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Your Construction Company’s Options Against Unfounded Liens from Contractors

In the construction industry, liens can be an important way of approaching nonpayment issues from a subcontractor’s point of view. Once a lien is filed, it must be dealt with. Otherwise, the property owner or the subcontractor can find themself in serious legal trouble. While all parties should take claims seriously, there are cases where liens are filed inappropriately and cause problems for contractors. In this article, a Raleigh contractor lawyer discusses what a construction company’s options are against unfounded liens from contractors.

Related: Important Mechanics Lien Statutes in North Carolina

Demand Verification

When fighting an unfounded lien, start by demanding verification. Essentially, this process happens when you submit documentation to the person who filed a lien demanding evidence that they were not paid and that they are owed the amount of money that they claimed. In some cases, this may be the end of the process since the subcontractor cannot provide the evidence needed to take further action.

From here, the person who filed a lien must respond within a short period of time. That time can vary between states, but it’s usually around five days. His or her response must include detailed information about the work that was done, the contract it was done under, and the terms for payment under that contract. Failing to provide this information means that, in most states, the contractor can start the process to have the lien canceled.

Handling Unclosed Liens

One way that liens become a problem for projects is through the cancelation process. Once a lien has been handled, the person who filed the lien has to cancel it for it to go away. There are cases where the lienholder receives payment but refuses to close the lien. If this happens, construction companies don’t have to immediately resort to contacting a Raleigh contractor attorney and taking legal action. 

Instead, you can send the lienholder notice that the lien has been addressed. The notice should include the relevant information, a time limit of 30 days or more to respond, and contact information. If the lienholder does not respond to the lien by closing it or showing that the lien should stay open by the deadline, the lien can then be voided. 

Related: What Does “Lienable” Mean?

File a Lawsuit

If all else fails, the construction company can file a lawsuit against the subcontractor. Filing a fraudulent lien is a crime, and the punishments are harsh. Not only can the construction company invalidate the lien, but it can also collect damages for legal fees and other expenses. 

Therefore, a lawsuit should be the last line of resort for construction companies. While it can be an effective method of resolving the problem, it is also incredibly dangerous for the construction company. In court, the company will need to prove that it took other steps to resolve the lien and determine if it is valid. If the lien is valid and the company did not make an attempt to verify it, the company’s reputation may be tarnished. The judge may also increase the value of the awards for the lienholder. 

Lien Bonds

Resolving a lien, regardless of how valid it is, can be a time-consuming process. If you are trying to finish the project or the owner wants to sell the property, then having a lien against it can make this impossible. A quick solution for this is to get a lien bond. Lien bonds are insurance plans for liens. Essentially, an insurance company agrees to cover the lien, and the lien is transferred from the property to the bond. This removes the lien from the property entirely and removes it from the record, letting the owner proceed with whatever processes need to be finished.

Although the lien is removed from the property, it still must be handled. The lien bond gives you time to handle the other issues related to the property, but you won’t be able to avoid the lien bond entirely. Make sure that you address the lien in the appropriate manner so that it does not injure your reputation or your legal standing in the industry.  

Related: Most Common Causes of Construction Liens

File a Notice to Commence

Another potential option that can handle the lien reasonably quickly is filing a Notice to Commence. When filed, it essentially forces the other party to act. There is a set amount of time for the other party to respond, which is usually no more than 60 days. If he or she fails to start the lawsuit at that time, then the lien is void.

Filing the Notice to Commence is effective at forcing action in a reasonable amount of time. Essentially, you are calling the lienholders’ bluff. If he does not respond, then you can move on. However, a legitimate lienholder will likely act quickly since they can prove that the lien is valid in the first place. Save this method for when you are sure that the lien is invalid. If it is, you can force the lienholder to admit it and walk away. Otherwise, you are inviting valid lienholders to skip any other attempt to reconcile and go straight to litigation. This can be problematic if the lien is upheld and your company is seen withholding funds from valid contractor claims. 

All liens are not valid, but they should be treated seriously, regardless of if they are valid or not. Otherwise, your construction company may find itself in a precarious position, trying to deal with liens and legal action that can hurt your reputation. If you have questions about liens and how to avoid them, contact a Raleigh contractor lawyer from Cotney Construction Law.

If you would like to speak with a Raleigh construction attorney, please contact us today.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.