In Texas, if you undertake a home improvement or construction project and do not pay your suppliers or subcontractors, they can file a mechanic’s lien against your home. These individuals have the right to assert a legal claim against your property if they are not paid for materials or work they have provided. Understanding how mechanic’s liens work and how to avoid them is crucial.
The purpose of a mechanic’s lien
A mechanic’s lien protects subcontractors and suppliers who have provided work or materials to improve your property. The liens give them a legal way to seek payment if the general contractor has not paid them. Since you own the property, they can hold you directly responsible for payment, even if you have already paid the general contractor for the work or materials.
The lien process
As your jurisdiction’s real estate laws define, subcontractors and suppliers must follow a specific process to obtain a mechanic’s lien. Steps can include giving the homeowner notice within a specific timeframe and filing a “claim of mechanic’s lien” with the county office for your property.
Reduce the risk of a mechanic’s lien
You can mitigate the risk of liens by paying your contractor with joint checks. By making the check payable to both your general contractor and the supplier or subcontractor, you can ensure that each relevant party endorses your check before the bank pays them.
You can also include a lien waiver provision in the contract for your construction project. The waiver will relieve you from the obligation to pay subcontractors and suppliers directly, making the general contractor responsible for paying them.
As a last option, you can pay your subcontractors and suppliers directly and deduct the amounts from payments to your general contractor. However, this approach comes with other risks, such as the Internal Revenue Service (IRS) deciding that you are the employer. You would then have a requirement to withhold payroll taxes and other employee-related obligations, which makes this a much less preferable option.
Keep good records and monitor payments
Keep detailed documentation of all your receipts and other paperwork from the general contractor, subcontractors and suppliers. Consider following up directly with subcontractors and suppliers before the project draws close to ensure they have received payment. You can also request a waiver from each to provide assurance of their paid status and protect against potential mechanic’s liens.
You can protect your property by understanding mechanic’s liens and proactively avoiding them. You can also keep your financial rights intact and minimize the risk of financial complications that could interfere with your construction or remodeling project.