Mechanic’s Liens, Trust Diversion And Getting Paid As a Contractor
The Construction Industry runs on credit, and often that means a contractor, sub-contractor or materialman or supplier will find they are not getting paid after services rendered and/or goods provided. Luckily, there are options specifically for this industry to help get you paid.
As a contractor, there are certain specific legal tools just for that industry. Very often, finding and exercising some kind of leverage over your debtor is an effective method of collecting your hard-earned money. Your leverage, as well as your security, may be realized by filing a Mechanic’s Lien.
A Mechanic’s Lien is often an incredibly effective and inexpensive legal tool, specifically designed with contractors and suppliers in mind. It allows you to encumber the property that you improved in the amount that you are owed. A mechanic’s lien secures your interest in the property and will give you the extra heft that you may need to get paid. If payment is not forthcoming after filing a mechanic’s lien, you may even pursue foreclosure. The mechanic’s lien is an invaluable tool for the contractor or materialman.
Additionally, many in the construction industries are unfamiliar with the Trust Fund Provisions of the Lien Law. On construction jobs in the State of New York, an automatic trust fund is created by statute. If you provided labor or materials on a construction job in New York, you are likely a trust beneficiary. And as a beneficiary, you have certain rights that will empower you to help get paid. Sometimes known as the “Trust Fund Diversion Law,” this law prohibits the diversion of any funds that are supposed to be paid from one party to another on a job. A General Contractor must pay his subcontractors with the funds he receives from the property owner before using that money for any other purpose. As a beneficiary of this trust, you may demand the financial records from your debtor in order to ensure compliance with this law. These demands may provide the additional leverage you need to help get paid, partially because very few in the industry keep records that are in accordance with the law. Because it may be difficult for your debtor to comply with your demand, they may be more inclined to work towards paying off their debt. These demands pack the added punch of potentially opening the door to personal liability of the principal of your debtor’s company, and, perhaps most intimidating of all, a diversion of trust funds can potentially result in criminal culpability. Mechanic’s Liens and Demands for Verified Accounting: these little known tools are at your disposal to help you get paid.
Tim LeFebvre, Esq.