How to Create a Mechanic and Materialmen’s Lien System
How many times have you struggled to get paid for work you’ve completed? You no doubt got into business because you’re skilled and passionate about construction, not because you wanted to be a debt collector.
Some business owners treat bad debts as an unfortunate but unavoidable cost of doing business, but it doesn’t have to be that way. The Oklahoma legislature gave construction companies a superpower: mechanic and materialmen’s liens.
In this article, I’ll explain what a mechanic lien is and show you the positive effect that developing a simple lien system can have on your company.
What is a mechanic and materialmen’s lien?
The Oklahoma legislature created mechanic and materialmen’s liens to help companies collect their money after improving real property in the state.
Generally speaking, if a contractor works on or provides materials to real property in Oklahoma and is not paid for the work or materials, then he can file a mechanic and materialmen’s lien on the property. The contractor can then file a lawsuit to foreclose the mechanic lien and prove that the money is owed to his or her company. If the contractor wins, he/she can have the property sold to pay the property’s debts, including the amount owed to the contractor.
The mechanic and materialmen’s lien laws, when used effectively, are a great tool to help you collect money you’re owed. However, you can’t file a mechanic lien on every job because there are work and materials that are not lienable. Also, there may be technical reasons why you should not file a lien, such as being out of time to file or forgetting to file a pre-lien notice. There are also business considerations, such as if the cost of filing may outweigh the chance of recovering any money.
Benefits of a mechanic and materialmen’s liens system
Mechanic and materialmen’s lien systems serve two primary purposes:
To standardize your information collection and lien filing process so that you don’t miss the opportunity to file a lien and collect your money, and
To help you determine whether you can or should pursue such an action.
A good system helps you collect all of the information you need to determine whether you should pursue a lien, and then makes it easy to file, should you decide that it’s the right course of action.
Steps of an effective mechanic lien system
Developing a mechanic and materialmen’s lien system does not need to be complicated or convoluted. A simple, five-step system is all that most companies need.
1. Determine whether you are entitled to a mechanic lien
There are a variety of reasons why you cannot or should not file a mechanic and materialmen’s lien. For example, the work your company performed or the materials you used may not be lienable. Another reason not to file is if you waive your right to a mechanic lien in the contract or in the lien waivers when you picked up your progress payments.
Having a standard process for evaluating your mechanic lien eligibility prevents you from wasting time filing when you are not entitled.
2. Gather the relevant information
Once you’ve determined that you should move forward with a mechanic lien, you need to gather specific information to file the notices and lien statements. Being able to collect accurate information is, arguably, one of the most important steps in your lien system.
3. Prepare and serve the correct pre-lien notice
The Oklahoma legislature has determined that certain contractors who do not have a contract directly with the owner of the property should give certain pre-lien notices to the owner. Presumably, the purpose is to give the owner notice of who has lien rights against his/her property. The owner often knows that the general or original contractor has lien rights, but he/she may not know which subcontractors and suppliers worked on the property.
The pre-lien notices give the owner this information so that he/she has an opportunity to pay suppliers for their work and materials.
4. Preparing and filing the mechanic lien statement
The benefit of a standardized mechanic lean system is apparent when it’s time to file the lien statement. If your company has decided to file a mechanic and materialmen’s lien, has collected all of the relevant information, and has sent pre-lien notices, then the preparation and filing of the lien statement are easy.
5. Filing the foreclosure action
The mechanic and materialmen’s lien attaches to the property. In order to force the real property to be sold to satisfy the debts, a contractor must file a suit to foreclose the mechanic and materialmen’s lien within one year of filing the lien statement.
A simple, yet effective system
The five-step mechanic lien system is simple and easy to use because you must complete each step before moving to the next. If you use a system that evaluates a claim, collects all of the relevant information, tracks deadlines, and sends all appropriate notices, your chances of getting paid improve dramatically.
If you’d like to discuss how you can set up a mechanic and materialmen’s lien system for your company, get in touch.
