What Happens After I Record My Lien? - Pennsylvania Webinar

In this webinar, presented by SunRay Construction Solutions and Chad Michaelson, Partner at Meyer, Unkovic & Scott, LLP, contractors and subcontractors will gain insights into leveraging mechanics liens, bond claims, contractual remedies, and CASPA protections to ensure they receive the compensation they’ve earned. Understanding these legal options is key to securing funds efficiently. Let's explore the most effective strategies to ensure payment after filing a lien.

Strategy 1: Using a Lien to Motivate the Property Owner to Pay

When a payment dispute occurs, filing a lien shifts the issue from a contractor-to-contractor disagreement to a direct concern for the property owner. Since liens can create significant hurdles for owners—affecting their ability to secure financing, refinance, or sell the property—they are often motivated to resolve the dispute quickly. By properly filing a lien, you apply legal and financial pressure, encouraging the owner to take action and facilitate payment.

A lien provides the legal right to demand payment from the property owner. However, it does not instantly force the owner to pay. To turn a lien into an enforceable obligation, legal action must be taken. The ultimate goal is to either reach a settlement or convert the lien into a judgment through legal proceedings, making it a binding debt that the owner must address.

Strategy 2: Leveraging Pennsylvania’s Mechanics Lien Law

Pennsylvania’s mechanics lien law provides additional leverage by allowing owners to withhold payment from the general contractor when a lien is filed. This means that if a subcontractor files a lien, the owner has the legal right to hold back the corresponding amount from the contractor. This added pressure often forces the contractor to resolve the payment issue quickly to avoid financial strain.

Additionally, owners can take proactive measures to clear liens, such as paying the subcontractor directly and then recovering the amount from the contractor, sometimes with attorney’s fees included.

Strategy 3: Using Joint Checks for Secure Payment

One common way to ensure payment security is through joint checks. Property owners and general contractors may issue joint checks that require both the general contractor’s and subcontractor’s signatures before they can be cashed. This method ensures that funds reach the intended recipient and reduces the risk of misappropriation. If payment concerns arise, requesting joint checks can serve as a proactive measure to prevent disputes.

Strategy 4: Enforcing All Available Rights

A mechanics lien is a powerful tool, but it should not be the only approach. Claimants should also explore additional legal rights, such as bond claims and contractual enforcement. Pennsylvania law allows for lien waivers in specific cases, meaning that claimants should always have a backup plan. Understanding all available options increases the likelihood of securing full payment.

Strategy 5: Filing a Bond Claim for Additional Protection

For public projects and certain private jobs where lien rights may not apply, filing a bond claim is essential. A bond claim allows unpaid parties to seek compensation from a surety bond rather than placing a lien on the property itself. To successfully file a bond claim, claimants must provide comprehensive documentation, including invoices, contracts, and payment applications.

The key to a successful bond claim is early preparation. Contractors should obtain a copy of the bond at the project’s outset and ensure compliance with its terms.

Strategy 6: Pursuing Contractual Remedies

In addition to liens and bond claims, enforcing contract rights is crucial. Mechanics liens only cover the value of labor and materials, but contract law may provide avenues for additional claims, such as:

• Interest on overdue payments

• Attorney’s fees and court costs

• Other contractual penalties for non-payment

By leveraging contract provisions, claimants can increase their chances of recovering full compensation rather than settling for a reduced amount.

Strategy 7: Filing a Complaint to Enforce a Lien

A lien is only the first step; it must be enforced to have legal weight. In Pennsylvania, lien claimants must file a complaint within two years to convert the lien into a judgment. If this deadline is missed, the lien becomes invalid.

This lawsuit is separate from a contractual claim and is directed at the property itself rather than the contractor. Filing a complaint ensures the lien remains enforceable and provides a clear legal pathway to payment recovery.

Strategy 8: Utilizing CASPA for Additional Payment Protections

Pennsylvania’s Contractor and Subcontractor Payment Act (CASPA) offers additional protections for contractors and subcontractors. Key provisions include:

• 12% annual interest on unpaid amounts

• 24% penalty if payments are withheld in bad faith

• Mandatory written notice of disputed invoices within 10-14 days

Under CASPA, if an owner or contractor fails to provide timely notice of a dispute, their right to withhold payment is forfeited. This law is a powerful tool to combat unfair payment practices and can significantly enhance a claimant’s ability to secure payment.

Avoiding Pitfalls: Releases and Promises to Pay

When seeking payment, claimants must be cautious about signing lien releases. A release should only apply to the specific payment received, not the entire contract balance. Otherwise, claimants risk waiving their right to future claims.

Similarly, verbal promises to pay can be misleading. Relying on these promises without securing written confirmation can result in missed deadlines for filing liens or bond claims, leaving claimants without legal recourse.

Key Takeaway

Securing payment in construction requires a multi-faceted approach. While mechanics liens are a crucial tool, they work best when combined with bond claims, contract enforcement, and CASPA remedies. By applying legal pressure strategically, contractors and subcontractors can maximize their chances of receiving payment.

If payment disputes arise, taking prompt action is key. Filing a lien is just the beginning—following through with legal enforcement ensures that claimants are not left uncompensated.

Common Questions Contractors Ask on Preliminary Notices and Lien Laws in Pennsylvania

1. Are there differences in the process for sending preliminary notices or lien laws for residential and commercial projects?

There are no differences in terms of sending preliminary notices, but there are significant differences in lien rights.

2. Can lien rights be waived more easily on residential projects?

Yes. No-lien agreements are easier to enforce on residential projects. It’s crucial to check if the owner and general contractor have agreed to a no-lien agreement, as that can impact lien rights.

3. Can lien rights be waived on commercial projects?

No, unless a payment bond has been posted. In Pennsylvania, a general contractor cannot waive lien rights in advance, as the general contractor is the one who posts the payment bond and cannot recover under it.

4. If the owner disputes an invoice within 10 days, do they need to send the dispute via certified mail?

No. The dispute only needs to be in writing. Pennsylvania law does not require certified mail, notarization, or specific mailing methods for lien releases. However, there are strict service requirements for a Notice of Intent to Lien and for filing the mechanic’s lien itself.

5. If the owner disputes my invoice, how long do I have to respond? Does it affect my deadline?

The response time depends on the contract terms. Pennsylvania’s Contractor and Subcontractor Payment Act (CASPA) does not set a strict timeline for responses. The best practice is to correct and resubmit the invoice as quickly as possible. Once the corrected invoice is submitted, the owner’s 10-day response window starts again.

6. What is the preliminary notice process in Pennsylvania?

• Online notices are only required for searchable projects (projects valued at over $1.5 million and listed in the State Construction Notices Directory).

• Contractors should check if their project is listed in the directory. If it is, they must file a Notice of Furnishing to protect lien rights.

• If the Notice of Furnishing is filed late, lien rights only apply to work performed after the filing date.

• If a project is not listed in the directory, no online notice is required. Instead, contractors must file a Notice of Intent to Lien within five months of their last work to secure lien rights.

7. Is the general contractor required to file an online Notice of Commencement (NOC)?

No, the general contractor is never required to do this. The project owner decides whether to file a Notice of Commencement to gain lien protection and track subcontractors working on the project. The owner may have the general contractor file it on their behalf, but it remains an owner’s decision.