The “L” word your building contractor can’t resist has a catch.
When you find yourself in a payment dispute with your general contractor and he starts dropping a four-letter word into the conversation, don’t be surprise if it’s “lien.”
State law permits a contractor to record a claim of lien on real property to secure payment of an outstanding debt for construction work and materials, and then he can sue to enforce it.
Property owners cringe at the thought that a contractor demanding full payment for work not yet performed or refusing to fix defective work could obtain a legal interest in their homes. Make no mistake, a claim of lien on real property is a serious threat that could end in foreclosure so the contractor can get paid.
A significant advantage to filing a claim of lien on real property is that unlike in most legal disputes, the contractor may be awarded his attorney’s fees. The risk is that a homeowner fights at the peril of paying both the contractor’s fees and her own, which tends to embolden contractors who probably shouldn't be so sure of themselves.
Depending on your situation, though, the threat of fees may be double-edged.
To be eligible for attorney’s fees, a contractor must obtain a judgment of at least half the amount he claimed to be owed. If he collects less than half, then the table turns, because the owner is eligible for fees from the contractor.
That’s where the math becomes critical. Owners sometimes tally items that were not performed despite being charged for the work. In some cases, the contractor caused damage to the property or refused to fix punch list items at the end of the job. Those issues may provide offsets to the amount a contractor would claim on a lien, which raises the possibility that the contractor may have to pay the homeowner’s lawyers to defend a lien enforcement action.
But it’s best to know what the evidence on those issues is going to be before papers start getting filed, because by the end of a lawsuit, “lien” isn’t going to be the four-letter word on a loser’s lips.