How do you assess and mitigate the risks and costs of potential liens on your projects?

1 Know your lien rights and obligations

The first step to avoid liens is to understand your lien rights and obligations as a contractor or owner. Different states have different lien laws, so you need to familiarize yourself with the rules and deadlines in your jurisdiction. You also need to review the contract terms and payment clauses carefully, and make sure they are clear and fair for both parties. If possible, use standard forms and templates that comply with the lien laws and protect your interests.

2 Communicate and document everything

The second step to avoid liens is to communicate and document everything related to the project. You should maintain regular and open communication with the owner, the subcontractors, and the suppliers, and address any issues or concerns promptly. You should also keep track of all the invoices, receipts, change orders, waivers, notices, and other documents that prove your work and payment status. Having a good paper trail can help you prevent or resolve any lien disputes later.

3 Verify and monitor the lien chain

The third step to avoid liens is to verify and monitor the lien chain, which is the sequence of parties involved in the project, from the owner to the contractor to the subcontractors and suppliers. You should verify that each party has a valid license, insurance, and bond, and that they are reputable and reliable. You should also monitor their work progress and payment status, and request lien waivers or releases from them when they are paid in full or in part. This way, you can reduce the risk of hidden or unexpected liens from lower-tier parties.

5 Protect yourself with lien bonds or insurance

The fifth step to avoid liens is to protect yourself with lien bonds or insurance. A lien bond is a type of surety bond that guarantees the payment of the lien claimant, and releases the property from the lien. A lien insurance is a type of policy that covers the legal fees and damages related to lien disputes. Both options can help you secure your project financing, avoid foreclosure, and preserve your reputation.

6 Learn from your lien experiences

The sixth step to avoid liens is to learn from your lien experiences and improve your practices. You should analyze the causes and consequences of any liens that you encounter, and identify the lessons and best practices that you can apply to future projects. You should also update your contracts, documents, processes, and systems to reflect the latest lien laws and regulations, and to prevent or minimize the recurrence of liens.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?