If the contractor does not pay the subs out of the money paid to him, who is responsible for paying?

Full Question:

I have paid my building contractor in full, If my building contractor does not pay the sub-contractors with the money I have given him, am I responsible to pay the sub-contractors? I have only a contract with building contractor, not the subs.
04/01/2009   |   Category: Contractors ยป Construction...   |   State: New Mexico   |   #15834

Answer:

Any subcontractor or supplier providing labor, materials or equipment to a construction project who does not have a contract directly with the original contractor must file a pre-lien notice providing a description of the property to be liened, the name, address and phone number of the claimant and the name and address of the person with whom the claimant contracted or to whom it furnished labor or materials. The pre-lien notice must be given within 60 days of initially furnishing work or materials to the project, or if given at a later date, it will only be effective to support a lien for work or materials furnished in the thirty days prior to providing the notice.

A pre-lien notice may, however, not be required under certain circumstances. A pre-lien notice is never required on residential projects containing four or fewer dwelling units. On residential construction projects subcontractors and suppliers still have 90 days from the substantial completion of the project to file a claim of lien, But the right to claim a lien is subject to discharge. On full payment by the owner to any person entitled to receive the payment the rights to claim a lien upon the property is discharged unless a claim of lien has already been filed. Therefore, if a contractor receives full payment from the owner, it cuts off lien rights of subcontractors who have not already filed a lien.

To prevent liens by subcontractors, the payment must be in full for the contract work. Partial payment of amounts owed, even if payment in full for the work for which the lien is asserted, will not discharge the lieu. Similarly, where notice is not given to the subcontractor or supplier pursuant to 48-2A-4, the lien may not be discharged.

The following are NM statutes:

48-2A-2. Purpose.

The legislature finds there are practices within the industry of
constructing residential properties containing not more than four
dwelling units resulting in certain financial inequities and, therefore,
declares that the purpose of the Stop Notice Act is to: provide for
timely payment by an original contractor to persons contracted with to
furnish labor or materials incorporated or to be incorporated in
residential construction; define stop notices and their legal usage;
encourage construction lenders to assert reasonable supervision,
monitoring and control of funds disbursed to the original contractor for
the timely payment of labor or materials; restrain and bar diversion of
funds for purposes not directly involved with construction of the
residential site improvement; and provide for criminal penalties.

48-2A-4. Requirements for disclosure; owners and construction lenders.

A. In every instance where an original contractor proposes to contract
with a subcontractor or materialman or both for any site improvement, the
original contractor shall inform the subcontractor and materialman of:

(1) the name and address of the owner of the residential site;

(2) the name and address of the construction lender lending the
funds, if any, and the loan officer who actually made the construction
loan, if any, for the site improvement; and

(3) the accurate legal description of the residential site, if
available, however in all cases a description of the residential site
sufficient for identification.

B. Where a subcontractor contracts with another subcontractor for labor
or a materialman to provide materials for any site improvement, he
shall, upon request, inform the contractor or materialman of:

(1) the name and address of the owner of the residential site;

(2) the name and address of the construction lender lending the
funds, if any, and the loan officer who actually made the construction
loan, if any, for the site improvement; and

(3) the accurate legal description of the residential site.

48-2A-5. Stop notices; contents.

A stop notice shall not be effective unless:

A. it is signed and verified by the claimant or his agent,
accompanied with a bond as provided for in Section 7 of the Stop Notice
Act, is served pursuant to Section 6 of the Stop Notice Act and states in
general terms all of the following:

(1) the name of the claimant;

(2) the date the claimant files the preliminary notice;

(3) the date the claimant presented his request for payment
to the original contractors;

(4) the name of the owner and original contractor of the
residential site;

(5) a description of the kind of labor or materials furnished, or
agreed to be furnished, for the residential site;

(6) the name of the person who ordered the labor or who accepted
the materials;

(7) the total cost of all the labor or materials to be furnished to
the residential site;

(8) the cost of the labor furnished or materials already
furnished;

