What You Need to Know About Liens

Lien statutes are complex and technical in every state, but throughout the country common themes and policies emerge.

If you’re in the construction industry, it’s important to know these policies, and specifically it’s important to know how to use a lien and how liens can help your business.

1. Liening a project starts before work even begins

The urgent need to lien a project usually strikes a company after a job’s completion, but in many situations preserving lien rights requires serious consideration before work even begins and any dispute arises.

While pre-lien requirements are not applicable to every project and organization, one of the most common liening mistakes is for an organization to neglect pre-lien requirements and thereby abandon their lien rights.

The most common pre-lien requirement is the need to give the property owner notice of the lien laws.

Simply stated, the laws in most states require a contractor to notify the property owner that it may lien the project if it is not paid.

The notice must be delivered – in most cases – before services are rendered or materials are delivered.

An article on Louisiana notice requirements, plus some applicable forms, can be found here.

An article on Washington’s requirements, plus some applicable forms, can be found here.

One common misunderstanding about lien notices is that they are only required to be sent before liening a project.

Do not fall prey to this myth.

Lien notices, when required, most always require delivery before work begins, and not simply before the lien is filed. If you fail to preserve your lien rights with the proper notices, you’ll forever lose your right to lien that construction project.

2. Your lien rights won’t last forever, or for very long

If there is any delay in getting paid on a construction project consider filing a lien immediately. Many companies lose their right to lien a project because they wait too long to file.

The window of opportunity to file a lien is short, and once you’re time expires, you lose this powerful collection tool forever.

If payment isn’t on-time, protect your company’s interest in the property, and file your lien immediately.

3. A lien is the first step, not the last step

After filing a construction lien, you will certainly have more work ahead in attempting to collect.

In many cases, a construction lien by itself will result in prompt payment. In these cases you will likely be charged with the duty of canceling the lien.

This can be as simple as drafting a final letter and sending it to the property owner, or executing and notarizing a formal lien cancellation certificate (depending on state requirements).

If the lien does not produce payment, it will be necessary to take an additional collections step. Contrary to popular belief, construction liens are not permanent. In fact, they normally don’t last very long at all and they cannot be renewed.

After filing a lien, if not immediately paid you will need to bring an action in court to “foreclose” or “enforce” the lien in some way. This process essentially converts your construction lien into more formal and permanent “judgment.” The judgment can be executed by seizing property and through other techniques.

Construction Financing 101

For families wanting to build their dream home, as well as developers planning their next major venture, borrowing money to finance the undertaking is both necessary and advantageous in most situations. Lenders are a quiet, yet vital part of almost every construction project.

1. Structuring the Loans & Choosing a Lender

One of the first decisions to be made in construction is how best to structure the loans. Homeowners, for example, must decide between obtaining interim financing and thereafter, a separate long-term mortgage, or to combine both those loans into a single package.

Different lenders may offer different services here: some may be interested in offering either option; others may offer only interim financing or only long-term permanent loans. Shopping for a lender can be a lengthy and complicated process; however, choosing the right lender is extremely important to the success of any construction project. For a smooth and successful result, a savvy and resourceful lender is imperative.

What is the best way to find a lender? Over time, many construction professionals built relationships with various financial institutions, based upon years of successful partnerships in the past. Home builders of a certain size, in some parts of the country, may also offer financial assistance to the home owners as they have affiliated entities to provide lending as well as construction services. Today, however, the adage remains true: the best way to find a lender is to ask around, and discover a local institution with a good reputation through simple word of mouth.

2. Types of Financing

A. Interim Financing – “Story Loans”

With interim financing, a loan is created to cover the construction phase. The entire amount of the loan will be due in a short time frame, i.e., when the project is finished.

The term of the loan begins on the day the loan documents are signed. Funding is distributed as the home is built, with the lender, the builder, and the borrower jointly deciding how best the cash will be physically distributed. Oftentimes, a separate checking account is set up for just this purpose: at certain intervals, the lender deposits a sum into the account, with the borrower then distributing those funds as needed. If construction delays cause the project to go past deadline, the loan can be extended, usually for a set fee established in the original loan documents.

Lenders are extremely involved with any construction project where they are providing interim financing. Understandably, these types of construction loans are unique to the particular project, and the lender will want detailed information about the venture, not only before they decide to lend the money, but also during every step of the building process. In fact, lenders want to know so much minute detail about their interim financial projects that these loans have come to be known as “story loans,” since the lender “knows the whole story” of the project.

