Your project to add parking to your homeowners association has been fraught with problems from day one. You've argued with the contractor over all the additional charges that seem to materialize out of thin air. Your board is sick and tired of dealing with the constant frustrations and decides it will simply nod and smile to the contractor until the project's done. Then it'll simply refuse to pay all the additional charges the contractor is trying to impose.

This week's tip explains why that's like sending an engraved invitation to a contractor to file a mechanic's lien against your HOA, which is a very bad idea.

"A mechanic's lien is a statutory lien that allows certain types of vendors to have a lien against real property when they've performed construction-type services that benefited that real property," explains Matt Zifrony, who advises homeowners and condo associations at Tripp Scott, a Ft. Lauderdale law firm, and who's also the president of a 3,000-home association. "It's a pretty powerful tool contractors have if someone they've done work for refuses to make payments."

It's powerful because many lenders refuse to lend for properties with liens attached to them. They'll require the lien be paid before any new loan may close. So if a pool construction company slaps a lien against your association, and your board later wants to secure a loan to build a clubhouse, it's likely your association won't be able to secure financing until the pool lien is removed from the association's title.

To avoid a mechanic's lien dispute, start by using a proper contract. "Where I've seen issues, there seems to be a bad habit of a contractor giving a board a verbal or written quote, but the board doesn't sign a written contract," says Jeff Vinzani, an attorney at Nexsen Pruet LLC in Charleston, S.C., who represents associations.

"All the board has is a quote that doesn't spell out what to do if there's a default: What will the contractor do if he's not on time? How will payments be made? Can there be a holdback if the contractor doesn't do what he's supposed to do? Have a lawyer draft a real contract instead of what the contractor offers, which often isn't a real contract and doesn't have any depth to it."

To learn the 6 steps you can take to protect your HOA against mechanic's liens, see our new article. Go there now »

Best regards,
Matt Humphrey
President