As a lender in the construction field, you may think you know all there is to know about mechanic’s liens. The truth is that sometimes the simplest aspects of our business become things that are rote and that we no longer give attention to. Today we are going to take a step back and look at mechanic’s liens with fresh eyes.

A Simple Definition of a Mechanic’s Lien

When a subcontractor works on a project and does not receive payment upfront, they have the right to file a mechanic’s lien if they are not paid. When general contractors do not pay for the work that has been done, then the subcontractor can file the lien to secure their interest in the property. The homeowner is not responsible for working out a solution with the subcontractor.

If this is the case then a lawsuit could eventually be filed. In this instance, the homeowner would likely sue the subcontractor. In most cases, the homeowner has paid the contractor and they do not directly have the responsibility to pay the subcontractor. That said, in order to avoid doing so they would have to sue the contractor to get them to pay the subcontractor – and this is time and money that could be better spent. The right option is to simply avoid mechanic’s liens whenever possible.

How to Avoid Mechanic’s Liens

There are a few steps you can take to try and avoid mechanic’s liens altogether. They include:

• Paying the general contractor and the subcontractors with a joint check
• Keeping track of all paperwork you get from everyone working on the project. Fund Control software makes it easy to keep track of all correspondence, receipts, and more. The more information you have on the transactions that have gone through, the easier it will be to follow up with contractors to ensure they have been paid.
• Pay subcontractors directly. There is no law that says you have to pay the contractor with the assumption they will pay their subcontractors. When you pay the subcontractor directly, you may have more work to do with your accounting but it can prevent future issues such as mechanic’s liens.
• Choose the right contractors. When you are considering who to lend money to, you can ask them if their subcontractors have a history of filing mechanic’s liens on their properties.

We Can Help Keep Your Funds Organized – And Much More

If you are in need of assistance from an experienced fund control company then you are in luck: Our software makes it easy for you to handle this. With a huge variety of features, and more than 800 possible customization options. Call Fund Control now at 800-625-5972 if you want a free demo or to learn more about the many options available to you.