As for the cost of money involved, there is usually a variable interest rate for interim financing with a higher rate paid on the interim loan correlating to a better rate deal on the permanent financing. Borrowers make interest-only payments during the construction; the full amount is only due after the project’s completion.

Start-up construction costs are covered as part of the initial funding; thereafter, the lender will usually require a copy of the building permit as well as a set percentage of the construction being completed before any more money will be released. How does the lender determine this percentage?

During construction, representatives of the lender will inspect the construction site. These are usually supplied by third party companies who specialize in this type of work.

The lender’s inspector will approve distribution of funds for “board and nails” costs based upon an inspected percentage of construction completed. In this way, the lender protects itself against a stalled or out-of-control project by staggering the amount of loan monies released in tandem with the construction’s progress. Lenders will also provide deposits for those items that require custom craftsmanship — such as windows, doors, flooring, and custom lighting.

As construction progresses, financing continues on a step-by-step basis. Usually, lenders issues two draws per month, based upon their inspector’s recommendations.

The final 10% of the interim construction loan is usually held by the lender at the end of the project until verification is provided that no liens exist against the property and that the owner has good and proper title. This may also be contingent upon providing proof that long-term financing is in place to cover the amount of the interim construction loan. At that time, the remainder of the loan is funded, and the entirety of the interim financing will thereafter be due, in lump sum, on a specific date – usually within three years of the signature date on the loan documents.

B. Long Term Real Estate Loans – Residential and Commercial

For any loan secured by land (and its improvements) as its collateral, there are two basic distinctions: residential real estate loans are treated differently than commercial ones. As for the lenders, there are a wide variety of financial sources who view real estate loans as worthy investments because of the interest income they provide over time. Real estate loans have been financed by private individuals, as well as banks, savings & loan associations, credit unions, mortgage bankers, pension funds, and insurance agencies.

1. Residential Real Estate Loans

Residential real estate loans (“mortgages”) finance homes for personal use or for rental income. The lender provides a lump sum to the borrower, and that sum is paid back over a long time period, together with interest. The interest rate can be fixed, or adjusted, and the financing institution makes its profit on the interest income it receives over time.

Residential real estate lending is somewhat standardized, with creativity in the past few years being focused upon the adjustable interest rate mortgage and the resulting sub-prime mortgage crisis of the past two years.

2. Commercial Real Estate Loans

Commercial real estate loans finance land (and its improvements) that will be used for commercial, or profit-making, purposes. Apartment complexes, shopping malls, storage warehouses, car washes, and restaurants are backed by commercial lending.

Commercial lending is much more creative and complex. Real estate investment loans in the commercial area include not only short term loans as well as long term ones, but mezzanine financing, foreclosure investor money, permanent debt, equity financing, and hard money loans.

For example, home builders often place their personal financial security at risk as they borrow money to build homes to sell in the marketplace. The builder typically faces a lender that will cover 80% of the cost to build the to-be-sold house, with the builder’s personal guaranty, leaving the builder with a 20% cash gap — he’ll have to have that amount in order to build the home, and the profit from the sale will need to cover his cash outlay plus the full amount of the commercial loan. This number exponentially increases for each to-be-sold house he plans to build: he’ll need much more cash if he’s building 100 houses as opposed to 10, and the builder will also need to have capital in hand to cover subcontractor and supplier payments during the construction process.

While the home builder will recover these financing costs, theoretically, in the sale of his completed homes, he will need to find creative ways to deal with the financial realities not only to maximize his profit, but t
o protect him personally against financial ruin.

One example of how a builder might minimize his risk in this situation is by sharing it. Commercial real estate investment trusts (REITs) are legal entities recognized under the Internal Revenue Code that either invest in different kinds of real estate or real estate-related assets. Individuals invest in the REIT and receive a return on their investment through its profits. Some REITS own all or part of a real estate project (such as a shopping center or a hotel) and make money off the rents; other REITs lend money to owners and developers and make money off the interest; and still other REITS combine the two as “hybrids,” acting as both an equity and a mortgage REIT.

In order to qualify as a REIT for federal income tax purposes, a company must pay 90% of its taxable income to its shareholders each year; invest at least 75% of its assets in real estate; and make at least 75% of its gross income from its real estate holdings (either in equity and/or in mortgages).

C. Finding Financing – the Impact of the 2007-2008 Sub-Prime Crisis

1. What’s Happening

In 2007, foreclosure activity across the United States was 79% higher than in 2006, and in December 2007, The Economist estimated that sub-prime defaults would reach between $200 and $300 billion in 2008. What’s happening here?

