How to Deal With a Home Subcontractor Who Files a Lien on Your Home and Threatens to Sue
One of the biggest difficulties in the building industry is the contractor/sub-contractor relationship. Though not usually the case, a contractor might deal dishonestly with his sub-contractors, leaving them with huge losses and the homeowner with a lien on his property.
A Mechanic’s or Construction Lien on Property
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 transferred without a sale, the lien-holder can sue the new owner for payment of the lien. As with any type of lien, it is damaging to the home's value and 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 is owed.
Avoiding a Mechanic's or Construction Lien and Possible Foreclosure
Talk to the subcontractor to find out why he is threatening legal action. Most likely, this is because he was not paid by the contractor. If that is the case, ask the subcontractor to postpone filing or foreclosing the lien until you have a chance to contact the builder. If the builder refuses to cooperate and refund the money, contact the contractor’s state licensing board and file a complaint against the builder, requesting payment from the builder’s bond.
When Possible, Add Provision For Your Protection
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.