THE DIFFERENCE BETWEEN COLLECTIONS AND A MECHANICS LIEN
In some states, a construction lien is also called a mechanics lien. In the construction business, a mechanics lien is used to help ensure that you receive payment for work you performed on a construction project. Liens are filed against the property that you helped build or improve.
How Does A Lien Work?
Liens appear when someone performs a title search on the property, making it difficult to
sell or refinance it. Property owners pay attention to liens, and they will often step in to
help your issues get solved. Property owners don't want to risk losing their property for
non-payment, so they have the incentive to get your payment dispute settled as quickly
as possible so the lien will be removed.
Typically, a construction project also involves one or more lenders with interest in the project. When you put a lien on the property, it affects those lenders as well. Some states will prioritize a mechanics lien over a mortgage. When you interrupt their security interest, lenders will sometimes step in to resolve your payment dispute to protect their interest.
If your payment dispute isn't resolved when you file a lien, you have the option to claim your equity in the property. You can enforce the lien you have in court and begin foreclosure proceedings in order to get the money you are owed.
Collections and Construction
Collections imply that your customer willingly refuses to pay the money owed to you.
However, that isn't always the case. Sometimes, an honest mistake is made, causing a
delay in your payment. In the construction industry, the nature of the chain of
contractors, sub-contractors, and suppliers can cause a delay in payment to those who
are on the lower tiers of the hierarchy.
Before you begin any formal collections efforts, it can be beneficial to determine what is causing the delay in your payment. If your customer simply allowed your invoice to slip their mind, you can remind them of their debt in a couple of ways. You can verbally remind them, resend the invoice, or offer to take a credit card payment over the telephone.
If you are finding that you are missing payments often, you may need to set or restructure your collections practices. You have traditional collections methods available to you, following best practices just as any other business does. However, if conventional collections methods are not providing the results you expect, you can enforce a mechanics lien on the property.
Wrapping It Up
Construction experiences issues with non-payment all too often. However, at times
those non-payment issues are unintentional. After reminding a customer that they owe
you money, you have a few options available to collect that money.
It would be best to start by giving the person the benefit of the doubt and either resending the invoice or offering to take secure payments over the telephone. If they willingly refuse to pay you, traditional collections efforts are the logical next step, followed by a mechanics lien on the property. For more information on filing a mechanics lien, contact Nationwide Notice.
We specialize in helping construction companies get their construction payments. We assist construction companies to protect their receivables - as a self and full-service lien service and preliminary notice company, that is just what we do. To get started, check out Nationwide Notice, Inc. online on our website or give us a call to learn more.