(9) the balance of the money due; and

(10) a demand that the construction lender, if any, or the owner,
if there is no construction lender, withhold a sufficient amount of money
from the construction loan funds to satisfy the demand of the claimant;

B. a preliminary notice was given by the claimant, in accordance with
Section 6 of the Stop Notice Act, within twenty days after the claimant
first began to furnish work or materials to the residential site;

C. if the claimant does not deliver the preliminary notice within
twenty days after the claimant first began to furnish work or material to
the site improvement, he may still deliver a preliminary notice but he
shall lose his stop notice rights for all work performed or materials
furnished more than twenty days before the preliminary notice actually is
given; and

D. it is delivered, pursuant to Section 6 of the Stop Notice Act, no
earlier than twenty days or later than thirty days from the date the
subcontractor or materialman presented his request for payment to the
original contractor.

48-2A-11. Discharge; penalty.

A. Payment by the owner or his successor in interest to any person
entitled to payment of all and any amounts due and owing for any labor or
materials furnished or other actions the performance of which could give
rise to a lien pursuant to Section 48-2-2 NMSA 1978 to be performed upon
a residential site shall discharge all such liens unless prior to payment
any person who is entitled to such lien has filed for record his lien
pursuant to Section 48-2-6 NMSA 1978. For the purposes of this section,
the original contractor shall not be the agent of the owner.

B. Any contractor or subcontractor justly indebted to a supplier of
material or labor who accepts payment for construction described in
Subsection A of this section and knowingly and intentionally applies the
proceeds to a use other than paying those persons with whom he contracted
is guilty of a fourth degree felony and shall be sentenced pursuant to
the provisions of Section 31-18-15 NMSA 1978.

48-2A-12. Purchase closing; penalty.

A. The original contractor, upon accomplishing completion of
construction and upon acceptance of final payment from the owner, his
successor in interest or his agent, shall sign an affidavit that all
invoices of charges and costs received by the original contractor and
related to the residential site have been paid. In lieu of such an
affidavit, at the time of accomplishing completion of construction and
upon acceptance of final payment from the owner, his successor in interest
or his agent, the original contractor shall sign an affidavit stating:

(1) the names and addresses of persons to whom he has paid in
full those invoices of charges and costs arising from furnishing
labor or materials incorporated in the residential site;

(2) the names and addresses of those subcontractors and materialmen
who have presented to the contractor invoices of charges and costs of
labor or materials incorporated or to be incorporated in the residential
site which have not been paid, accompanied by a waiver of lien for the
invoices properly signed by each subcontractor or materialman; and

(3) the names and addresses of those subcontractors and materialmen
who have presented the contractor invoices of charges and costs of labor
or materials incorporated or to be incorporated in the site improvement
and which have not been paid and which have not been accompanied by a
waiver of lien.

B. The approximate amount of money represented by the total unpaid
invoices of charges and costs, and not accompanied by a signed waiver of
lien, as provided in this section, may be withheld at the discretion of
the owner, his successor in interest or his agent. This money shall be
placed in an escrow account pending disbursement of the money upon the
signed approval of the contractor.

C. Any contractor who knowingly and intentionally signs an affidavit
stating that all charges and costs arising from the furnishing of labor
or materials for incorporation in the residential site have been paid
when in fact all charges and costs have not been paid, or knowingly and
intentionally fails to provide the names of persons who have presented
invoices for costs and charges for labor or materials but who have not
been paid for their labor or materials furnished as provided in this
section, is guilty of a fourth degree felony and shall be sentenced
pursuant to the provisions of Section 31-18-15 NMSA 1978.


48-2-12. Contractor liable for liens of subcontractors.

