Level With Me By JeremyWyatt
HOW MECHANIC’S LIENS ACTUALLY WORK TO GET YOU PAID
the homeowner. As part of this process, the lender will ask a title company to search the project’s land records and confirm that there are no other liens on the project that might prevent the lender from foreclosing on the land should the owner default on paying the lender back. And it is even more complicated than that. Lenders typically only release funds to pay for a project in small doses, called “draws.” So, when the general contractor invoices the owner for project work, the owner then passes the invoice to the lender and requests a draw be released to pay for that work. Before releasing any draw, however, the lender will turn back to its title company and ask for confirmation that there are no liens on the land except the lender’s deed of trust. Once the title company confirms “clean title,” except for the lender’s deed of trust, the lender pays the draw to the owner, who pays the general contractor, who pays the subcontractors. Once a subcontractor files a mechanic’s lien, however, the payment process can stop in its tracks. Working in reverse of the process laid out above, if the title company looks at the project’s land records and sees a mechanic’s lien, it will turn back to the lender and say, “You don’t have clean title.”Then, the lender tells the owner, “We cannot pay a draw until the mechanic’s How Mechanic’s Liens Disrupt the Payment Process
We file a lot of mechanic’s liens in our office, and a couple of questions often come up. First, clients ask, “Why should we file a mechanic’s lien instead of a normal lawsuit?”Then, when a lien is successful in getting the client paid, they sometimes ask, “What made that work so well?” For years, my stock answer has been, “Mechanic’s liens get the owner’s attention,”meaning that the money behind the project is now paying attention to the client’s unpaid invoices. But I recently read an opinion from the Supreme Court of Virginia that lays out the best answer I have seen to those questions. On a typical commercial construction project, the owner hires a general contractor, who hires subcontractors to work the project. Then, when subcontractors complete project work, they bill the general contractor, who in turn bills the owner for subcontractors’ work. But that isn’t the end of the payment story. On almost all commercial projects, the owner will need to borrow money to finance the project, so a lender is involved. And because that lender wants to protect its investment, it will put its own lien on the project’s land in the form of a deed of trust before the project even starts, similar to the way a bank puts a deed of trust on a home to secure its mortgage with Here is the answer. How Payment Flows on Commercial Projects
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jwyatt@harrisonlawgroup.com
www.HarrisonLawGroup.com
(410) 832-0000
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