Lien waivers play an essential, if complicated, role in the construction industry funding process. The basic concept of the Mechanic’s lien law is to provide an additional protection of payment for workers and suppliers who perform services to improve real or personal property. However, lien laws are complex, technical and nearly constantly changing or being clarified. Lien laws also vary in all 50 states (plus the District of Columbia) in regards to if, when and how a lien may be filed, including notice periods and protections.
Since construction projects routinely involve a large number of parties, many of whom may be unknown to each other and to those ultimately in charge of payment, keeping a project free of the encumbrance of a lien claims can be quite challenging. The typical lack of transparency in the funding process can make it nearly impossible for those at the top of the funding chain to appropriately control payments and minimize exposure, which is why lending agencies require documentation (lien waivers) from each participating party stating that he or she has received (or is expecting) payment and waives any future lien rights to the property (to the extent that he or she has been paid). When the system work, lien waivers in essence function as receipts stating that the party is paid the agreed upon amount for work performed and that party waives the right to later claim a lien for that particular amount. Unfortunately, due to their volatile nature, the lien waiver process can be complicated and full of risk for all parties involved.
Knowing the lien laws of the states in which you do business is crucial to good credit management and to protecting your business under construction law. As part of DrawAlert’s commitment to providing visibility, quality and productivity on all projects, a state-by-state lien reference guide for commercial contractors is available as a complimentary download at www.drawalert.com. The guide describes the general time requirements for filing lien notices in all 50 states as well as the District of Columbia. DrawAlert certified projects automatically inform all stakeholders of the payment cycle for each draw and reduce the typical burden of managing the pre-lien process. This transparent allocation of funds is beneficial by ensuring funding stays on the correct job. The portal provides project & pre-lien dashboards as well as a peer-rated Contractor directory to support best practices on every project.