If you’re furnishing labor or materials to a construction project someplace in the United States, you will likely have the right to file a mechanics lien if you’re unpaid. And regardless of where you are in the country, your right to lien will expire at some specific time.
In some states, like California, the lien deadline starts from when all construction on the project is completed (in CA, it’s 90 days from the end of the project); in others, like New York, the deadline counts from your completion of work or furnishing of materials (in NY, it’s 8 months from last furnishing on non-residential projects, 4 months on residential projects).
Too often, folks start capitalizing on the lien rights at the eleventh hour, just a few days before the lien deadline expiration. While you can sometimes squeeze through and file before your deadline, waiting until the last minute can have consequences. Here are three things that frequently go wrong when you wait too long to file your mechanics lien.
1) The Lien Gets Rejected By The Recorder
Recording offices can be very, very sensitive about what they will record. While they are technically required to record everything, some recorders feel they are the legal gate-keepers for deciding what is appropriate to record and what is not. And they are very frequently incorrect in their determinations.
I’ve had recorders refuse to file mechanic lien documents for reasons that had no legal support whatsoever. After receiving these rejections, I had to submit a request into the recorder’s legal department to “overrule” the recording clerk’s decision. I almost always get the over-ruling requested, but in some states, it doesn’t help with the filing date. The filing date is the date we get the over-ruling decision, and not the date the document was originally presented.
As a result, if I’m trying to file a lien against a deadline and encounter a recording problem, that lien could miss its deadline.
While this may seem unfair (it is unfair), it’s the way that some county recorders operate, and you have to be prepared to confront this type of situation.
2) It’s Harder (And More Expensive) To Collect
The cardinal rule about collection a debt is this: The longer you wait, the harder it is to collect. That’s simple percentages talking, and it’s difficult to refute the cold data on this.
We’ve written extensively about how the mechanic’s lien remedy is one of the most effective collection tools available to the construction industry when confronting an unpaid account (see our tag: Why Lien). And since it’s a collections tool, it is susceptible to the cardinal rule of collections: The longer you wait, the harder it is to collect.
It’s really just that simple. Those who file mechanic liens earlier are more likely to recover, and one of the primary reasons this is true is because the lien has the effect of freezing funds on the job. The longer you wait to file the lien, the less funds will be available to subject to your lien.
All of this is not to mention that filing early will save you money in two ways: (1) You won’t have to pay a rush filing fee of any type; and (2) You’ll have the chance to submit the matter to collections before it needs to have an attorney associated (and thus, a smaller collections commission).
3) Your Lien Is Late Because Of Legal Interpretation Differences
You may get your lien filed without any problem at the recorder’s office, and you may think it was filed on time. Because the lien laws in each state are so complex, however, you may later learn that your lien was actually too late. Why? Because it’s sometimes really difficult and ambiguous to pinpoint exactly when the lien periods begin.
We addressed this in a post from last year titled “Most Common Lien Mistakes,” as follows:
But consider this question: when is the last day that you’ve furnished labor and/or materials. Is it when the materials left your yard, or when it was delivered to the jobsite? Is it when you substantially completed the work, or after the punchlist items were complete? Or does it include that warranty work you did 2 months after final completion?
Each state answers these questions differently, and so knowing when the period starts can be just as important as knowing how long it is.
While you may think you know when the lien period starts, you may find yourself in a battle of interpretation about what constituted the “last furnishing of materials or labor” or the project’s “substantial completion.” While the answer to these issues may seem obvious to you, lawyers can clutter and complicate the answer. Getting your lien filed early avoids these legal arguments.