(or, Can I Get My Hands on That Red Pickup?)
Three months ago, the general contractor (GC) showed up driving a brand new, fire-engine-red, extended cab, turbo-charged 425-horsepower diesel dually that set him back sixty-five grand. The final invoice for your foundation work should have been paid that day—it’s still unpaid. Payday is tomorrow, your cash is low, your stomach aches, and the material supplier is calling twice a day now.
A month later, the job is deserted, and the GC’s phone is disconnected.
In the short-term, it’s a cash-flow pickle. You are scrambling to preserve your good credit and to pay your employees. You seek guidance.
“Good news,” the lawyer says. “There are remedies under Pennsylvania law you can seek against the spendthrift GC.” The bad news: the remedies are not predictable as to when cash will hit your account.
As you said “thank you” to the lawyer and handed over a check, you added a scorching headache to your sour tummy. Worse, you can’t remember a thing you need to do. You are not alone: lien laws are complicated with deadlines, filings and strange words you have never heard before. Our aim here is to review what your attorney told you while you were politely nodding.
As an unpaid “mechanic” or “materialman,” lien rights arise against the owner of the job site. Even if the owner paid the GC, because you weren’t paid, your goal with a lien is to collect from the owner. Once your lien is perfected, the owner must come to you to get the property released from lien.
Your lawyer asked questions to ascertain whether you have the right to file a lien. Your answers determine whether you have rights, whether they have been cut off, or if you even have standing to file a lien. Here is a recap of the interview with your attorney, arranged in two separate rounds.
Was your work performed on a public (rather than private) building project?
Was the work performed less than $500?
Was the last day of your work five months ago or longer?
Was the work for something other than erecting, constructing, altering or repairing a building?
If the answer to ALL of these questions is “NO”: You’re good to go to the next round.
If any answer is “YES”: In Pennsylvania, a job under $500 does not qualify. Mechanic’s liens cannot be filed on “purely public” projects such as schools or buildings built by the township, the county or the commonwealth (bond claims may be available on those projects). You must file your lien claim within six months of the last day of work. All your work must be performed in the erection, construction or repair of a building (cannot be demolition, landscaping, grading, installation of a tennis court, among others).
Answering “Yes” to any question in Round One means you don’t have any lien rights.
Was the project a residential or a non-residential building? On residential projects under $1,000,000, the GC can ask you to enter into a “no-lien agreement” before work has commenced to voluntarily cut off your lien rights. DON’T DO THIS! If you have waived your lien rights on such a residential project, you are out.
On residential projects over $1,000,000, the GC can ask you for a pre-payment lien waiver, but the GC must post a bond guaranteeing payments to sub-contractors.
On non-residential projects, pre-payment lien waivers are unlawful except when work was performed and payment was received. Asked to execute a pre-payment lien waiver on a contract? Stop, and call your lawyer.
Made it through Rounds One and Two?
Getting your lien “perfected” requires that you file your claim within SIX months of the last work performed. BUT WAIT: Prior to filing your lien, you must send a 30-day Notice of Intent to File to the owner, then you must wait 30 days. This allows the owner to get notice, to get angry, to get over it, to find out why the GC didn’t pay, then to find capital to pay you. A lien will cause untold nastiness with the owner’s finances. Most times, a lien filing is avoided by the eye-popping notice and the volcanic reaction the owner suffers. HENCE: You only really have five months from the last day of work to start by sending a thirty-day Notice of Intent!
What does this mean for you? START EARLY! EARLY! EARLY! Send a Notice of Intent to File as soon as your contractual payment terms expire (e.g., net thirty days, etc.). Have your attorney prepared to file the formal lien immediately after the 30 days of the notice period passes.
So, the notice did not rouse the owner?
You are still not paid. You need to “perfect” your lien. Because a lien is “notice to the world” that you have been stiffed by the GC and the owner, liens are seriously derogatory. You must be dead certain that the lien is the last resort because once filed, it’s a permanent part of the public record. You can be sued if you are wrong about your lien or if you file it against the wrong property or owner.
You filed. Your lien is now “perfected.” Not quite done yet. You must now enforce the lien by having your attorney file suit against the owner to obtain judgment. Judgment is the only way to get legal right to enforce collections such as foreclosing on the property. You have two years from the lien filing date to sue. After your lien is perfected though, should the owner sell the property, your lien will be paid by the title company at closing. Short of a refinancing or sale of the property, you must file a lawsuit to get judgment within two years or your lien just “evaporates.”
What happens if you didn’t make it through Rounds One and Two?
You still might have a lawsuit against the GC for breach of contract, for unjust enrichment, or possibly other reasons. You will, however, only collect the amount of your unpaid bills and costs of collection (such as attorneys’ fees and filing costs) included as part of your well-drafted contract (you do have a well-drafted contract, right?). Know that the law won’t allow you to collect TWICE, once from the GC and again from the owner. One lawsuit can usually include causes of action against the GC and the lien action against the owner.
Don’t be afraid of mechanic's lien laws. Know at the start of every project whether you are within or outside the scope of lien laws. Tune up your contract documents annually, and make a habit of passing contract packages by your attorney before submitting. Know your rights when confronted with a lien waiver.
Continue to be wary when you see your GC driving a brand new fire engine red extended cab turbo-charged 425-horsepower diesel dually.
(In a future edition, look for an explanation of rights you may have under the Pennsylvania Contractor and Subcontractor Payment Act (CASPA) that provides certain protections to parties of construction contracts).