Dealing with Contractors: What you need to know for flood damage repair, tornado damage repair, remodeling, or building a new home.

Q: Our business paid a roofing contractor $15,000 for the installation of a new roof. After the project was completed, we received a letter from the company that provided the roofing materials to the contractor, demanding payment in the amount of $10,000 for the materials it provided. We discovered that the contractor never paid for the roofing materials. Can we be forced to pay twice for the same material?

A: A company that supplies building materials for a construction project can claim a “lien” against the property that used the materials in the event the company is not paid. A lien is a security interest in the property, much like a mortgage, that gives the supplier the legal right to sell the property to recover the cost of the materials.

Discussion

In many cases where a property owner pays a general contractor for construction materials but the general contractor fails to pay the supplier, the property owner must pay the supplier in order to avoid the sale of its property to enforce the lien. In other words, the property owner ends up paying twice for the same materials. Of course, the owner can sue the general contractor, but in some cases, the general contractor is no longer in business or lacks assets to pay.

Note that a lien only allows a supplier to collect the full price of materials that were supplied. The supplier is not entitled to an additional amount, whether for finance charges or attorney fees unless the contract between the parties specifically provides for it.

It is important for homeowners building a house or remodeling an existing house; paying for flood damage repair, tornado damage repair, or any other disaster repairs, to be familiar with the concept of liens in order to avoid paying twice for construction materials and labor. Here are some recommendations to avoid such a predicament:

(1) Only deal with reputable contractors who have been in business in your community for several years.

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(2) Insist upon a written construction contract that incorporates a lien waiver requirement. (LaMarca Law Group, P.C. can assist in drafting the contracts). At a minimum the contract should set out:

  • Terms of payment including holdbacks;
  • Change orders;
  • Completion date;
  • Risk of Loss / Insurance issues;
  • Right to Inspection; and
  • Warranty items

(3) Withhold all payments to a general contractor in any construction project until “lien waivers” (signed by all subcontractors and material suppliers) are presented.

(4) Be sure that the lien is restricted to the price of delivered materials, and does not include finance charges, or other “add ons.”

(5) Hold back a portion of the amount due on each invoice until the project is completed, and pay the holdback only if you are satisfied with the work and you are assured that all suppliers and subcontractors have been paid.

(6) Before signing any construction proposal or contract, retain an attorney. Establish a clear procedure for assurance that all payments are properly utilized by the general contractor and have an attorney from LaMarca Law Group, P.C. review the lien procedures under Iowa law. If you are ever sued by a supplier seeking to enforce a lien, contact us to help.

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