Release of Lien- Did You Know?
When you hire a contractor, do you really know what you’re getting? Angie’s List would like to think so, but honestly, no, you don’t. One very important question to ask the contractor is, “will your company be performing the work on my property, or do you hire sub-contractors?” Chances are they probably will be using subcontractors. Now, let me be very clear on this—there is nothing wrong with hiring a contractor who uses subs. In today’s construction world it’s almost impossible to not use subs. The problem arises when you hire a contractor who may not be as honest as Abe. What could happen, you ask, if your contractor is a shyster who uses subcontractors? Good question, thanks for asking. You could end up with a lien on your property. But let’s break down how this could all happen:
If you find yourself needing a new roof due to hail damage or wind damage, first thing you probably do is hire a contractor to fix you right up. The contractor helps you with the insurance claim process and then, when you receive the first insurance check, you sign the check over to the contractor. This contractor contacts his subcontractor to come in and do the work. Chances are the contractor has paid the sub a small portion of the total amount owed to do the job. The sub and contractor probably have an agreement with each other that the sub will be paid the remainder of what is owed to him upon completion of the job. That’s just part of being a sub—you aren’t expected to have to wait for the 2nd insurance check, you get paid when the work is completed.
However, to put a little twist in things, say the contractor doesn’t have the funds to pay the sub without receiving the 2nd insurance check. Sure, the sub is upset but what can they really do other than wait? When that glorious second check finally comes, it’s not made out to the sub; it’s made out to the homeowner and (probably) the contractor, jointly. If the contractor is still the shyster we identified earlier, what’s going to stop him from taking that second check, skipping off into the sunset, and not paying the sub? Well, nothing.
However, as the homeowner, you’re probably asking yourself, “well, that’s too bad for the sub, but I’ve paid my bill, end of story.” Unfortunately for the homeowner, who really has done nothing wrong except picked a sorry excuse for a contractor, that is not, actually, the end of the story. The subcontractor can put a lien on the property that they did the work on. The case, ultimately, can go to court and the homeowner could have to pay the subcontractor for the remainder of the money owed.
How can you, as a homeowner, protect yourself? There are a few ways. Firstly, know your contractor. Trust who you hire. Secondly, ask the right questions. There’s nothing wrong with asking if subs are going to be doing the work, have a conversation with your contractor and see what’s going on. Thirdly, and maybe most importantly, there’s a form called a release of lien—you have the right to ask your contractor for this. Basically, this is a form that the sub will sign off on saying they have been paid the amount they are due and will not lien the property. That takes the heat off the homeowner and protects their property. It’s a shady world out there and the construction industry is definitely no exception. Protect yourself, get informed and stay informed.