Failure to Pay Subcontractors: A Homeowner’s Perspective

Although a homeowner has signed a contract with a builder, and may have only dealt with one person or company, there are a varying number of subcontractors, suppliers, and other entities that may perform work on any given construction project.

Often, homeowners often find themselves receiving notices from companies that they had no idea were involved with the construction project. These pre-lien notices (based on language from Minnesota Statutes Chapter 514) advise property owners that these companies performing work or supplying materials may file a lien on the property if they are not paid for their contributions by the general contractor.

Because of the lien rights of subcontractors and suppliers, homeowners risk paying twice for the same work; once to their general contractor, and again to any sub/supplier that exercises their lien rights if they are not paid.

State law requires that contractors (or any person/entity) who have been paid for improvements to real property hold those funds in trust for those actually furnishing the labor, skill, material, or machinery contributing to the improvement (i.e. subcontractors and material suppliers). *(Minnesota Statute 514.02).  Minn. Stat. Ch. 514 also gives property owners the right to pay their general contractor’s subcontractors or suppliers directly.

Any pre-lien notice given to the property owner, whether included in a written contract or separately given, must be in at least 10-point bold type, if printed, or in capital letters, if typewritten and must state as follows:

“(a) Any person or company supplying labor or materials for this improvement to your property may file a lien against your property if that person or company is not paid for the contributions.

(b) Under Minnesota law, you have the right to pay persons who supplied labor or materials for this improvement directly and deduct this amount from our contract price, or withhold the amounts due them from us until 120 days after completion of the improvement unless we give you a lien waiver signed by persons who supplied any labor or material for the improvement and who gave you timely notice.”

*(Minnesota Statute 514.011)

Minnesota law permits recovery of damages against the general contractor, together with costs and disbursements, including costs of investigation and reasonable attorney fees, and receive other relief as determined by the court, including, without limitation, equitable tracing. *(Minn. Stat. 514.02, Subd. 1a).

Contractors are also subject to criminal and licensing sanctions (including revocation)  by the Department of Labor and Industry pursuant to Minnesota Statute 326B.84 for failure to hold funds in trust for their subs/suppliers.

Homeowners should take reasonable steps when served with pre-lien notice to ensure they receive lien waivers and that all subcontractors/suppliers are being paid by their builder.

If you have any questions about your rights as a homeowner when faced with non-payment of subs or mechanic’s liens, contact attorney Anthony Thompson at (612)-597-4229 or online at www.MN-LAW.net.

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