Protect yourself from liens by requiring waivers

Q. We have hired someone to build a three-season room. I have a friend who did this and he ended up with a couple mechanics liens recorded against his property and a messy legal battle. What is the best way I can protect myself from having this happen to me?

A. What many folks don't realize regarding these types of projects is that although you hire one general contractor, it is likely numerous parties will be providing materials and/or services to the job. All of these parties acquire lien rights the moment they provide their materials or services.

Ask your general contractor to furnish you a "contractor's sworn statement." The sworn statement lists every party the general contractor intends to have provide materials or services to the job. This should include material providers such as lumber mills or electrical and plumbing material providers and also should indicate all parties that will work at the project. This would include electricians, plumbers, cement contractors, roofers, etc.

Also contained on the sworn statement are the addresses of these parties, what materials or services they are providing to the job and the amount they are being paid. The general contractor is also listed with what he is being paid. All the amounts should total the amount you agreed to pay the general contractor to complete the job.

Now for the tricky part. Your first job is to make sure your payments are made in proportion to the work completed. In other words, when the job is half done, you should have paid the general half the total bill. Folks get in trouble when the payments get too far ahead of the work. When unscrupulous contractors get paid too far ahead of the work, they often disappear, never to return.

Your second job is to obtain lien waivers for the payments you make. So, if the general comes to you and says he needs $7,000 for the plumber and $5,000 for the electrician, before you give him your $12,000, you demand lien waivers from the plumber and electrician. Once you obtain the lien waivers, these parties have waived their lien rights. At the end of the project, when you are ready to tender the final payment, you should be receiving in return final lien waivers that close out everyone's lien rights.

Often payments aren't as clean as in the above example, so we also have partial lien waivers. So if the total electrician bill is $5,000 but in your payment to the general only $2,500 is going to the electrician, you obtain a partial lien waiver for $2,500. The bottom line is you should be receiving lien waivers totaling the amounts of each payment.

On larger jobs, you may wish to employ the assistance of a title company to handle payments to the general. Here, you deposit the full amount of the job with the title company and they take on the responsibility of protecting your interests. Of course, you pay for this service but when large amounts of money are involved, this often can be money well spent.

Q. We are purchasing our first home and are worried about getting stuck with someone else's problems. We know nothing about construction or furnaces or what to look for before purchasing. How do we protect ourselves from buying a lemon?

A. Virtually all residential real estate contracts contain an inspection contingency. As a general rule, you have five days from the date the seller accepts your offer to have the property professionally inspected. Once the property is inspected, you can request the seller repair certain items or you can request a cash credit for defects to the property. If no resolution is reached, either party can cancel the deal. If the property is in horrible shape, you can elect to terminate the contract and get your deposit back. I would suggest contacting a real estate attorney to assist you immediately upon seller accepting the contract.

• Send your questions to attorney Tom Resnick, 345 N. Quentin Road, Palatine, IL 60067, by email to tdr100@hotmail.com or call (847) 359-8983.