First, housing prices dropped in 2006 in many parts of the country — leaving many home owners facing adjustable rate mortgages that would be increasing monthly payment amounts as the interest rate rose, as well as a simultaneous inability to refinance for more favorable terms due to the lesser value of their home. Defaults on residential home loans skyrocketed.

Second, the lenders who held those mortgages took a loss, as the borrowers could not pay their mortgage payments. Major, well-known financial institutions announced huge losses — as of February 2008, totalling $140 billion.

Third, for those corporate and institutional investors who had bought the rights to those mortgage payments via mortgage-backed securities and collateralized debt obligations, their assets were rapidly declining in value along with their stocks. This hit the U.S. stock market, as well as those in other countries, in a significant way.

2. Impact on Owners, Contractors, and Lenders

In response to all this activity, lenders have become less willing to make loans, or have started offering loans at higher interest rates. Economic growth has slowed overall, but especially in the housing market.

Currently, there is a surplus of new homes setting in builder inventories across the country, making it harder for home builders to tread water in the home construction business. For example, D.R. Horton and Pulte Homes are being severely impacted by the current economic pressures and declining new home demand.

Likewise, suppliers are feeling the impact. For example, Home Depot’s profits in the past have depended upon construction and Home Depot has announced that it foresees its 2007 earnings to fall by as much as 18% per share, which is much larger than their 2006 estimate.

The good news may be for those involved in constructing apartments — renting is becoming more popular as buying homes becomes less viable. REITs that own or operate apartment complexes should be increasing in popularity. The construction of luxury apartments, and family-oriented apartment complexes, should be on the rise.

No Damages for Delay Clauses

Every state has its own statutes — as well as judicial decisions, or case law — to regulate the construction taking place within its borders. States can, and do, take widely divergent views on how best to deal with a variety of complex construction issues.

For contractors, subcontractors, owners, or lenders intending to do business in Washington, Louisiana, Colorado, Oregon, or elsewhere, it is wise to know the nuances of construction law encountered in that particular state before agreeing to undertake a project. And this is particularly true when dealing with the issue of construction delays.

Transferring Risk through a “No Damages for Delay” Clause

Delays during construction will happen. Savvy professionals recognize this, and plan accordingly. Rain days are estimated, and handoff times are included in the projected schedules. Some cushion is made for unexpected time lags, as well.

Nevertheless, unexpected events do occur — e.g., floods hit the project, or a labor union calls a strike — as well as unethical or negligent actions by one of the parties involved, which cause significant delays that run up costs. Everyone wants to minimize the risk that their bottom line will have to bear the financial responsibility for any of the resulting time delays.

Owners

Owners argue that they need “no damages for delay” clauses in their contracts, because the clauses offer protection from general contractors filing unjustified or extravagantly high delay claims. Owners point to requests they’ve received from contractors that are so filled with spurious, overblown reimbursement requests that they’ve labeled them “kitchen sink claims.”

General contractors

General contractors argue they need “no damages for delay” clauses in their contracts with subcontractors for the same reason — they can’t take the hit for all the subcontractors’ delay costs as they’ve been presented, especially if the owner has required a “no damages for delay” claim in his contract with the contractor. General contractors point to owners who issue defective plans and specifications, or who take unreasonably long amounts of time in responding to requests for clarification, delaying the project for months, costing the contractor significant damage which skyrockets as subcontractor delay claims are tallied.

Subcontractors

Subcontractors complain that they have no choice. They maintain that they are forced to sign contracts containing what may well be a dangerous provision for their business, because they are afraid of losing the job as well as offending their customer. For many subcontractors, the risk of a “no damage for delay” clause is just a part of doing business.

What is A No Damages for Delay Clause?

Simply put, a “no damages for delay” clause is placed into a written contract between an owner and a general contractor (or a general contractor and a subcontractor), stating that the contractor cannot recover monetary damages from the owner for any financial losses the contractor suffers due to construction delays caused by a variety of things, including actions by the owner or the owner’s representatives, e.g., the architects. By agreeing to the contract and its “no damages for delay” clause, the general contractor assumes the full financial risk for any and all delays in construction.

What are Delay Damages?

Delay damages are those financial costs that occur which are over and above the direct costs which must be expended to remedy the cause of the delay — i.e., change orders, defective plans or specifications, or a differing site condition. They are shown through the documentation of the project’s “critical path.”

