Understanding lien waivers with Nick Knihnisky

In this episode of “The Better Way,” Zach’s discussing the ever-popular topic of liens and waivers. He’s joined again by Nick Knihnisky, Buildertrend’s legal expert, to talk about the ins and outs of these important documents.

Tune in to the full episode to get more information on why liens and waivers are important documents to have for protecting your business.

WHY IS IT IMPORTANT TO IMPLEMENT LIEN WAIVERS ON CONSTRUCTION PROJECTS?

“And that is a lien, say for instance you’re building something, a structure, you’re inputting materials, you have labor, things like that, the lien actually attaches to the real property rather than the material. So, it acts as protection to ensure payment for the materials and labor that you provide. So, rather than just saying it’s the value of the materials that you use to construct the home, the value is actually attaching to the property itself to underwrite the entire process.

So, while the lien’s acting as collateral, the waiver is providing protection from a lien being asserted against the project. So, for a sub, the lien’s acting as their evidence on their end, whereas the waiver is eliminating the liability for a lien being asserted against you. It’s all about controlling liability.”

WHERE DO YOU START WHEN PUTTING TOGETHER A LIEN WAIVER?

“It seems a little complicated and complex, but I want you to start with your state statutes. Get right into that primary source document there. But in reality, this is the best place because all of the requirements are going to be right there without all of the other commentary that might go in from a blog post that you might see or something like that. Mechanics lien statutes are written for a person to understand, they’re not supposed to be overly lawyered or filled with legalese and what not. Instead, it’s fairly technical requirements like fonts and specific language that need to be in the lien waivers or timing.”

DISCLAIMER: The information contained in this post is provided for informational purposes only, and should not be construed as legal advice on any subject matter. You should not act or refrain from acting on the basis of any content included in this post without seeking legal or other professional advice.

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Nick Knihnisky

Nick Knihnisky | Buildertrend

Intro:

Welcome to “The Better Way,” a podcast by Buildertrend. Here you’ll learn to simplify and establish processes that will make meaningful changes to your company and help you achieve your goals. There’s a better way to run your construction business, the Buildertrend way. Tune in this season as Pro Services education coordinator, Zach Wojtowicz, chats with several experts about risk management.

In this episode, Zach’s discussing the ever-popular topic of liens and waivers. He’s joined again by Nick Knihnisky, Buildertrend’s legal expert, to talk about the ins and outs of these important documents. Check it out.

Zach Wojtowicz:

Welcome everybody to The Better Way. We have a really exciting guest today. Nick Knihnisky is here with me, the Buildertrend legal counsel, I’m Zach Wojtowicz, your host. And today we’re going to be talking about Lien waivers, a topic that we’ve all been waiting for to discuss. We’re really excited to get into kind of what contractors should be doing with their Lien waivers. Nick, before we get into all that, let’s talk about you for a minute. Tell me about yourself.

Nick Knihnisky:

Yeah, so like you mentioned, Nick Knihnisky, I am the director and corporate counsel here. Been with the organization for, I’m going to say, three years now. Interesting path that led here, we were actually just talking about it, where I had come, entered law school with a desire to practice water law, but sure enough, fast forward a few years, and I’m here in this chair now talking about tech contracts as well as Lien waivers in the construction industry.

So, a fascinating path, but nonetheless, my day to day here at Buildertrend is a little bit different every single day. I’m doing everything from contract review and drafting to intellectual property and compliance, as well as, we were just talking before we hopped on, some dispute resolution stuff, always trying to track down any kind of lost devices, things like that, after Zach had an incident in Seattle last year.

Zach Wojtowicz:

Oh, we’re going to bring it up?

Nick Knihnisky:

Yeah, why not? Why not?

Zach Wojtowicz:

Just shame me here on “The Better Way.” That’s a long story, if anyone’s listening out there, we’re not going to go into too much detail, but it’s good to have an attorney, let’s put it that way.

Nick Knihnisky:

There you go. And I think it’s just a little bit of a glimpse into how every day is a little bit different for me. Outside of the workplace, hobbies generally consists of … big sports fan, went to University of Nebraska for my undergrad, as well as my law degree. So, unfortunately, a massive Husker fan and the dread that comes with that every single year, both football, basketball, even a little bit of baseball here and there. Beyond that, I enjoy running, playing golf, kind of the normal things there. It’s great that the weather’s finally warming up a little bit for us, so we’re able to get outside.

