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  1. #1
    Join Date
    Jun 2004
    Location
    Arizona
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    2,997

    Default Lien waiver question

    Something I feel I don't have a complete grasp on is lien waivers.

    As an example:

    If I receive a preliminary 20 day lien notice from XYZ Supplier to notify me that he is supplying drywall to a job of mine, when I write out a check to ABC Drywall for the job and have him fill out the lien waiver form am I covered against XYZ Supplier in the event that ABC Drywall does not pay their material bill?

    Even though the lien waiver form states that the subcontractor agrees to use the monies paid to pay for material, labor, etc. I don't think I am covered from the supplier liening the job if the sub does not pay.

    My questions would be.
    1. How can I get a material supplier to sign a lien waiver when the bill is paid directly to the subcontrator?

    2. Or should I insist on writing two party checks when the prelim notice is from a separate company than the company doing the work, (ie sub).


    I know one solution would be to procure my own materials, but for at least this example I do not want to use that approach.

    Randy

  2. #2
    Join Date
    Jun 2004
    Location
    Holly Springs, GA
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    3,287

    Default Re: Lien waiver question

    You get the sub to submit a conditional lien waiver from all of his suppliers with his invoice, and then submit final lien releases from all of his suppliers prior to receiving his final payment. That's the only way you're covered for certain.

    Bob

  3. #3
    Join Date
    Dec 2005
    Posts
    27

    Default Re: Lien waiver question

    I may be wrong here, but I would buy the materials myself and get the bill for materials directly to me. This way you have better control over your subs. The only area that I would not get materials is Electrical, and plumbing as I don't know enough about what I would need. You have the opportunity to put a mark up on those materials as well. Correct me if I am wrong, as I am sure most of you will. That's what I love about this website.

    Flimmer

  4. #4
    Join Date
    Jun 2004
    Location
    Martinez, California
    Posts
    14,684

    Default Re: Lien waiver question

    Randy:

    Do not pay ABC any money at all until they provide you with an unconditional lien waiver from any suppliers who file 20-day notices. If ABC says they don't have the funds to pay the supplier until you pay them, then ask for all invoices applicable to your jobs subject to the 20-day notices and issue dual party checks in those amounts. When ABC provides you with unconditional waivers from the supplier, then, and only then, pay them the balance. Never accept a conditional waiver from anyone unless it is accompanied by a certified copy of a canceled check.

    The subject of builders purchasing materials for subcontractors is coming up a lot lately. In the past I was always against it because the builder was assuming liability for the sub's materials, and I wanted the sub liable for everything he did including his materials. Now with subcontract limitations I find myself buying as many of the sub's materials as I possibly can to keep my subcontracting amount down to a minimum, and accepting the additional liability. It used to be if the faucet leaked and caused a million dollars worth of mold damages it was the plumber's fault (and his insurance companies' fault), now there is going to be the fight as to whether it's your fault because the faucet was defective, or the plumber's because it was installed incorrectly. Who knows what's going through the minds of insurance companies.
    “‎A general State education is a mere contrivance for moulding people to be exactly like one another; and as the mould in which it casts them is that which pleases the dominant power in the government, whether this be a monarch, an aristocracy, or a majority of the existing generation; in proportion as it is efficient and successful, it establishes a despotism over the mind, leading by a natural tendency to one over the body.” ― John Stuart Mill

  5. #5
    Join Date
    Jun 2005
    Location
    Dutchess County, New York
    Posts
    983

    Default Re: Lien waiver question

    Bob nailed it.....

    Make sure you get a conditional from the sub, and note the supplier on ANY check you cut him. If the funds don’t go to materials the sub MAY be in violation of collusion of funds.

    The process is very simple
    1- Lien for the full amount of contract (preliminary)
    2- Get a release for each "progress" payment (conditional release)
    3- Get a final at the end of the job (un-conditional)

    Liens protect everyone, and any sub or contractor that can't work with-in the parameters shouldn't be doing that type (or scope) of work.

  6. #6
    Join Date
    Dec 2005
    Posts
    27

    Default Re: Lien waiver question

    Hey Dick,
    You have just given me another reason why not to get materials for the electricians or plumbers, these 2 facets of the job can take a house down real quickly. But of course like you said, who knows who is liable regardless of who gets materials anymore.
    "It used to be if the faucet leaked and caused a million dollars worth of mold damages it was the plumber's fault (and his insurance companies' fault), now there is going to be the fight as to whether it's your fault because the faucet was defective, or the plumber's because it was installed incorrectly. Who knows what's going through the minds of insurance companies."