The contractor shall be entitled to recover upon a lien
filed by the contractor only such amount as may be due to
the contractor according to the terms of the contract,
after deducting all claims of subcontractors under the
contractor who have filed liens for work done and materials
furnished, and during the pendency of the action, the owner
may withhold from the contractor the amount of money for
which the lien is filed unless the lien was asserted as a
result of the owner's failure to pay the contractor for
work done and materials furnished, and in case of judgment
against the owner or the owner's property upon the lien,
the owner shall be entitled to deduct from any amount due
or to become due by the owner to the contractor the amount
of the judgment. If the amount of the judgment exceeds the
amount due by the owner to the contractor, or if the owner
settles with the contractor in full, the owner shall be
entitled to recover back from the contractor any amount
paid by the owner, in excess of the contract price, and for
which the contractor was originally the party liable.

48-2-13.

In every case in which different liens are asserted against any
property, the court in the judgment must declare the rank of each lien, or
class of liens, which shall be in the following order, viz:

A. all persons other than the original contractors and
subcontractor;

B. the subcontractors;

C. the original contractors.

And the proceeds of the sale of the property must be applied to each
lien, or class of liens, in the order of its rank, and whenever, on the
sale of the property subject to the lien, there is a deficiency of
proceeds, judgment may be docketed for the deficiency in like manner, and
with like effect as in actions for the foreclosure of mortgages.

48-2-2.1. Procedure for perfecting certain mechanics'
and material-men's liens.

A. The provisions of Subsections B through D of this
section do not apply to claims of liens made on residential
property containing four or fewer dwelling units, to claims
of liens made by an original contractor or to claims of
liens made by mechanics or materialmen who contract
directly with the original contractor. For purposes of this
section, "original contractor" means a contractor that
contracts directly with the owner.

B. No lien of a mechanic or a materialman claimed in an
amount of more than five thousand dollars ($5,000) may be
enforced by action or otherwise unless the lien claimant
has given notice in writing of the claimant's right to
claim a lien in the event of nonpayment and that notice was
given not more than sixty days after initially furnishing
work or materials, or both, by either certified mail,
return receipt requested, facsimile with acknowledgement or
personal delivery to:

(1) the owner or reputed owner of the property upon which
the improvements are being constructed; or

(2) the original contractor, if any.

C. If the owner or the original contractor claims lack of
notice as a defense to the enforcement of a lien described
in Subsection B of this section, the owner or contractor
shall show that upon the request of the mechanic or
materialman that the owner or contractor furnished to the
lien claimant not more than five days after such request
was made:

(1) the original contractor's name, address and license
number, if there is an original contractor on the project;

(2) the owner's name and address;

(3) a description of the property or a description
sufficiently specific for actual identification of the
property; and

(4) the name and address of any bonding company or other
surety that is providing either a payment or performance
bond for the project.

D. The notice required to be given by the claimant pursuant
to the provisions of Subsection B of this section shall
contain:

(1) a description of the property or a description
sufficiently specific for actual identification of the
property;

(2) the name, address and phone number, if any, of the
claimant; and

(3) the name and address of the person with whom the
claimant contracted or to whom the claimant furnished labor
or materials, or both.

E. A person required by the provisions of Subsection B of
this section to give notice to enforce the person's claim
of lien may elect not to give the notice, but may give the
required notice at a later time. If the person elects to do
so, the lien shall apply only to the work performed or
materials furnished on or after the date thirty days prior
to the date the notice was given. The provisions of
Subsections C and D of this section apply to any notice
given under this subsection.

48-2-6. Time for filing lien claim; contents.

Every original contractor, within one hundred and twenty days after the
completion of his contract, and every person, except the original
contractor, desiring to claim a lien pursuant to Sections 48-2-1 through
48-2-19 NMSA 1978, must, within ninety days after the completion of any
building, improvement or structure, or after the completion of the
alteration or repair thereof, or the performance of any labor in a mining
claim, file for record with the county clerk of the county in which such
property or some part thereof is situated, a claim containing a statement
of his demands, after deducting all just credits and offsets. The claim
shall state the name of the owner or reputed owner, if known, and also
the name of the person by whom he was employed, or to whom he furnished
the materials, and shall include a statement of the terms, time given and
the conditions of the contract, and also a description of the property to
be charged with the lien, sufficient for identification. The claim must
be verified by the oath of himself or of some other person.

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