Zach Wojtowicz:

Awesome, yeah. Well, when we talk about this topic today, lien waivers, we do get a lot of questions from our clients, in my experience traveling and reps just taking calls out there on the floor. A lot of people want legal advice from us and want us to provide them information, so I’m really excited to talk about this topic. What is your recommendation as far as the Lien waiver, how do we start that process with an attorney to know if we’re compliant? What is that usually dictated by?

Nick Knihnisky:

Yeah, and that’s actually a really good question and one that we hear all the time. It’s like, okay, so what is the lien process look like? When you go into business as a contractor, the last thing you’re thinking of is lien law. I really enjoy kind of the …

Zach Wojtowicz:

Not me, not when I’m signing up.

Nick Knihnisky:

You get a kick out of this though. I know you had a past life as a government teacher, right?

Zach Wojtowicz:

Correct.

Nick Knihnisky:

So, funny history underlying lien laws, they were actually created, or at least credited to be created by Thomas Jefferson back in the origins of colonial days, where we had plenty of land, but not a whole lot of supplies going around and certainly not a wealth of labor, right? And there also wasn’t a great deal of credit. So, in lieu of having a system of banks underwriting construction and things like that, Thomas Jefferson and James Madison came up with the idea of …

Zach Wojtowicz:

AKA, the boys.

Nick Knihnisky:

The boys came up with the idea of mechanics liens and obviously, there weren’t mechanics back then, instead mechanics were referring to builders. And so, fast forward 250 years almost, and the same exact structure of law is still in place. Now it’s gotten a little bit more complex and a little bit convoluted as legislators tend to do, but the same idea applies.

And that is a lien, say for instance you’re building something, a structure, you’re inputting materials, you have labor, things like that, the lien actually attaches to the real property rather than the material. So, it acts as protection to ensure payment for the materials and labor that you provide. So, rather than just saying it’s the value of the materials that you use to construct the home, the value is actually attaching to the property itself to underwrite the entire process.

Zach Wojtowicz:

Interesting, okay. So, there are some limitations to what the lien waiver is actually protecting and typically within the contract of the lien itself, it outlines those things that go into the lien as far as what you’re actually acknowledging as being covered or not?

Nick Knihnisky:

Yeah. And like I said a little bit ago, lien statutes, and more specifically lien waiver statutes, have evolved over the years, and I think they’re kind of covering something different than what they were originally doing.

Zach Wojtowicz:

Sure.

Nick Knihnisky:

But like I said, that same concept still underlies, so when you’re looking at like a lien waiver, what does that protect? And that’s going to be obviously our big topic today, right? So, while the lien’s acting as collateral, the waiver is providing protection from a lien being asserted against the project. So, for a sub, the lien’s acting as their evidence on their end, whereas the waiver is eliminating the liability for a lien being asserted against you.

Zach Wojtowicz:

Right. Yeah, and I would say for our Buildertrend folks out there, this is something that is not necessarily at the top of their list to get started with when they’re getting into the platform. I’ve never taken a first training or been on a consultation call with a client and been like, let’s start with lien waivers. But it’s important, right?

Nick Knihnisky:

Right.

Zach Wojtowicz:

And knowing kind of where it should be in the program and where it goes, is kind of my job to relay, but just the big concept for people to know why they’re important. You’re literally protecting yourself. It’s a security that you can know, hey, when I pay this person, I am compliant around this lien contract, so to speak.

Nick Knihnisky:

Right, and it’s all about controlling liability.

Zach Wojtowicz:

Right.

Nick Knihnisky:

And that’s the …

Zach Wojtowicz:

The theme of the podcast.

Nick Knihnisky:

The theme of today’s podcast, right? And you don’t want to put yourself in a position where a subcontractor for instance, is coming back to you six months later and claiming that they never got paid. The lien waiver essentially acts as a receipt for that payment. When that subcontractor sends an invoice, you respond with a lien waiver and you say, we’re going to condition this on payment. You sign, I pay. Done deal. We all move on. We keep the process moving.