    Flimmer

  7. #7
    Join Date
    Jun 2004
    Location
    Martinez, California
    Posts
    14,684

    Default Re: Lien waiver question

    A conditional waiver does no good at all unless it is accompanied by a canceled check. The purpose of a conditional waiver is to allow you to give a subcontractor a check and have him sign a waiver conditional upon your check clearing the bank, once your check clears the bank the conditional waiver becomes unconditional. In Randy's situation a conditional waiver is inapplicable (that being said, state laws vary and I only know California law, but I believe Arizona law is somewhat similar). A conditional waiver is just what it says, conditional and the condition is the check clearing the bank.

    Current California Forms

    CONDITIONAL WAIVER AND RELEASE
    UPON PROGRESS PAYMENT

    (California Civil Code §3262)

    Upon receipt by the undersigned of a check from ___________ (Maker of Check) in the sum of $__________ (Amount of Check) payable to _______________ (Payee or Payees of Check) and when the check has been properly endorsed and has been paid by the bank upon which it is drawn, this document shall become effective to release any mechanic's lien, stop notice, or bond right the undersigned has on the job of _________ (Owner) located at ________________ (Job Description) to the following extent. This release covers a progress payment for labor, services, equipment or material furnished to _______________ (Your Customer) through _______________ (Date) only and does not cover any retentions retained before or after the release date; extras furnished before the release date for which payment has not been received; extras or items furnished after the release date. Rights based upon work performed or items furnished under a written change order which has been fully executed by the parties prior to the release date are covered by this release unless specifically reserved by the claimant in this release. This release of any mechanic's lien, stop notice, or bond right shall not otherwise affect the contract rights, including rights between parties to the contract based upon a rescission, abandonment, or breach of the contract, or the right of the undersigned to recover compensation for furnished labor, services, equipment, or material covered by this release if that furnished labor, services, equipment, or material was not compensated by the progress payment. Before any recipient of this document relies on it, said party should verify evidence of payment to the undersigned.

    Dated: ___________________


    _________________________
    (Company Name)

    By_______________________


    Title______________________





    UNCONDITIONAL WAIVER AND RELEASE
    UPON PROGRESS PAYMENT

    (California Civil Code §3262)

    The undersigned has been paid and has received a progress payment in the sum of $________________ for labor, services, equipment, or material furnished to ________________ (Your Customer) on the job of _________________ (Owner) located at ______________________ (Job Description) and does hereby release any mechanic's lien, stop notice, or bond right that the undersigned has on the above referenced job to the following extent. This release covers a progress payment for labor, services, equipment, or materials furnished to _________________ (Your Customer) through ____________________ (Date) only and does not cover any retentions retained before or after the release date; extras furnished before the release date for which payment has not been received; extras or items furnished after the release date. Rights based upon work performed or items furnished under a written change order which has been fully executed by the parties prior to the release date are covered by this release unless specifically reserved by the claimant in this release. This release of any mechanic's lien, stop notice, or bond right shall not otherwise affect the contract rights, including rights between parties to the contract based upon a rescission, abandonment, or breach of the contract, or the right of the undersigned to recover compensation for furnished labor, services, equipment, or material covered by this release if that furnished labor, services, equipment, or material was not compensated by the progress payment.

    Dated: ___________________


    _________________________
    (Company Name)

    By_______________________


    Title______________________


    NOTICE: THIS DOCUMENT WAIVES RIGHTS UNCONDITIONALLY AND STATES THAT YOU HAVE BEEN PAID FOR GIVING UP THOSE RIGHTS. THIS DOCUMENT IS ENFORCEABLE AGAINST YOU IF YOU SIGN IT, EVEN IF YOU HAVE NOT BEEN PAID. IF YOU HAVE NOT BEEN PAID, USE A CONDITIONAL RELEASE FORM.
    “‎A general State education is a mere contrivance for moulding people to be exactly like one another; and as the mould in which it casts them is that which pleases the dominant power in the government, whether this be a monarch, an aristocracy, or a majority of the existing generation; in proportion as it is efficient and successful, it establishes a despotism over the mind, leading by a natural tendency to one over the body.” ― John Stuart Mill

  8. #8
    Join Date
    Jun 2004
    Location
    Little River, SC
    Posts
    1,234

    Default Re: Lien waiver question

    I have never had an issue with a supplier & lien waviers. I buy all my own materials though.

    I give the H/O a conditional wavier with progress payments. I also have a rule that on check day with employees & subs they dont get paid unles they sign my lien form. Since I started that I have never had an issue.

    Its funny on my most recent job here in SC I gave the H/O a preliminary 20 day notice. THey had no idea what it was. I followed all payments with conditional lien releases still no idea. There were three other contractors working on that job besides me & not one other contractor gave any notices or lien releases to the H/O.

    I also saw some bids that the H/O had rejected. All were one page hand written proposals. Some not even on paper with a company name. I find it amazing in this day & age that people still work like that.
    Two roads diverged in a narrow wood. I took the path less traveled.
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  9. #9
    Join Date
    Jun 2004
    Location
    Arizona
    Posts
    2,997

    Default Re: Lien waiver question

    As of lately I have only been getting two 20 day prelim. notices per job. One from the insulation contractor (who is also the supplier) and one from the drywall supplier. My new roofer however has requested 2 party checks for the tile drop charge.

