In this exclusive webinar blog, Dan and Taylor will share their expertise on an essential topic that concerns everyone involved in the construction industry: getting paid for your hard work. We all understand the importance of receiving timely compensation, and our experts will take you on a journey that begins after recording construction liens. They will delve into the crucial steps and strategies employed to ensure that you receive the payment you deserve. Whether you are a contractor, subcontractor, supplier, or anyone else involved in construction projects, this webinar blog is tailored to provide valuable insights applicable to your specific needs.
Before Recording a Lien
Just recording a Lien does not guarantee enforceability. For instance, in Nebraska, you can record a Lien at the Register of Deeds, but that alone does not make it legally binding. Contractors must understand the requirements for recording a Lien to ensure its validity. Here are the requirements -
- Timely Recording: To have a valid Lien, it must be recorded within a specific timeframe. In Nebraska, the law mandates that the Lien must be recorded within 120 days from the date when materials or labor were last furnished for the property. It is important to note that substantial materials or labor should be provided, rather than minor adjustments or temporary installations.
- Accurate Property Description: A key requirement for a valid Lien is an accurate description of the property it is being recorded against. This means including a proper legal description to ensure that the Lien is encumbering the intended parcel of land. Filing it with the Register of Deeds with the correct property details is essential.
- Associated with a Real Estate Improvement Contract: A Lien must be filed in association with a real estate improvement contract. This contract involves providing materials or labor to make changes to real property or structures connected to it. Various construction activities, both above and below ground, alterations, repairs, landscaping, and architectural or engineering plans can qualify.
Understanding Notice Requirements
After successfully recording a Lien, it is vital to comply with notice requirements to maximize the chances of receiving payment. The notice requirements can vary based on whether the work is performed on residential or commercial property.
- Work on Residential Property: Residential property work provides additional rights to the property owners. Protected parties, such as homeowners with mortgages or construction loans, benefit from specific notice rights. Subcontractors should serve a notice of intent to file a Lien on the residential homeowner to protect their lien rights in case of payments made to the general contractor.
- Notice to the Owner: It is crucial to notify the homeowner within 10 days of recording the Lien against residential property. This notice informs the owner about the Lien and the contractor's intention to enforce it. Sending notice via email (with proof of delivery) and regular mail is recommended to establish proper communication and documentation.
To support your Lien and ensure enforceability, it is essential to gather and maintain appropriate documentation throughout the construction process.
- Signed Agreements: Having a signed agreement between the contractor and the property owner is crucial. While oral contracts can be enforced, having a signed agreement provides stronger evidence and avoids potential disputes.
- Invoices and Payment Records: Maintaining a record of all invoices issued, their issuance dates, and any received payments is crucial. It helps establish the payment history and serves as evidence during the enforcement process.
- Correspondence and Photos: Save all relevant correspondence, such as emails and text messages, exchanged during the project. Additionally, photographs documenting the work progress, along with timestamps, can serve as valuable evidence to support your Lien.
When it comes to the complex legal landscape of the construction industry, understanding the various strategies for securing payment is crucial. One approach that can be effective in certain situations is the wait and see approach. This strategy involves carefully timing the enforcement of construction liens to maximize the chances of receiving payment without extensive legal action. However, it is important to be aware of the limitations and legal requirements surrounding this approach, particularly in relation to the enforceability of construction liens.
Enforceability of Construction Liens
Under Nebraska law, construction liens have a limited enforceability period. It is crucial to initiate a lawsuit to foreclose the construction lien within two years from the date it is recorded against the property. Failure to meet this deadline renders the lien legally invalid, and you will have no right to recover the payment, whether through a lawsuit or a subsequent sale of the property.
Know More: A Contractors, Subcontractor’s & Supplier’s Step-By-Step Guide to Getting Paid
The Value of the Wait and See Approach
The wait and see approach can be particularly valuable in certain situations, such as:
- Anticipated Property Sale: If you have knowledge that the property owner intends to sell the property soon, the wait and see approach can be effective. The lien will need to be paid during the closing of the sale to transfer the title. Alternatively, the owner may be required to provide a bond or cash deposit with the court to sell the property. This approach allows you to ensure payment at the time of the sale or guarantees the availability of funds through a bond or cash deposit.
- Construction Loan Conversion: In the case of new construction projects, where the owner will convert from construction loans to permanent financing, the wait and see approach can be beneficial. The conversion process necessitates clearing up any recorded liens to ensure priority for the new permanent financing. Timely recording of the lien is crucial to secure payment.
- Anticipated Property Refinancing: If there is reason to believe that the property owner will need to refinance the property for better interest rates or other purposes, the wait and see approach can also be effective. Like the construction loan conversion, refinancing requires clearing any recorded liens during the process. In some cases, aggressive lenders may exert pressure on the owner to pay off the lien to avoid loan acceleration.
- Alternatives to the Wait and See Approach: While the wait and see approach can be advantageous in certain circumstances, it is important to consider other options if time is a constraint or the situation does not align with the strategy. One alternative is sending a demand letter, which can effectively communicate your intention to enforce your legal rights and prompt payment. Demand letters can be particularly useful in subcontractor scenarios, where you can leverage pressure on both the owner and the general contractor to facilitate payment.
A demand letter serves as a cost-effective method compared to a lawsuit and can demonstrate your willingness to pursue legal action if necessary. It also allows for negotiation and the possibility of waiving interest upon timely payment, acting as both a warning and an incentive for the recipient.
Initiating a Lawsuit
If the wait and see approach is not viable or too time-consuming, the next option is to proceed with a lawsuit to foreclose on the lien. However, initiating a lawsuit must comply with the two-year requirement from the recording of the lien. Lawsuits for lien foreclosure seek judicial sale of the property or payment from the bond company if a bond is involved. It is important to be prepared for the potential delays and costs associated with the legal process.
Understanding the intricacies of construction liens and the various approaches to secure payment is crucial for those in the construction industry. While the wait and see approach can be effective in specific situations, it is essential to be mindful of the enforceability limitations and legal requirements surrounding.