Understanding Lien Waivers

A customer who's a stickler for legalistic paperwork could be trouble. But lien waivers are routine and trivial in many situations. April 4, 2011

We signed up a new customer for a small ticket job (around $300) yesterday. Everything was confirmed, but now they have called back and are asking for our insurance information, 3-5 references of jobs done in his particular part of town, and a waiver of lien after receipt of payment. I can give him the first two, but I see no point in the lien waiver, since we don't file mechanic's lien and just refund money if the customer really complains or there is a blatant issue on our side. I think this guy is reading some sort of "how to handle contractors" thing on the internet. Anyone else have experiences with lien waivers?

Forum Responses
(Business and Management Forum)
From contributor M:
Every day. It's mostly in commercial and you won't get paid if you don't sign it.

From contributor S:
For a $300.00 job, it is hardly worth the paperwork. I guess he is asking you to guarantee that after you are paid, you will not lien his property. If you are paid, I don't see why anyone would file a lien, but I guess stranger things have happened. You might want to change the wording to say "after receipt of full payment." They may try to pay you 75% and then you would have no recourse.

From contributor J:
This guy sounds like a real pain in the butt. I could see jumping through a few hoops for a larger job, but not this. This could be the kind of person who costs you $500 worth of aggravation for a $300 payment. The flip side is maybe in 6 months he comes through with a real nice job.

From contributor B:
At first glance I would just say this guy isn't worth the aggravation. That said, we've picked up hundreds of thousands of dollars of work from things that began as "Can you fix this door?" If the waiver of lien will make him happy, then do it, I guess.

From contributor G:
If the customer is either going to (1) sell the property or (2) take a loan out on it, then part of his paperwork will ask him if any work has been done on the property within the statutory period in which mechanic's liens can be filed in your state. Whoever he is selling to, or borrowing from, will not release the full amount of the funds unless they are sure that everyone who has worked on the place has been paid and cannot file a mechanic's lien that they would either be stuck paying or would be ahead of them in a foreclosure. So they demand waivers of mechanic's liens from all workers who have been there within the time period.

It is absolutely standard procedure in the above cases, and is just being a bit overcautious in the case of anyone else making final payment to demand a receipt and a waiver in return for the final check.

It should take you about 30 seconds to fill out the form and sign it. The wording will vary from state to state, but basically all it says is that you acknowledge payment in full for labor and materials used for all work done at such and such a location for so and so, that there are no unpaid employees or materialmen and therefore you waive any and all rights under (whatever state)'s mechanic's lien statute (statute # xx-xx-xx), and indemnify them for any claim from subs you used and a place for your signature and date.

From contributor D:
We do lien waivers as requested. They usually come from our more sophisticated builders. We have never had a problem getting paid on a job with a lien waiver. Not that the waiver guarantees payment, but the people are professionals and pay their bills. The liens are in the name of the property owner so they can ensure everyone is paid and they get no surprises.

From the original questioner:
Well, I figured out what the deal was after two minutes of speaking with the new customer. It was a game he was playing and we lost him. I'm actually happy we did. This was a residential customer and not a commercial customer.

I asked him what exactly he needed from us to make him happy and he told me again that he needed the insurance, 5 references, and a lien waver done. I said I'd be more than happy, but I asked him if we could take him off the schedule until we got him the items he requested. He said yes. I could sense his tone changing a bit.

I asked him straight up if he had an issue with our company. I said that we are too busy to be playing games. And the reason why came out. He was unhappy that we did not answer his earlier phone call and he had to leave voicemail. He said that he wanted to make sure we were a real company. I apologized for the error, but explained that this does happen sometimes in small businesses. At that point, I decided to refuse service and referred him to a competitor.

Typically I wouldn't have a problem with these types of requests, but his attitude turned me off. As someone said earlier, he's the type of customer that would cause me $500 of frustration for a $300 job.

From contributor B:
This may have worked out for you by walking, but I will add that if a lien waiver is all it takes, when paid, just go on and do it. Just remember a lien waiver and lien release are two different animals. If you were to give him a lien waver in advance he may not pay you at all, and in some venues you would be unable to file a lien.

From contributor J:
Smart move. You handled it very well. It sounds like your radar went up right away, and rightfully so. This type of customer usually ends up doing the job himself or not at all.

From contributor W:
Contributor G hit it on the head, and you never know what it could lead to and we hate to pass anything right now. Back in the old days, 4 - 5 years ago, when I ran into this type for such a smallish job, I turned the table and asked him for references of folks that have worked for him in the past.

From the original questioner:
I agree, and it pains me to lose a customer, but I do draw the line sometimes. We are really too busy (15 new service calls just yesterday) to play games like this. They either want our service or not. I will be happy to provide the items they request but I'm not going to jump through hoops for someone making commercial job level demands for a residential job.

Does it bug me that my office worker was not able to answer the phone? Yes, but it happens sometimes. The good news is that I'm in the process of negotiating with a call center to start acting as our frontline call takers and job schedulers. So this hopefully won't happen again.

From contributor U:
A waiver of lien is simply a legal documentation that the customer has paid a contract up to a certain point and is often required by loan institutions in a building project - both residential and commercial. I have provided many to clients in building projects. I myself would applaud any customer who does not really know me or my work for asking for references. Smart on their part and just good business. If you have a good record of work and good business practices yourself, you should have nothing to fear.

From contributor N:

Every time I've signed a partial or final lien waiver, the client/GC hands me the check, or shows me a copy of it. The waiver is just added proof that you've been paid for what you did, and cannot try to place a lien for that same work in the future. Pretty standard.