Critical Path itself is an established method for scheduling the construction of a project, from start to finish. Understandably complicated, the “critical path” involves compiling a list, in sequence, of the construction activities that will take the longest amount of time to complete.

The duration of the Critical Path is found by totaling the various activities’ time needs. The Critical Path becomes the longest possible “path” through a network of activities, and gives project participants the minimum amount of time that will be needed to finish the job. If a delay impacts the project’s Critical Path, then it causes the project to be finished later than the established deadline.

What’s not Delay Damage?

Some events don’t cause delay. Not all delays impact the Critical Path; for example, a tardy delivery of shrubs when the sprinkler system has yet to be installed will not impact the critical path and is therefore, not delay damage. Similarly, an owner’s change of carpet color when construction still involves pouring the foundation isn’t a delay damage.

Some events that cause delay aren’t considered in delay damage calculations, either. Most contracts give special treatment to delays that are caused by Acts of God or bad weather. In the event one of these occurs, the contractor is usually given an extension of time to complete the project. By extending the deadline, these events technically don’t cause a delay in construction.

Why are “No Delay Damage” Clauses Controversial?

Without a “no damages for delay” clause, all project participants would share the same incentive to get the project completed on time. Critics of the clause argue that it prevents wronged parties from suing for breach of contract when a project participant has caused the delay – and thus, their harm. Contractors point to capricious or fraudulent owners who are allowed to escape responsibility for their own bad acts.

States’ Responses

Various states have responded to “no damages for delay” clauses in different ways. For example:

Washington State

Washington’s legislature has passed a law stating that a clause in a construction contract purporting to waive a contractor’s claim for delay damages caused by the owner is “void and unenforceable.” This is true for both public and private contracts, making Washington the frontrunner of all 50 states in barring “no damages for delay” clauses in construction contracts.

California, Colorado, Massachusetts, Oregon

Each of these states has passed laws invalidating “no damages for delay” clauses in public contracts. Private contracts have been left to judicial decision, with courts deciding whether not to analogize to the passed legislation in dealing with “no damages for delay” clauses in contracts between private parties.

Louisiana

Louisiana has not passed legislation that specifically deals with “no damages for delay” clauses in construction contracts, although its Public Works Act does prohibit these clauses in contracts governed by the Act.

Moreover, Louisiana courts continue to uphold these clauses, unless the delay occurred because of something that no party had anticipated, or the delay was caused by a party’s actual bad faith or active interference.

Finally, Louisiana Civil Code article 2769 provides that if a contractor or subcontractor fails to do the work he has contracted to do, or if he does not execute it in the manner or within the time he has agreed to do it, he will be liable in damages for the losses that result.

Should you use a “No Damages for Delay” clause in your contract?

Obviously, the first step in answering this question would be to determine what state law applies to your agreement. As shown above, Washington and Louisiana view “no damages for delay” clauses differently at this point in time.

However, even if state law will respect the contractual clause, perhaps
the more practical determination is how best to prevent its ever being needed. Enforcement of a “no damages for delay” clause can be protracted and extended litigation, and become an exorbitantly high expense in both time and money.

Finding other practical and legal avenues to deal with delay may be the better option.

The Bidding Process 3 – The Owner’s Perspective


Owners facing a new construction venture must inevitably depend upon the expertise of others involved in the project, regardless of their own level of sophistication. Architects, engineers, contractors, suppliers, and tradesmen all contribute to the efficient design and build of every project. The owner’s reliance upon their collective mastery, skill, and cost-effectiveness is understood by everyone.

Today, owners try to compensate for this dependence at the outset by minimizing risk of an unethical, inefficient, or insolvent project participant through the bidding process. Over the past twenty years, a variety of approaches have evolved to minimize risk and maximize return for the owner – giving owners alternatives to the traditional design-bid-build approach.

Four Project Approaches

Design-Bid-Build

Bidding of construction projects has traditionally occurred using the design-bid-build method, and most government contracts across the country continue to use this method. Here, the owner begins by choosing an architect to create, design, and prepare the construction documents, i.e., the plans and specifications. The architect chooses any engineers, surveyors, or other professionals that he may need to complete his task.

Once the architect has completed the construction documents, and the owner has approved them, they are released for bidding. Bids are then placed by general contractors, who have used their own expertise to gather bids from subcontractors and suppliers, as needed, to formulate their estimates for the total cost of the construction. The general contractor’s fee will be included in the bid cost.

