If you are a contractor and you accept a job on some sort of property, you will do so on the good faith that you will get paid for your work. From experience, you will probably know that you usually do get paid on time. However, it is also likely that you will want at least some sort of upfront payment before you start the job, correct? This is a development that everybody is now so familiar with that they don’t even remember a time when things weren’t like that. The same is now starting to happen with mechanic’s liens.
Why Payment Terms Have Developed
Once upon a time, work would not be paid for until it was completed. Today, however, this has changed. It is common for a contractor to want at least 50% of the full payment before starting work. This is for two reasons. Firstly, they need to be able to pay for the necessary materials to do the job. Secondly, it has happened all too often that, on completion, the customer wouldn’t pay.
A while ago, it would be standard for 50% of the quote to be paid for the above reasons. Today, however, it is more common for a customer to have to pay for all materials up front, and for the work itself on completion. Which leaves contractors with the problem that they have to trust the customer to actually pay. To combat this, and to make sure contractors always get paid, they can file a Lien It Now – Pre-Lien Notice. This essentially means that they have already started the process of a mechanic’s lien, thereby guaranteeing that they will get paid. If the customer doesn’t pay at the end of the job, they can file a full lien and secure the owed moneys on the property. If the customer does pay, no further action will need to be taken.
Why Liens Are So Important
So why does a pre-lien or a lien matter at all? Can’t people simply trust each other? Unfortunately not. Here are a few reasons why liens are so important.
- You have to complete a mechanic’s lien within a set period of time. By having the pre-lien in place, you will already get the ball rolling.
- A lien is attached to the property. This means that the property can never be sold without the contractor getting their payment. The contractor can even force the home owner to sell their property.
- Liens will be resolved before any money is distributed. This means that you won’t have any more claim over the customer once they have paid up.
- Before a property can be sold, the lien must be removed. This means that you will always get your money.
- It is near impossible to refinance a property if there is a lien on it, unless the money is to pay off the lien.
Clearly, a pre-lien is not a sign that you don’t trust your customers. Rather, it is a way to make sure you are fully protected in case something does go wrong.