Sunday, September 15, 2013

What to Do When Subcontractors and Suppliers Ask the Owner for Payment

Stacks of One Hundred Dollar Bills with Small House.
When owners discover that their contractor has not paid subcontractors and suppliers, anxiety immediately sets in.  Contractors who are not adept at running their businesses end up with cash flow problems and operate on credit.  The situation then catches up with them and they stop making payments.  Suddenly the owner finds himself being contacted by subcontractors and suppliers who are demanding payment. 

The law in Massachusetts is clear; a subcontractor or supplier can only collect against an owner if it records a properly perfected mechanic’s lien.  Then he can only expect payment to the extent that money is owed to the contractor at the time the lien is filed.  That said, the owner has the right to finish the job.  If there are no funds left, the subcontractor or supplier can only go after the general contractor for payment.

Mechanic’s liens are complicated.  They consist of two documents: a Notice of Contract and Statement of Account.  After filing these documents, the sub or supplier must file suit within 90 days, or the lien is no longer valid.  Contractors and construction companies frequently fail to properly perfect or record their liens.  If this occurs, they may be dismissed.

Generally, in MA, liens must be filed within 90 days of when the general contractor or someone working through him was last at the job.  If an owner pays subs during the period that others can still record liens, he “pays them at his peril.”  For that reason, the owner should record a Notice of Termination with the Registry of Deeds.  That starts the clock running and all liens must be filed within 90 days of the recording.

At that point, the owner has a decision to make.  Should he file a motion to dismiss the lien because no money is owed to the general contractor, or negotiate with the sub or supplier and pay them something to dissolve the lien?  Unfortunately, the answer is, it depends.

In order to have a lien dissolved, your lawyer has to file an application to dissolve the lien with the court, and schedule a hearing.  The whole process may take ten hours or more of your attorney’s time.  As with any matter before a judge, there is no guarantee that the decision will go your way, even if the facts are on your side.

If the sub or supplier will agree to a smaller amount to pay the general contractor’s debt, it may be worth it to pay and have him sign a release.  This may be a preferable and perhaps the only option if the subcontractor still has work to do, or if additional supplies are needed from the same supplier.  It is generally more expensive to hire someone new to come in and complete work that has been started by someone else.

On the other hand, the amount owed may be so large that it is more economical to fight it out in court.  If money is still owed to the general contractor, then that amount will be distributed pro rata to the subs who have filed properly perfected liens.  Unless one can get all of the subcontractors to agree, it is better to obtain a court order decreeing the amount owed and how it should be distributed.

It is extremely stressful for an owner when subcontractors and suppliers start knocking on his door. Given the complexity of the situation, it is advisable for an owner to contact a construction attorney to determine how to best resolve the matter.


35 Comments:

At 6:37 PM, Blogger Mike Ross said...

I have been looking for a new contractor in Bloxom, but I'm not sure what to look for. This article helped me so thank you for that.

 
At 3:54 AM, Blogger Humaun Kabir said...

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At 7:48 PM, Blogger Nancy Jorden said...

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I've been looking for some contractors in Mississauga that can help me put some stuff on to my house.

 
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At 12:49 PM, Blogger Jak Manson said...

I am looking for a home improvement contractor in my area that can help me out. I am wanting to do a bunch of house remodeling and I am in need of some help. If you know who can help me, please let me know.

 
At 4:34 AM, Blogger Muhammad Osama Mazhar said...

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At 8:39 AM, Blogger Monica Kroos said...


I think a good general contractor needs to be more responsible and by no means allow that something like that happens. But if he is having cash flow problems he should inform the homeowner so that at least he's prepared.

 
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At 2:16 AM, Blogger SUDHANSHU SAXENA said...

really a great blog.......
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At 4:28 PM, Blogger Helen Evans said...

If you're buying or selling a house, Public Property Record check is incredibly useful.

 
At 10:35 AM, Blogger Alena Mauer said...

What exactly does contractors insurance cover? I am a newlywed and my husband and I are thinking about building a house. So it is best if I study up so I don't get scammed into things. Thanks for the post!

Alena | https://www.orangeinsurance.com/contractors.html

 
At 7:52 PM, Blogger Annie Green said...

I had this happen to a friend. She paid because she didn't know any better. Luckily, she was able to get things resolved and get her money back. www.wdcontractors.ca

 
At 5:37 AM, Anonymous Remodeling contractor aurora said...

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At 4:11 PM, Blogger dustin morris said...

It is unfortunate to hear that this happens. I had a local contractor from Home Improvement Frog, they did a good job with no issues, hope this helps!

 
At 2:12 PM, Anonymous Home Contracting said...

Great post! Been reading a lot about home contracting recently. Thanks for the info here!

 
At 3:01 AM, Anonymous Anonymous said...

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At 12:37 PM, Blogger Claudia Rosenburg said...

My friend is looking for a general contractor to do some work on her house. What kind of research should she do to avoid hiring a contractor who doesn't pay subcontractors and suppliers in a timely manner? She's already a little stressed about the whole remodel and she wants to make the process as painless as possible.
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At 3:43 AM, Blogger Louisa Vendela said...

The whole process may take ten hours or more of your attorney’s time. As with any matter before a judge, there is no guarantee that the decision will go your way, even if the facts are on your side.

 
At 10:22 AM, Blogger Chester Jones said...

Thanks for this info. I'm looking into buying a house that needs some upgrades, so this post is invaluable in teaching me what I need to know about contractors and their subcontracts. Hopefully I'll find a reliable contractor so I don't have to deal with any of this legal mess.

Chester Jones | http://www.alrexdevelopments.com.au

 
At 10:21 AM, Blogger Lana Lynch said...

Thank you for sharing this valuable information. I'm sure many people will find it useful. I know my friend will. She is the process of building a new home.

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At 10:56 PM, Blogger Katherine Dimacale said...

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At 2:14 AM, Blogger Bud furn said...

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At 4:42 PM, Blogger Feruccio Lamborghini said...

My parents acted as our general contractors once and decided to not do it again. It saved a ton of money but just isn't worth the headache and stress. For this remodel we're doing now they are hiring it all out.
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At 5:38 PM, Blogger Sally Summerfield said...

I deal with title insurance and one of the most common problems I have seen is liens on the property because of unpaid subcontractors. The seemingly easy solution is being your own contractor, but as you've laid out here, it's not always the best idea. It can be a bigger hassle than you are willing to deal with.

Sally Summerfield | http://www.suburbanconstruction.com

 
At 4:53 AM, Blogger Design With Vinyl said...

Finding a right contractor with in your budget is not an easy job.

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At 6:12 PM, Blogger Ted Smith said...

I have a friend who had this happen to them. It was crazy because constantly the subcontractors called him for payment. I guess that is why you need to pick the right contractor. If you have a bad contractor then everything goes haywire!

http://www.lehmanconstructionservices.com/services

 

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