Beyond Mechanic’s Lien: Other Remedies to Ensure Payment

If the deadline for filing a mechanics’ lien has slipped by, the unpaid contractor still has hope – and remedies – under Maryland statutes. For contractors failing to meet the procedural requirements required to file a mechanic’s lien in Maryland, payment may still be obtained under the Maryland Trust Fund Statute and the Maryland Prompt Payment Act.

Under the Maryland Trust Fund Statute, any monies paid by an owner to a higher-tier contractor for the work performed or materials furnished on a project by a lower-tier contractor must be held in a constructive trust for the benefit of the lower-tier subcontractor. For example, if the owner pays the general contractor $100,000.00 for the electrical work, and such work was performed, the general contractor is required to earmark the $100,000.00 for payment to the electrical subcontractor.

Failure to remit payment, in violation of the statute, will result in personal liability for the general contractor’s officers, directors, and managing agents for the diverted trust funds. The aggrieved subcontractor need only show that the officer, director, or managing agent knowingly used the trust monies for a purpose other than paying the subcontractor. The Maryland Trust Fund Statute applies to public and private construction contracts but not to residential construction or home improvement contracts.

The other post-lien remedy, the Maryland Prompt Payment Act, requires an owner or higher-tier contractor to make prompt payment of undisputed amounts within a specific period. Unless otherwise stated in the contract, an owner must pay the contractor within 30 days after the occupancy permit is granted or the day the owner takes possession of the property, whichever is sooner. A higher-tier contractor must remit payment to its subcontractors within seven days of receipt of payment for the subcontractor’s work unless otherwise stated in the contract.  Failure to pay promptly, in violation of the act, entitles the unpaid contractor to receive costs and interest, as well as, reasonable attorney’s fees. Similar to the Maryland Trust Fund Statute, this law does not apply to residential construction and home improvement.

Used together or separately, the Maryland Trust Fund Statute and the Prompt Payment Act both offer a means of ensuring payment to contractors performing work on construction projects throughout Maryland. These statutes are best understood as back-up remedies. The mechanic’s lien is the preferred remedy because it provides a faster schedule for resolution and enables the unpaid subcontractor to deal directly with the owner.

For more information, please contact the Maryland lien law professionals at Bowie & Jensen today.