What should I do if a subcontractor (plumber, painter, etc) threatens to sue me or file a lien on my house?

One of the biggest messes of modern building is the contractor/sub-contractor relationship. While ninety percent of the time, the contractor is honest and works well with his sub-contractors and pays them what they are owed, occasionally a contractor will deal dishonestly with his sub-contractors, leaving them with huge losses and the homeowner with a lien on his or her property.

What is a mechanic’s lien or construction lien?
A mechanic’s or construction lien on property is a debt owed to the sub-contractor that is placed on the property to be paid when the property is sold. If the property is transfered without a sale, then the lien-holder can sue the new owner for payment of the lien. As with any type of lien, it is damaging to the value of a home and something that should be avoided. In some states the holder of a mechanic's lien may "foreclose," which would allow the holder of the lien to force the sale of the property to collect what they lien holder is owed.

How can I prevent a mechanic’s lien or construction lien from being placed on my home, or being foreclosed?
Speak with the subcontractor and find out why they are threatening legal action. Most likely, they are threatening legal action because they were not paid by the contractor. If this is the case, ask the subcontractor to wait on filing or foreclosing the lien until you have had a chance to contact the builder. If the builder refuses to cooperate and refund you the money, contact you contractor’s state licensing board and file a complaint against the builder, requesting payment from the builder’s bond.

How can I prevent this situation?
In states where mechanics liens are not specifically provided for by the law, draft a provision in your contract that states all disagreements with regard to payment must be settled with the contractor, and that no mechanic’s or construction liens may be placed on the property once payment has been made in full to the contractor. Most importantly, require that your contractor release the names of his sub-contractors to you, and require that all sub-contractors sign this section of the contract in acknowledgement of it.