Zach Wojtowicz:

Yeah, interesting. So, I mentioned, we get a lot of advice or people call in looking for advice on people’s lien waivers. I know we’ve talked about, it changes from state to state, so where do people begin to find information about their state or locality’s lien waiver laws that are required in their area?

Nick Knihnisky:

Yeah, so best place to start, and this is going to seem like an off the wall example here, but …

Zach Wojtowicz:

I’m a little nervous.

Nick Knihnisky:

Only because it seems a little complicated and complex, but I want you to start with your state statutes.

Zach Wojtowicz:

Okay. Oh, get right into it.

Nick Knihnisky:

Get right into that primary source document there. But in reality, this is the best place because all of the requirements are going to be right there without all of the other commentary that might go in from a blog post that you might see or something like that. Mechanics lien statutes are written for a person to understand, they’re not supposed to be overly lawyered or filled with legalese and what not. Instead, it’s fairly technical requirements like fonts and specific language that need to be in the lien waivers or timing.

Timing’s always the big one, right? We hear about that all the time. Particularly, I know off the top of my head here in Nebraska, it’s 120 days that you have to file a lien from when the work was last performed. You want to know things like that, because that’s the only time that issues are really going to arise, is when you don’t know the requirements. And as long as you know going in, hey, here’s the basic outline. I have a basic understanding. I’m able to have a conversation on the topic. You’re going to be in a much better position. You’re informed, you’re knowledgeable, you understand, you can communicate it.

Zach Wojtowicz:

Yeah, one thing that I’ve seen myself, just being in people’s offices, traveling around and kind of that experience is, there is a bit of a casual nature to lien waivers. It just feels like something you’re checking the box, make sure you’re doing it. Is that impression true? Is that kind of how it’s viewed today?

Nick Knihnisky:

That’s my interpretation. At no point in the process should you be over-engineering things just for the sake of doing it. Lien waivers are there, like I said, to keep the process moving. It’s really, for both sides to be transparent with each other and say, okay, there’s this system of laws, lien laws, that can be applied against the contractor, against a homeowner, against the owner of property, whatever it might be, in return for services rendered.

The lien waiver simply controls that liability and acts as the receipt for payment. That’s the best way for me to think about it and to dumb it down to that degree, I think, that really is the true effect. It might seem like a lot and you hear this word lien thrown out and whatnot and what in the world does that mean? End of the day, lien waivers are just receipts.

Zach Wojtowicz:

Yeah, that makes a lot of sense. So, for our builders out there who maybe aren’t using lien waivers right now, it’s probably pretty important that they go figure out this process just for that extra layer of risk mitigation so that they’re not putting themselves at the potential that someone would file a lien against their property.

Nick Knihnisky:

Right. Yeah, it seems like a no-brainer thing, right? I mean, it’s an easy box to check. You look at a Lien waiver, it’s typically a one-page document. Like I said, the language can be fairly standard. It’s boilerplate, you can pull it straight from the statute in a number of states, you put it into a word doc, you can send it through Buildertrend and tie it to payments. It’s that easy.

And you don’t really need to spend a whole lot of time with a lawyer understanding the ins and outs of lien law and Lien waivers and so on and so forth. This stuff can all be self-taught and it’s just about spending the time to do it, and then making it work for your business.

Zach Wojtowicz:

Right. Now, with Buildertrend for our sake, we can kind of advise clients, hey, this is where you put it. In our program you’re absolutely able to upload Lien waivers as a template, fill out some of the information, but what’s really cool, is you can actually send it with your payment if you are using our job costing systems. I’ve met with Rachel Weezer in the past, talking on this podcast about how to protect revenue.

We talked about POs a lot and managing the same thing you outlined, as far as, this is a transparency piece, we know where everybody stands, we’ve outlined the scope of the PO, the Lien waiver is the next step, where outlining the scope of the payment and the terms that go along with it and you can actually attach the lien waiver in our system to the payment itself, which is pretty cool. So, if you’re using Buildertrend payment processing, you can kind of hold your subs to sign that lien waiver so that you’re paying them, but only if they sign the lien waiver. And just so I can clear this up for a lot of our listeners, that’s not necessarily how it needs to work though, right? You can still pay someone and then get the lien waiver after the fact, is that correct?

