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Releases of lien: A vital component of any construction project - II

Last time, our blog started discussing how homeowners need to be on guard for those scenarios in which licensed contractors whose services are retained for construction or remodeling projects fail to pay subcontractors or material suppliers.

That's because it could result in one of these aggrieved parties filing a construction lien, a legal mechanism that enables the claim for payment to be enforced through the property itself -- even if you have already paid the contractor -- such that a forced sale or even a moratorium on any sales may result unless such time as the lien is paid off. 

We also discussed how homeowners could prevent this from occurring by securing a release of lien, which is a binding document provided by subcontractors and/or material providers that promises not to file a construction lien should a contractor fail to pay.

This naturally begs the question as to when and how these releases of lien can be secured.

The first -- and perhaps easier -- option is including a clause in the agreement with the contractor stipulating that they must secure releases of lien from all subcontractors and/or material providers.

However, in the event the agreement contains no such clause, experts indicate that the task will fall to the homeowner to secure the necessary releases prior to making any payment to the contractor.

In fact, they suggest homeowners ask the contractor to supply a comprehensive list of all parties with whom they have entered into a contract to provide services or materials to ensure nothing is overlooked.

Two other points experts say homeowners must keep in mind include:

  • If partial payments prior to the completion of the project are called for by the contract, consider securing partial releases of lien from all subcontractors and/or material providers who have provided services up to that juncture.
  • Prior to handing over the last payment to the contractor, consider having them furnish an affidavit outlining all heretofore unpaid subcontractors and/or material providers, and ensure that the necessary final releases are secured from these parties.

Whether you are about to undertake any sort of home improvement project and would like to learn more about releases of lien, or have questions or concerns about another construction law matter, consider speaking with an experienced legal professional as soon as possible.

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