Cash flow is critical to a construction company's success, so when a customer doesn’t pay their bills on time, it can quickly become a big problem. If you want to avoid lawyers and court cases, then a construction lien might be a viable option to ensure you get paid.
We’re in the business of construction estimating software, but getting paid for the work you do is a big part of the process, so we thought we’d share some quick tips about what construction liens are and how you can get one.
When you’re preparing quotes on your construction estimating software, planning projects, and managing customers and crews, you probably don’t think about getting paid too much. You just assume that your client will hold up their end of the deal and pay your invoices when the work is done. However, that doesn’t always happen.
A construction lien is a legal application contractors can make to effectively claim the title of the property they have worked on. So, in simple terms, you are laying claim to an ownership stake in that piece of property based on the time, effort, and expense you’ve put into the project you’ve done there.
When a contractor has a lien on a property, they are claiming an ownership stake in that property, which means that the person or organization whose name is on the title for that property doesn’t have full legal ownership of the property.
That means that they cannot enter into any legal agreements related to that property. So, for instance, they can’t refinance the property. They also can’t sell it and might not be able to rent it out either.
Losing legal control of your property is a very big problem, and most property owners want to avoid that situation in any way possible – including paying your invoices.
As you can imagine, you can’t just go around claiming a stake in any property you choose, so there is a high level of documentation and proof required before you can get a construction lien on any property.
You will need to have proof that you had a contract with the property owner, what that contract was for and what it said, and proof that you invested time and money in getting the work done. This is one of the reasons why it’s so important to have good construction estimating and project management tools so that you can create that paper trail in case you ever need it!
The process of applying for a construction lien will vary from state to state and by region, but you can usually contact your city’s building department to find out where you can file your lien. This is usually the land titles or a similar office, but it’s always best to check the specifics for your area.
The land titles office or building department can also advise you on how to file your claim and what the requirements are.
If you are going to file a construction lien, don’t wait too long, though! Every state might have different rules and regulations, but they all have time limits on this process, so if you wait too long, you might lose your chance.