The owner then chooses among the bids. There is no real ability of the owner to insure their accuracy, other than to compare the bids and reject out of hand any bid that suspiciously deviates from the pack.

Most of the participants (the general contractor, the subcontractors, and the suppliers) assume that the owner will choose the lowest bid on the table. Therefore, general contractors tally their bids to keep the total as small as possible. Low-balling does happen.

In theory, this method keeps the construction project cost-effective and gives the owner the best price. Design-bid-build, however, also keeps the owner at arm’s length through much of the bidding process, which is often to his detriment.

Quality is often foregone in order to keep costs down; bid-shopping may occur with the owner facing cost increases as the actual project progresses — the low bid not being a realistic bid; and project participants willing to work for small profit margins in order to get the work may be so close to folding that they may not be able to finish the project, leaving the owner in the lurch.

Design-Build

In response to problems generated by the traditional design-bid-build method, owners sometimes choose to combine the roles of general contractor and architect. Here, the owner works with an architectural firm to first design the project and produce its plans and specifications.

The owner, however, does not enter into a bidding selection process for a general contractor. The same firm that generated the plans and specifications proceeds to undertake their actual implementation. Now acting as general contractor, the same firm oversees construction, undertaking its own bidding process to select suppliers and subcontractors, as needed.

Having the same entity responsible for the design also being responsible for the actual construction of the project is much more cost effective for the owner. Additionally, this method keeps the owner more involved in the process, since the owner’s wishes in the initial creation of the design are better understood and more readily implemented by the architect. This leads to less change orders and ROIs during building, and usually results in an easier and faster completion of the project.

Construction Manager – General Contractor

Owners can also choose to combine the role of general contractor with that of a project coordinator, usually under the title of Construction Manager. The owner hires the Construction Manager (CM) while the architect is still formulating the plans and specifications, giving the CM authority to work directly with the architect during the design process.

Owners who choose an experienced CM can avoid many design problems by having this savvy construction expert review construction documents as they are being completed. A good CM can foresee potential design crises before they happen. CMs are also adept at offering cost-cutting suggestions during design that can save the owner money.

Once the construction documents are in final, the CM accepts bids from subcontractors, suppliers, and the like. Afterwards, the CM oversees the finalization of the project, acting as a general contractor, and reporting directly to the owner.

Negotiated Contract

The negotiation approach is similar to the traditional Design-Bid-Build method because the owner does hire an architect to undertake the design, and there is a separate general contractor responsible for the actual completion of the project.

However, this approach allows the owner to choose both the general contractor and architect at project inception. The general contractor works hand in hand with the architect as the design is being completed. After the plans and specifications are finalized, construction costs are negotiated by the general contractor through bids from subcontractors, suppliers, and the like.

Here, the owner avoids the inefficiencies of a general contractor’s bid by never seeking general contractor bids. The owner chooses both his design professional and his construction professional on his own chosen criteria (e.g., past experience, public reputation, etc.) and hopefully keeps close to the project price that would have been obtained in the traditional bidding process by (1) overseeing costs through his ability to approve or disapprove the design details during the creation phase; and (2) having the contractor working during design curtails the need for change orders, RFIs, and other delays during the actual build.

Louisiana Example – the John James Audubon Bridge

The State of Louisiana is an example of an owner seeking an alternative to the traditional design-bid-build process. When the decision was made to build a bridge to span the Mississippi River between the West Feliciana and Pointe Coupee parishes, the state legislature opted for the design-build approach. (Specific legislation was necessary to approve this alternative, since Louisiana law still requires that standard government construction be undertaken by the traditional design-bid-build method.) Today, Louisiana Associated General Contractors Inc. acts as both designer and builder of what will be the longest cable-stayed bridge in North America, as it undertakes both the role of architect doing the design and as general contractor overseeing the construction of the John James Audubon project.

Other Owner Bidding Concerns
Choosing the bidding method and corresponding building process is one of the owner’s paramount concerns, regardless of the size of the project. Small residential add-ons carry the same costs concerns as large public projects; there is simply a difference of scale.

The underlying concern of every owner is exactly the same. Every owner’s goal is getting a finished project that mirrors the one envisioned at the start, and doing it as cost-efficiently as possible.

