Five Easy Steps for Subcontractors/Suppliers to Protect Payment from Owners and Prime Contractors on Private Projects
STEP 1: REQUEST THE NOTICE OF COMMENCEMENT OR THE BOND
the clocks start on subcontractors’ and supplier’s deadlines to serve their Notice of Furnishing once the Notice of Commencement is recorded, posted, or provided. Subcontractors/suppliers should serve their Notice of Furnishing within 20 days after labor or material is first provided to the Project.
STEP 2: ALWAYS PREPARE AND PROVIDE SWORN STATEMENT.
The Sworn Statement Provides owners/prime contractors with ongoing update of payment statue of the project. Sworn Statement will identify all subcontractors, supplies, and laborers of the subcontractor (or contractor) who provided labor and materials to the contractor or subcontractor in connection with the improvement of the owner or lessee’s property. Under certain circumstances, the sworn statement allows the owner to make direct payments to a subcontractor/supplier even without a contract among the parties.
STEP 3: COLLECT WAIVERS FOR YOUR SUB-SUBCONTRACTORS/SUPPLIERS
Just as an owner or prime contractor requires you to sign a waiver before payment will be issued, Subcontractors/suppliers should require a waiver from lower tier subcontractors/suppliers from every entity listed on your Sworn Statement or that has provided a Notice of Furnishing. Be sure to review the waivers to understand what is being waived. The Michigan Construction Lien Act allows for a release of lien rights to the extent of the amount paid, which should correlate to work performed.
STEP 4: RECORD YOUR CLAIM OF LIEN
Subcontractors/Suppliers should be diligent in recording their claim of lien for unpaid monies due and owing within 90 days after the last day of furnishing labor or materials to the Property in the Register of Deed of the County where the Property is located, or as the Notice of Commencement Describes. 90 days means 90 days. Lien claimant’s rights cease to exist if claim of lien is not recorded within the 90 day timeframe. Recording the Claim of Lien places subsequent purchasers of encumbrances on notice of the potential title issue, and thus, likely forces the owner/prime contractor to address the demand for payment. Upon payment, Subcontractor and supplier will be required to record a discharge of lien in the same county with the claim of lien was recorded.
STEP 5: IF STILL NO PAYMENT, ENFORCE THE LIEN BY FILING A COMPLAINT
If negotiations fail and Owner/Prime Contractor still deny payment, Subcontractors/suppliers can file a lawsuit to enforce the lien that was recorded within one year of the claim of lien within the Circuit Court for the County in which the claim of lien was recorded.
*This post is for informational purposes only. It does not create and attorney-client relationship and is not intended to be regarded as legal advice.