One of the first things I learned early on as an attorney was that to find a way to resolve a dispute, I first must identify who had the most leverage. When I use the word "leverage" here, I mean that I must find who has the most documentation, circumstances, and written law working in their favor that can be used as an advantage. When it comes to getting paid, liens are the most valuable leverage a contractor can utilize. However, in cases where liens won’t help you, contractors must also understand their other options.
Leaning on Liens
As a material supplier, you are at the bottom of the food chain regarding getting paid. Let me give you the situation I faced that taught me the power of leverage; my husband and I started a masonry material supply company while I was in law school. We would make phone calls to our customers who would promise payment but never show up with the check. We got so desperate that we started calling our customers' customers, normally the general contractor, and we would find out that our customers had already been paid. We also found out that the general contractors would be quite pissed to find out that we had not been paid.
At this same time, as I was finishing my last year of law school, I heard of the concept of a Mechanics & Materialman's lien. I initially thought it was something for auto mechanics, but when I looked further, I learned that even the lowest companies on the construction food chain had a right to file a lien against an owner's property if they were not paid. We hit the leverage jackpot. Before I had this realization, we were just some company at the bottom of the totem pole praying to get paid. It was revolutionary to discover that we could use our lien rights to create leverage and get ourselves paid.
Looking at Leverage
When handling a client's case, I consider what I can do to make my client's desire the path of least resistance. In the example above, what we wanted as a material supplier was to be paid. If we sent the required notices to the owner and general contractor, informing them that we would file a lien if we were not paid, paying us became the path of least resistance. They could either pay the amount we were owed or deal with the lien on the property.
That is how I view all my client's cases. I don't just take the measure I take because it's the next step in some internal process that law firms have created, but rather I look at the quickest way to achieve my client's goal via the path of least resistance for the other side. For example, I had an electrician client who had done the electrical work and installed all the light fixtures and chandeliers at an event venue. He was owed $60k for the work that his team had done. We had already filed a lien, but the owner did not care about it, and my client did not want to spend years in litigation proving he was owed the money. In Texas, when you file a valid lien, the law will allow you to remove things from the property you have installed as long as the removal will not damage the property. We knew the venue had a grand opening planned, so we sent a demand letter two days before the grand opening, stating that if my client was not paid in full, they would remove all the light fixtures and chandeliers. Guess who got a cashier check for the full amount they were owed plus attorney fees within 12 hours? That's right: My client.
When Liens Lose Their Luster
I once represented a drywall subcontractor who was owed 80k for work done on a hotel. We filed a lien, but the owners did not care because they had a huge mortgage and lots of liens on the property, so even if we moved forward with forcing the sale of the property, we would not have gotten any money because there was no equity in the property. This was a situation where the lien had very little leverage.
At this time, the hotel was open and operating, a fact that would later come into play once we strategized on our leverage. We decided to move forward with a lawsuit to enforce the lien, the owner never answered the lawsuit, and we got a judgment by default. One of the things you could do with a judgment enforcing your lien is post the property for sale. Another thing you could do is have a writ of execution issued to pick up any personal property and sell it.
What is personal property, you may be asking? At a hotel, anything that is not permanently attached to the building is considered personal property. This includes beds, tv, cash on hand, appliances, and other such items. A hotel cannot operate without its personal property. So, we had a writ of execution issued, and the constable went to the hotel to pick up all the property. The constable also placed neon signs all around the hotel letting the guest know that all the hotel's property was being levied and taken by the constables, and if they did not want their stuff taken, they should leave. This particular owner could not afford to pay us everything at once, but they gave my client 10k that day and 10k every month until my client was paid in full. They did not want the constable to come to their hotel again.
Leverage can always be created; sometimes you just have to think outside the box and be creative. There is no standard plan that will work in every situation, so it is essential to know your options, assess the situation, and have plans prepared before you even encounter an issue. As a contractor, you have tools and legislation working in your favor. Learn to master them and utilize them to your advantage. When you have yet to be paid, ensure the path you take is the path of least resistance by connecting with a skilled construction attorney and figuring out what you can use as leverage.
About the Author
Published author, award-winning lawyer, devoted wife and mother to three girls, and Owner and seasoned Managing Partner of The Cromeens Law Firm (TCLF), Karalynn Cromeens is a true jack of all trades. Karalynn is the Co-Founder of Morrell Masonry Supply and Owner of The Subcontractor Institute, an easy-access online educational platform for contractors. In addition to TCLF, and The Subcontractor Institute, she is also the Host of the rapidly growing educational construction podcast, Quit Getting Screwed - making cost-free industry insight available to contractors across the country. In 2021, Karalynn published two Amazon Best-Selling books - Quit Getting Screwed: Understanding and Negotiating the Subcontract and, in September, Quit Getting Stiffed: A Texas Contractor's Guide to Liens & Collections.
In the seventeen years she has practiced construction, real estate, and business law, Karalynn has reviewed and explained thousands of subcontracts. For years, she has tried saving companies that have signed problematic subcontracts and lost out on being paid for their work. Unfortunately, it was too late by the time they came to her; she could do nothing to help. She hated seeing clients lose money—sometimes their entire business—over language they did not understand and laws they did not know about. Watching these situations play out day after day was the driving force behind her two books, The Subcontractor Institute, and the firm's accessibility efforts. Providing education to contractors on a national level has become Karalynn's personal mission, and she is always doing what she can to help make it a reality.