Bid Well

The bidding process introduces the project to the construction professionals that will ultimately be finalizing the project. Owners can not only help themselves, but everyone else involved, by the following:

1. knowing what they want — owners should have a clear concept of what the final, built project will be: they should have a visualization of the final result in mind before bidding begins;

2. giving lots of detail to the bidders — for example, criteria can be included in an Instruction for Bidders document that every bidder can review and consider; and

3. making sure that financing is secure before commitments are made — owners should never play “payment games” with the construction professionals because of tight money.

Beware the Temptingly Low Bid

Owners focused upon the bottom line can be their own worst enemies. By looking the other way when an unusually low bid arrives, and accepting that bid without investigation, an owner invites cost overruns and design disputes during the construction phase. If it sounds too good to be true, it probably is.

Owners in this situation may well point the finger at an unethical or incompetent contractor whose estimates were faulty and whose bid was unacceptably off the mark. Owners here should be aware that a penny saved is a pound foolish — by accepting that bid, and entering into a legal agreement with the contractor, the owner may have to bear the cost overruns and delay damages.

Every owner should investigate the bid before it is chosen. This investigation should include a review of the following, at a minimum, all of which should be heavily documented:

1. the bidder’s financial statements to insure solvency;
2. the level of experience for the personnel being used;
3. the bidder’s past experience for this type of project; and
4. the bidder’s reputation in the community (get references).

Beware the Temptation to Change the Design

Owners begin the construction process by deciding upon a design. However simple or complex the project may be, once the plans and specifications have been finalized, they take on a different level of respect. Project participants rely upon those finalized construction documents to mirror the final result, and any change that is made to the design reflected in them means a change in cost.

Sometimes, that change may save money. However, it is a common war story among contractors of owners wanting what they believed to be minor changes – moving a window, changing a door’s location – which ultimately resulted in major expenditures in both time and money.

A smart owner is committed to the final design when those construction documents are released for bid, or for build, depending upon the approach he or she has undertaken. Bidding is the tallying of costs, and once that total has been reached, the less change made to it, the better for all concerned.

Three Reasons Why It’s Critical To Lien

This article is written by Zlien.Com and is reproduced here with permission. Zlien.Com is a document preparation service and is not an attorney, a substitute for legal advice or an entity offering law services.

Are you uncomfortable by one customer’s delay in paying for construction work? Are you putting off liening a project because your uncomfortable with the process or unsure of how to proceed?

Everyday, Zlien.Com helps contractors like you to understand the process of liening a construction project. Liening is simple, and it can be done within 10 minutes by giving us a call or filling out our online form.

Take the step, and learn how easy and inexpensive it can be to stop writing off so many losses! Here are just three reasons why it’s critical to lien a non-paying construction project.

Number One: You Can Only Have One Chance to Lien a Construction Project
Contractors have a unique and powerful legal remedy in construction liens…but not for long. Once your liening period has expired, you’ll never get the chance to put a lien on that project again.

If you want to pursue your legal remedies without filing a lien, you’ll be required to file a regular lawsuit for breach of contract – a process that may take years and cost you thousands. A construction lien is an adverse legal step against the non-paying party that only costs $235.00 (plus filing fees), and it places a restriction against the property that you can normally only achieve after years of litigation.

You only get one shot at filing your construction lien. Check your state’s time requirements at Zlien.com.

Number Two: Liens Freeze Funds
Are you a subcontractor afraid that the contractor is getting paid from the property owner but not disbursing the funds down the ranks? Do you have to pay your material suppliers and subcontractors while being told from the contractor that it hasn’t been paid by the owner?

Although the law does not require a freeze in funds, as a practical matter, filing a lien as a subcontractor against the property owner almost always causes the property owner to stop making further payments to the contractor. As a result of this “freeze” in funds, there is pressure on the contractor to pay the liening sub.

Many construction projects run into cash-flow concerns. Filing a construction lien is one way to prevent that cash-crunch from affecting your company.

Number Three: Get All Parties Involved
If you’re unable to get paid on a construction project, you have a legal remedy under contract law against the person who hired you. If you contracted with a general contractor, for example, you could sue the general contractor for payment if it refuses to pay your company for its services. Since you did not contract with the property owner, however, you would be unable to sue him or her.

Construction liens, however, completely changes who is liable to you for your consturction services. With a properly filed construction lien in the above example, you’d be able to file a lawsuit not only against the general contractor, but also against the owner. The owner may even be liable to you regardless of whether the general contractor had been paid for your work!

Clearly, this is a very powerful legal tool for contractors. Instead of relying on just one party to make payment to your company, a construction lien can make it possible for many parties to have liability for one party’s non-payment.