Do you know the crucial difference between proper and improper Payments?
If an owner fulfills all of its duties under the mechanic’s lien law, then its liability for all lien claims will not exceed the contract price. While an owner is not required to comply with the notice requirements of the lien law, it does so at the risk of paying twice for improvements where the contractor may not have paid certain lienors. An owner should not make a final payment unless it has received the Contractor’s Final Affidavit. A final payment under a building contract, made by the owner to the general contractor without first securing sworn statements from the contractor, is not considered “properly made”. As a result, the owner becomes responsible to the contractor’s unpaid subcontractors and materialmen in the amount of the final payment.
In addition, the owner must file a Notice of Commencement. A materialman’s lien was found to be enforceable against a homeowner where the homeowner, without knowledge of unpaid materials, paid a contractor in full upon completion of the contract and the homeowner had neither filed a Notice of Commencement nor obtained a contractor’s affidavit. This was the case even though the materialman did not serve a Notice to Owner until after the homeowner had paid the contractor in full.
An owner must pay careful attention if the contractor abandons the project or is terminated. Specifically, the owner must comply with the re-commencement procedures so that all future payments to the new contractor are considered proper. Following the abandonment of a construction contract by a general contractor, liability of the owner to subcontractors may be limited to the contract price remaining after deducting payments properly made.