Failure to Pay Subcontractors: How to protect your right to payment

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 also provides:

If a person fails to use the proceeds of a payment made to that person for the improvement, for the payment for labor, skill, material, and machinery contributed to the improvement, knowing that the cost of the labor performed, or skill, material, or machinery furnished remains unpaid, and who has not furnished the person making such payment either a valid lien waiver under section 514.07, or a payment bond in the basic amount of the contract price for the improvement, conditioned for the prompt payment to any person entitled thereto for the performance of labor or the furnishing of skill, material, or machinery for the improvement, shall be guilty of theft of the proceeds of the payment and is punishable under section 609.52.

Minnesota law permits unpaid subcontractors or suppliers to recover 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).

In addition to possible criminal penalties, licensed contractors are subject to licensing sanctions (including revocation)  by the Department of Labor and Industry pursuant to Minnesota Statute 326B.84.

Subcontractors should be sure to protect themselves on the front-end by sending property owners pre-lien notice and afterwards by taking quick action against general contractors.

If you have any questions about how to protect your rights to payment, contact attorney Anthony Thompson at (612)-597-4229 or online at www.MN-LAW.net.

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