Don't lose lien rights by signing the wrong waiver.
Waivers are also a way to manage construction credit, said Chris Ring of NACM's Secured Transaction Services (STS). Timing is a huge issue with liens and waivers; everyone wants to get paid and have that happen as soon as possible. Waivers can cause pressure for the release of funds and can hold up cash flow, according to Ring. He used the analogy of chess to describe how a lien waiver works in the construction industry. One side makes a move and hits the clock, putting pressure on the other player to get cash flow moving as fast as possible. Waivers bring assurances to avoid mechanic's liens, yet it is always important to move "swiftly, but carefully," Ring said.
"Stop, look and listen," and think of it as a crosswalk or traffic light. Waivers can be a cautionary tale if not handled correctly by an individual or a credit department. That is why it is vital to have the correct training or information when working with any type of waiver. Problems can occur if not dealt with in a proper manner. It is always important to double-check what is being signed despite what it says at the top of the paper, advised Ring.
A waiver also gives a general, or prime, contractor or an owner a way to track money as it funnels downward, said Michele Perron, senior lien analyst and collector with Waste Management National Services Inc. It works as a receipt or confirmation of payment in some cases, depending on the type of waiver being signed and if the check clears. Generally, waivers are standard, with different language depending on the type and location, Perron said. It is imperative to check with the bank and make sure the money has gone through before waiving lien rights by signing an unconditional waiver, said Connie Baker, CBA, director of operations for STS.
On a state-by-state basis it is fairly straightforward. There are four types of lien waivers, but a handful of states such as Arizona, California, Florida, Georgia and Texas require statutory forms. The four kinds of lien waivers are: conditional progress and unconditional progress, and conditional final and unconditional final. Conditional progress and conditional final both release the right to a mechanic's lien on the condition that payment will be received. The only difference in the latter is the last payment for labor, equipment and services, etc., barring certain instances such as a disputed claim or injury. If an unconditional waiver has been signed, that is saying you have been paid and are waiving your rights to a mechanic's lien. Other items to watch for are "paid if paid" and "pay when paid" clauses, which do not always translate to waiving mechanic's liens; these clauses are not enforced in every state.
In Texas, the statutory form lien waivers make life a lot simpler, said Rebecca Hicks, Esq., of Dallas-based Hicks Law Group PLLC. Before the statutory forms took effect, contractors used to put broad waiver language waiving "all claims," rather than just waiving the right to file a lien or bond claim. Now, they cannot do that in most cases, since a waiver that does not substantially comply with the statutory form is not enforceable. There are generally two steps in Texas: signing a conditional waiver before payment is received, which is usually required as part of the contractors payment application process, and then signing an unconditional waiver once payment is actually received. Since contractors cannot put broad form waivers into the lien waiver, they simply insert the language into the subcontract agreement or purchase order terms and conditions, said Hicks. Suppliers should always read any subcontract or purchase order very carefully, and if you see the word "waive" or "release," make sure you understand what is being waived or released.
General contractors are forbidden to do this in Georgia, according to Emory Potter, Esq., of Hays Potter & Martin LLP near Atlanta. His No. 1 takeaway with lien waivers is to make sure the right steps are followed. Paying attention to deadlines is another issue since Georgia is very strict, even "draconian," according to Potter. With that being said, Potter believes the states strictness could favor the "materialmen" on certain occasions. Even if a progress, or interim, waiver is being signed, it is important to review the body and specifically the dates listed to ensure the proper payment timetable, he advised. In Georgia, if a waiver is signed but payment is not received, an affidavit of nonpayment can be filed within the allotted time frame.
Hicks reiterated how important it is to know what form is being signed; basically, once it is signed there is no going back. Signing an unconditional final waiver shows an acknowledgement of payment, but if payment has not been received or cleared the bank, a conditional waiver is the route to go, said Hicks. Ring said that doing something in the waiver process incorrectly could not only lead to a personal liability, but it could also cause "undue liability on a company." If you need help, get in contact with a good attorney, suggested Potter, especially if the waiver is being filed in a strict state such as Georgia where the process must be done correctly.
The examples from Georgia and Texas show how different the waivers can be in each state, depending on the situation. Using the correct form for the state in which the waiver is being filed and signing the correct type of waiver are two important steps to be followed, said Perron. Signing an unconditional waiver, whether it is for progress or final payment, could mean you are signing away your rights to a mechanic's lien and receipt of payment.
Michael Miller, editorial associate, can be reached at firstname.lastname@example.org.
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