{"id":897735,"date":"2020-07-22T10:06:25","date_gmt":"2020-07-22T16:06:25","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=897735"},"modified":"2020-07-22T10:06:27","modified_gmt":"2020-07-22T16:06:27","slug":"mechanics-liens-arbitration-provision","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/mechanics-liens-arbitration-provision\/","title":{"rendered":"Understanding Mechanic\u2019s Liens and Arbitration Provisions"},"content":{"rendered":"\n

James Hartnett and Rachel Osdoba | Faegre Drinker Biddle & Reath<\/a><\/p>\n\n\n\n

As construction companies continue to operate under the stresses of the COVID-19 pandemic and social unrest, projects are starting and stopping as a result. These interrupted schedules, along with our overall disrupted economy, can increase the risk of non-payment. What should you do if there is an arbitration provision in your contract but you want to file a mechanic\u2019s lien to protect your payment rights? First, it is useful to understand the different roles of an arbitration dispute resolution<\/a> process versus a contractor\u2019s mechanic\u2019s lien rights<\/a>.<\/p>\n\n\n\n

Mechanic\u2019s liens are a remedy created by state statutes that provide security for amounts contractors are owed under their contracts. When a contractor provides labor or material to a project, it has the right to a lien against the property being improved \u2014 that is, the actual real estate upon which the project sits. In the event of nonpayment, a mechanic\u2019s lien and subsequent foreclosure action can force the sale of the property in order to pay the amount owed. The sale of the property subject to the mechanic\u2019s lien provides a source of funds to pay for the value of work completed and not paid, but the lien, by itself, does not determine the amount owed.<\/p>\n\n\n\n

If your contract contains an arbitration clause, an arbitrator will determine the amount the contractor is actually owed (if any) under the contract. Often, nonpayment occurs due to some dispute over the work completed by the contractor. When there is an arbitration clause, the arbitration hearing \u2014 rather than a court \u2014 is the forum in which the evidence of the value of work completed is presented and the arbitrator will use this evidence to determine how much money (if any) is owed to the contractor.<\/p>\n\n\n\n

Arbitration hearings and mechanic\u2019s liens are thus parallel and separate paths that: (a) in the case of arbitration, determine the amount owed; and (b) in the case of the mechanic\u2019s lien, provide security for ultimate payment of the amount that is determined to be owed in the arbitration. It is important to bear in mind that mechanic\u2019s liens are regulated by state statutes with tight timelines and, often, many strict filing rules. These rules can be confusing and it is easy for an inexperienced contractor to make mistakes. Accordingly, a contractor should first take all the necessary steps to preserve its statutory lien rights before attempting to demand arbitration under your contract.<\/p>\n\n\n\n

To preserve your lien rights, there are three things you need to evaluate right away:<\/h2>\n\n\n\n