Nick Knihnisky:

Yeah, absolutely. And again, it goes back to the same thing that I said before, you don’t necessarily need to over-engineer this process. Let’s say, for instance, you’ve already paid somebody, you didn’t get a lien waiver at payment or even within 30 days of payment. Still go and pursue that lien waiver just for CYA purposes.

Zach Wojtowicz:

Yeah.

Nick Knihnisky:

But I can’t imagine you’re ever going to find yourself in true hot water just because you didn’t get that lien waiver at the time. Buildertrend creates all of the background systems to show record of payments and proof of contract and proof of agreement, things like that. Now, I will say going back to the Buildertrend process and using the platform for your benefit, when I picture the offline lien waiver process, I need to print off a lien waiver, I need to go to …

Zach Wojtowicz:

Speaking of Thomas Jefferson.

Nick Knihnisky:

Yeah, exactly. Get out your quill. But I need to print it off and I need to go to the subcontractor. I need to bring the check with me. I need to get the subcontractor to sign it. Well, if the subcontractor isn’t available at the time, maybe I’m leaving it at his truck or at the job site or at their office. And then I need to go and pick it up, and I need to bring it back, and I need to upload it into Buildertrend or uploaded into whatever file keeping system I might have, so if it ever comes up down the road, I have record of it.

Instead, in Buildertrend, you tie it to payments, so easy, right? You can use the payment process as basically an escrow for your lien waiver. hey, the payment’s already been sent, but it isn’t released until the sub executes that lien waiver, gets it back. Boom, everybody’s good to go. Everything’s in one place.

Zach Wojtowicz:

Yeah, and one thing people always kind of give me a little bit of feedback on is, there’s concern that maybe the signature through Buildertrend and digital signatures aren’t the same as if I physically signed it with my quill back in 1812. So, is that something that we can put people’s fears at ease? I think a big theme that really is appearing to me and having my guests on this podcast is Buildertrend itself is a risk mitigation tool because it’s tracking metadata and the information about your program usage, but then the electronic signature piece, can you speak to that a bit?

Nick Knihnisky:

Yeah, and I think you nailed it. You throw out the term metadata and that’s the real key in our contract execution process. We get this question all the time and well, electronic signatures are still relatively novel over the last 20 years. Case law continues to prove time and time again that electronic signatures are just as binding valid and enforceable as breaking out the quill and signing it with the feather.

We feel that our contract execution process is compliant with e-sign, which is the federal law, as well as state e-signature laws, which there’s a model framework called UETA. We’ve read it, we’ve reviewed it, we’ve looked at it and compared it to our process, we feel confident about it. Not to mention, we’ve seen our contract execution process tested time and time again in disputes and litigation and continue to see positive results there. So, like I said, we get that question all the time and I want to provide at least some peace of mind to say, it’s not a real concern. And if you ever find yourself in a dispute, we’re more than happy to help recreate that metadata and pull out the who, what, when, where, why of the contract itself or the signature itself.

Zach Wojtowicz:

Yeah, we got your back.

Nick Knihnisky:

We got your back.

Zach Wojtowicz:

If you need it.

Nick Knihnisky:

That’s what we’re here for.

Zach Wojtowicz:

Absolutely. I’ve taken those calls too, where someone’s in dispute and beyond lien waivers, but daily logs, even the smallest things in our system that helps create that track record. We can provide that as needed. This is just another piece where we can go even further and really legitimize people’s processes for how they run their businesses, right?

Nick Knihnisky:

That’s right. That’s right.

Zach Wojtowicz:

Well, Nick, that is really helpful, I know Lien waivers are your specialty for sure, something you’re passionate about.

Nick Knihnisky:

That’s right.

Zach Wojtowicz:

Absolutely. It was really great to have you here today. This is Zach Wojtowicz signing off. Nick?

Nick Knihnisky:

Thanks for having me.

Zach Wojtowicz:

Have a great rest of your day. Thanks everyone.

Outro:

Thanks for listening to “The Better Way.” If you’re a Buildertrend customer, schedule a training to learn more. All listeners, be sure to rate, review and subscribe to “The Better Way” wherever you get your podcasts. Also, visit buildertrend.com/podcast to sign up for the email notifications when the next season drops and explore our other podcast, “The Building Code.” Don’t miss our next episode where we will be talking about how to avoid disputes and lawsuits.


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