For contractors and subcontractors alike, one of the most frustrating aspects of the business has to do with collecting payments. While most customers are happy to pay what they owe, others may simply refuse to pay at all, or only pay the deposit.
These situations can be detrimental because of the nature of construction work. The contractor generally must pay upfront for supplies and materials, as well as pay his or her crew. Not receiving payment for a completed project can put a huge dent in the cash flow of the business. In these situations, it may be a good idea to look at the option of a mechanic’s lien.
What is a mechanic’s lien?
According to FindLaw, a mechanic’s lien is a type of legal claim placed on the property of a customer who owes money to a contractor or subcontractor. Once a contractor files a lien, there is a certain period during which the homeowner can choose to pay and avoid the consequences of the lien. If the contractor does not receive payment, however, he or she can file a lawsuit to force the foreclosure of the property.
What happens after foreclosure?
The Property Code of Texas states that mechanic’s liens take preference over other creditors who may also have liens on the property. This means that any proceeds from the sale or foreclosure of a property will firsts go to satisfying payment to the contractor.
Filing for a mechanic’s lien is a time-consuming process and contractors much follow the correct steps. Should a contractor find the need, however, it is an effective way to seek payment for a finished project.