I recently attended a meeting here in Austin, and had some spare time to visit with two other attendees. It turns out that one was an attorney, and another was a heating and AC contractor. The attorney told a really disturbing account of how she had to pay twice for her home renovation and new heating & AC system. During this discussion, the HVAC company owner shared his experience on how to avoid getting a lien placed on your property, having to pay twice for materials, labor, or both. Although our discussion was about HVAC, the same process holds true for most any type of home or building improvement projects such as roofing, wiring, plumbing, windows, kitchen or bathroom renovations.
The particulars on this subject vary by state or local jurisdiction. Before going further, I’ll state the following disclaimer: this general article is in no way intended to be advice for a specific location or situation. Rather, the intent is to make you aware of potential problems. Then, you can choose a good contractor, and if needed check with your local authorities or attorney to take preventative action that is appropriate for your location.
Framing the potential problem: unpaid people “downstream”
Here’s the scenario you basically need to avoid: paying a contractor for materials and labor without assurance that they have paid suppliers of materials and sub-contractors. The reason is straightforward: even if you pay your contractor in full and in good faith, if that contractor does not pay others “downstream” who provided materials or labor, those downstream parties could come back and seek payment or other remedies directly from you.
Outline of some ways to avoid paying twice
Below are some tactics you can use or combine to avoid issues:
- Most importantly: deal with reputable contractors that you have thoroughly vetted. In addition to paying everyone who is owed, stand up contractors also are usually bonded, carry insurance, keep current with technical updates, and have other attributes that benefit you. Keep in mind that the cheapest bid for a new heating and AC system may not be the best value. Over its life, monthly utility bills and other operating and repair costs will often be higher than the initial purchase price of your system. Get a checklist here.
- Get release of lien documents signed by all parties who might be able to make a claim for payment against you or file a lien against your property. There are several types of releases – get the correct release for your situation and locality.
- Consider paying with “two party” checks: make the check payable to both the general HVAC contractor and second parties, as appropriate. The second parties can be the supplier of materials or labor such as a sub-contractor. For this to work, though, you have to know who the second parties are and how much they are owned. If the contractor has “issues” you might not have access to all the info you need.
- Pay suppliers directly and separately for materials. Of course, you will need to work with the contractor to make sure the equipment is correctly sized, etc. Make separate payments for labor costs and use the tactics above.
In some cases, paying with a credit card might give you some leverage. If anything about the project does not work out as needed, you might be able to get the credit card company to help you remedy the problem before you pay your bill to your card issuer. However, if the contractor’s bank account were to be closed, there could a lot less leverage to exert. If you are financing your system, your lender will often have a say in who gets paid and how the funds are disbursed.
If you have experience with this topic, please send your comments in so that others can benefit.