notice. It also applies to parties who did furnish the required preliminary notice, but the owner objected to it.
If the work being performed on a project requires a license, then the contractor or subcontractor should have the required licensing in order to legally assert a mechanic’s lien.
Subcontractors Must Provide Owners with a Notice of Unpaid Lien before Filing
Alabama requires subcontractors and materialmen to deliver a notice of their intent to file a lien to the owner before filing the lien. General contractors who have a direct contract with the owner may not be required to provide this notice.
There are Strict Filing Deadlines for Mechanic’s Liens
In Alabama, there are specified deadlines for the filing of mechanic’s liens ranging from 30 days to six months depending on whether the lien claimant is the original contractor or a subcontractor or supplier.
The deadline for original contractors is six months from the date the last item of work or labor was performed or the last item was supplied to the property, while subcontractors and suppliers have four months
Mechanic’s Liens also Have Enforcement Deadlines
Once the mechanic’s lien has been filed, that is not the end of the process. If the owner does not satisfy the lien in a timely manner, the unpaid party will need to file a lawsuit to enforce the lien to ensure that their legal rights will continue to be protected. This process is commonly known as “perfecting the lien”. In Alabama, the mechanic’s lien enforcement deadline is six months after the maturity of the indebtedness, which is when the debt became due. If a lawsuit to enforce the lien is not filed within the allotted timeframe, the lien is no longer enforceable against the property.
How to Avoid Mechanics Liens on Construction and Renovation Projects
Ways for Property Owners to Avoid Mechanics Liens
Choose the Contractor Wisely
The first step to ensuring that your construction or renovation project is done in a quality manner and without surprises like mechanic’s liens at the end is to choose a reputable contractor. Do a search in the Alabama Licensing Board for General Contractors database to ensure that they are licensed in the state. Then check out their rating with the Better Business Bureau and their online reviews. Finally, ask for some references from other customers whom you can call to obtain feedback on their work.
Require Preliminary Notices from All Parties
Property owners should be aware of all subcontractors and suppliers that will be part of their project. One of the best ways to familiarize yourself with these parties is to require preliminary notices. It is also good business practice for contractors to file preliminary notices because it introduces them to the owner and helps establish their right to file a mechanics lien if they are not paid.
Require Conditional Lien Waivers When Payments are Made
Property owners should require contractors to submit a conditional lien waiver with each payment that waives their right to file a mechanics lien on the amount that has been paid. This is a fairly standard practice that protects the owner from attempts to collect money that they have already paid for the project.
If you want to be doubly sure that everyone on the project is getting paid what they are owed, you might also consider issuing checks that are payable to the general contractor, subcontractor, and/or the supplier depending on whether allowed under the construction contract. This way, checks would have to be endorsed by all parties before they can be cashed.
Make Timely Payments
Most property owners understand this, but it is worth noting that making payments on time is the best way to avoid ending up with a mechanics lien.
Ways for Contractors to Avoid Mechanics Liens
Check Customer History
Just as a property owner should do their due diligence and investigate the general contractor, contractors should do the same. If an owner has a poor payment history and mechanics liens filed against them in the past, then there is a much better chance of that happening again. The same holds true for subcontractors and suppliers who are considering whether or not to work with a general contractor.
Use Preliminary Notices on Each Project
As mentioned previously, preliminary notices are good practice for all contractors and suppliers that are involved in a construction or renovation project. Submitting a preliminary notice shows professionalism and lets the project owner know that you are aware of your right to file a mechanics lien.
Send Regular Invoice Reminders
As the payment due date approaches, it is good practice to send friendly reminders that an invoice is due. People are very busy these days, and they often appreciate a reminder that they need to make a payment.
Send Demand Letters for Significantly Late Payments
If payment is far past the due date and the invoice reminders are not getting any response, it may be time to escalate things and seek legal action by filing a lawsuit. Otherwise, starting with a demand letter may resolve the issue.
A demand letter can be written in a stern but professional manner in order to warn the contractor or property owner of the potential consequences if payment is not made. A letter like this can often be enough to resolve the situation, and it is a good idea to consult with an attorney to ensure that it is worded properly.
Send a Notice of Intent
There is one final step that subcontractors and suppliers must take before filing a mechanics lien, and that is sending a notice of intent to claim a lien. At this point, you should definitely involve an attorney to craft the notice with the precise legal language that is required; and to assist with the steps involved to file a mechanics lien if the party does not respond positively to the notice of intent.
Speak with a Seasoned Daphne, AL Construction Law Attorney
To learn more about your legal rights as an unpaid contractor, subcontractor, or material supplier on a construction project, contact Stone Crosby, P.C. for assistance. Call our Daphne, AL office today at (251) 626-6696 or send us an online message to set up a personalized consultation with one of our attorneys.