    I do use conditional/unconditional, progress/final payment lien waivers depending on what's applicable.

    From all the responses what I am hearing is that the supplier (drywall for example) needs to sign a conditional lien waiver for the subcontractor whereby the sub forwards the signed waiver to me along with his first payment invoice. Upon me receiving the invoice for the completed work I need an unconditonal waiver signed by the supplier.

    This makes sense. The only thing I may need to do is have the drywall sub invoice me 1/2 when the rock is hung, in case he needs the funds to pay the supplier instead of invoicing me in full at completion as he normally has done.

    Randy.

  10. #10
    Join Date
    Jun 2004
    Location
    Houston & Washington Texas
    Posts
    11,892

    Default Re: Lien waiver question

    I very seldom get lien releases. I guess I’ve written approx 50,000 checks since I’ve been in business. If each lien release cost $.75 (postage-stationary-printer ink, etc), I’ve saved over $35,000. If each lien release required even 1 minute to process, print out, obtain signature, file, I’ve saved over 800 hrs in my life!

    I've had 2 liens filed in 30+ years, in both cases it was defective material I rejected, but disputes led to the liens. One was some really bad manufactured cabient doors, I don't remember the other. I cash-bonded around them, 18 months later my money was refunded.

  11. #11
    Join Date
    Jun 2004
    Location
    Houston & Washington Texas
    Posts
    11,892

    Default Re: Lien waiver question

    By the way, I would certainly never tell anyone NOT to obtain lien releases, just relating my experience.

  12. #12
    Join Date
    Jun 2004
    Location
    Arizona
    Posts
    2,997

    Default Re: Lien waiver question

    Quote Originally Posted by Allan Edwards
    By the way, I would certainly never tell anyone NOT to obtain lien releases, just relating my experience.

    Agreed. By the way, I only collect lien waivers for presales when the customer's lender requires them. One lender I have dealt with only required "me" to sign one for each draw. I have no idea how that fully protects them from the subs but hey i guess that would be their problem. Also, I only get them for big ticket items like concrete , framing, plumbing etc. I agree that they are a pain in the ass or at the very least a big time waster along with more paper to manage.

    Carl,
    If I am not mistaken if you are dealing (contracting) with the homeowner directly you are in a prime contractor position and 20 day prelim notices are not neccessary from that standpoint. They are made "aware" of the fact that materials and work will be provided by your very contract. Subs and suppliers on the other hand have the 20 day prelim notice as a tool too also make the homeowner "aware". Sorry if I misread your post or am telling you something you already know.

    Randy.

  13. #13
    Join Date
    Jun 2004
    Location
    Martinez, California
    Posts
    14,684

    Default Re: Lien waiver question

    I don't get lien releases unless a sub's supplier has filed the 20 day notice. That tells me that the sub's supplier doesn't trust the sub, and I better protect myself and my customer by getting a release. I think it's been several years since I've got one of those notices. When California first came down with that law (late '60s?) every subcontractor and material supplier was being told to send them out, my mail box had a notice to come down to the post office several times a week to pick up those damn certified notices. I think all of that has slackened off because suppliers and subs have figured out that they don't need them if their customer is honest.
    “‎A general State education is a mere contrivance for moulding people to be exactly like one another; and as the mould in which it casts them is that which pleases the dominant power in the government, whether this be a monarch, an aristocracy, or a majority of the existing generation; in proportion as it is efficient and successful, it establishes a despotism over the mind, leading by a natural tendency to one over the body.” ― John Stuart Mill

  14. #14
    Join Date
    Jun 2004
    Location
    Arizona
    Posts
    2,997

    Default Re: Lien waiver question

    Dick:

    In Arizona they don't come certified. In fact they state something to the effect that you have 10 days to dispute any inaccuracies in the notice or you forfeit that right. I am not sure if it is a relection on a particular sub or just the mere fact that a supplier has been burned too many times by subs in general. My new roofer that has me write dual party checks to him isn't the first time I've seen that supplier require a roofing sub to do that, so maybe it's just policy at this point.

    Randy

  15. #15
    Join Date
    Jun 2004
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    Martinez, California
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    Default Re: Lien waiver question

    Randy:

    Yeah you've got a point, a supplier who has been burned can establish a policy to send them out to everybody and we shouldn't hold it against a particular subcontractor. It just makes you wonder when you get them though.
    “‎A general State education is a mere contrivance for moulding people to be exactly like one another; and as the mould in which it casts them is that which pleases the dominant power in the government, whether this be a monarch, an aristocracy, or a majority of the existing generation; in proportion as it is efficient and successful, it establishes a despotism over the mind, leading by a natural tendency to one over the body.” ― John Stuart Mill

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