Acting promptly to collect debts enhances the likelihood of recovering overdue accounts receivable. With each passing month a delinquent becomes less collectible. If you take your debtors to court to compel collection, the key to a successful judicial result is good paperwork.

Mechanic’s Lien Claims are valuable and powerful collection tools. When done properly a Mechanic’s Lien Claim allows you to assert rights against the real estate and obtain payment directly from the property owner, even if you did not contract with the property owner and even if the property owner has already paid someone else for the work. Mechanic’s liens are particularly useful when your customer is insolvent, bankrupt or non-responsive. Mechanic’s Lien Claims are useful but can only be obtained by diligently complying with the relevant law. Lien requirements and deadlines vary from state to state and can be different depending on whether the property is residential or commercial. Prompt attention is important and it is usually a good idea to contact a construction attorney if a bill hasn’t been paid and the job has been completed for 60 days. Many people mistakenly believe a Mechanic’s Lien is passive – that the Lien Claimant must wait to be paid until the property owner sells the real estate before the Lien Claimant will be paid. Such a belief is false for two reasons – if a Petition to Enforce the Mechanic’s Lien is not filed with six months to a year (depending on the state), the Lien Claim expires no matter how otherwise meritorious it may be. Second, a Lien Claim may actively foreclose on the real estate, once the Lien Claim is adjudicated, just like an unpaid mortgage lender.

Often times a customer will ask that you execute a Lien Waiver in order to be paid. This can cause problems if you execute an “absolute” lien waiver in exchange for a partial payment. It is a good idea to review a Lien Waiver with an attorney if you are being asked to sign before being paid in full. Without intending to do so, an unqualified Mechanic’s Lien Waiver may waive all lien rights even if:

• Payment is only partial.
• Work is continuing.
• Payment is dishonored by the bank.
• Or for any reason additional money is or may become due and owing.
  
  

To preserve Mechanic’s Lien rights, the remedy is a Qualified Lien Waiver, which puts third parties or property owners on notice that the waiving party is preserving some right to file a Mechanic’s Lien Claim in certain circumstances.

• Federal projects (the “Miller Act”) require a payment bond be posted by the general contractor where the contract is valued at $100,000.00 or more. Unpaid subcontractors and material suppliers must give written notice by certified mail, or by some other delivery method which requires a signature, to the general contractor and surety within 90 days of the last furnishing of labor or material. Relief is limited to subcontractors and material suppliers. (No “sub-sub contractors” or “sub-material suppliers” may avail themselves of the Miller Act provisions.)
• Non-federal public projects such as schools, municipal buildings, prisons, etc. often require a payment bond be posted by the general contractor. Unpaid subcontractors and suppliers must give written notice in compliance with statutory and bond requirements. Most payment bonds require Notice within 90 days of the last furnishing of labor or materials, but sometimes the Bond has a longer deadline to give Notice.

Whenever possible you should utilize contracts with terms favorable to your position including the following:

1. For corporate or limited liability debtors, a personal guaranty executed by the owner or some other employee will provide security and increase the likelihood that you will be paid. Many LLCs and corporations are undercapitalized. If the business becomes insolvent and still owes you money, a personal guaranty allows you recourse against another party.
2. An attorney’s fee clause in your contract can obligate your debtor to pay your attorney fees and court costs if a lawsuit is filed.
3. You should also include a clause allowing you to recover the maximum interest allowed for your past due invoices in the event of default.
4. You should ask your customer to list bank accounts and other information that will be useful if you have to file suit later.
5. Limitation clauses which cap your exposure to counterclaims in the event of litigation will protect your business from unforeseeable risks.

Nearly every state imposes additional requirement to perfect mechanic’s lien claims against residential property and in particular, owner-occupied residential property.  These restrictions vary from state and to state and are often quite technical.

This information is general response to a typical situation. It may not be applicable in every instance. The exact nature of your legal situation will depend on many facts not known to us at this time. You should understand that this advice and information is general and that your own situation may vary.