Reflecting on 2023, Looking Ahead to 2024
Twelve months ago, I reflected on the difficulties in investing in CRE due to the uncertainty in the market and current status of the T-bill in my white paper “Maximizing... Read More
In a “sunshine and rainbows” world, construction contractors do a stellar job, their draw request is approved, and lenders pay up – everyone is happy for the rest of time. Alas, as we all know, this is not always how construction loan management goes ‘round, and often both lenders and general contractors find themselves in a pickle with a contractor due to a late payment or slow payment processing. The pickle, in this case, is called a Mechanic’s Lien.
In essence, contractors have the leverage to file a lien and hold a property “in custody” until paid for work performed. Perhaps not so surprising, preliminary results from a survey we distributed to contractors reveals that 100% of them have had to file a lien at some point due to slow payments.
Not a very favorable position to be in for anyone. Not only do late payments create tension between the relevant parties, but they also create a scenario in which lenders, borrowers, general contractors, and contractors all take a hit, costing everyone precious time and money.
Many factors are at play when it comes to construction loan management, and the delays in payment are rarely due to unscrupulous behavior. So, to help avoid these mishaps, we’re going to share some insights that will help prevent the risk of liens in the future.
You probably were not expecting a history lesson, so let’s keep this part as short and as exciting as possible. Back in the Colonial Era after America declared independence from mother England, a sharp-minded and very innovative man by the name of Thomas Jefferson proposed the first liens legislation in the state of Maryland.
This legislation passed with flying colors and everyone was happy that the contractors and subcontractors (then, mechanics) had certain rights. These rights provided them with a legal remedy if their general contractor did not pay. Soon enough, every state in the country had a law regarding mechanic’s liens. Now, while similar concepts can be traced back through history to the Ancient Romans themselves, it was famous TJ who effectuated the law in the US, as the Brits had no such legislation to pass on into our law books.
So what do Mechanic’s Liens look like today?
There have been plenty of scenarios where contractors have filed a lien, – often called a mechanic’s lien or contractor’s lien – won the dispute, and secured their finances. Let’s review four short examples of mechanic’s liens in action.
In all cases, all parties – lenders, borrowers, contractors, subcontractor, and even condominium owners – suffered.
So, lien releases. They can be a messy and an unfortunate part of doing business. To get paid after completing work, a contractor includes a conditional lien waiver and release alongside invoices and receipts. What is a conditional lien release? It discharges all claimant rights with the condition that payment has been received and processed. What is an unconditional lien release? It discharges all claimant rights with no stipulations after receipt of payment.
Construction loan software aids in construction loan management and in preventing mechanic lien issues for all parties. Let’s take a look. By the way, you’ll love this next section if you are:
Before automation and construction loan software was available, stakeholders associated with the construction process had a tough time monitoring documentation, reconciling draw disbursements, and keeping legal disputes at bay due to the time-consuming and delicate nature of traditional construction loan management. Luckily, construction loan software is here to automate and simplify the entire process. It’s helping lenders, borrowers, construction loan administrators, general contractors, and contractors maximize efficiency and productivity. All while embracing and managing mechanic’s liens.
Rabbet is the most secure, user-friendly, and efficient construction loan management software in the world. It’s a fresh and more efficient way to manage construction loans, and it cuts days from the construction draw process while ensuring compliance and reducing risks for everyone involved.
Lenders and borrowers log into the Rabbet portal to quickly share and review draw requests, documents, invoices, receipts, lien releases, inspection reports, and overall project and payment progress.
Lenders love Rabbet because its machine learning algorithms help automate mundane tasks and accelerate the approval process usually managed in large siloed Excel spreadsheets. Borrowers love Contract Simply because it simplifies the tedious nature of submitting draw requests and expedites draw disbursements.
Everyone spends less time reviewing paperwork and waiting for payments, and more time completing projects.
Contract Simply – providing intelligent automation of construction payments!
Our leading software for construction lenders just won a couple awards!
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