The best way to avoid problems in your basement finishing project is to follow these ten steps, and to cover all details in your contract.

  1. Legal Considerations . . . Liens
    For a large remodeling job that involves many subcontractors and a substantial financial commitment, you should protect yourself from liens against your home in the event the contractor does not pay subcontractors or suppliers. Depending on local laws, you may be able to add a release-of-lien clause to your contract, requiring the contractor or subcontractors and suppliers to furnish a certificate of a waiver of lien. Another solution is to pay your contractor by joint checks.If you are financing your project, the bank or lending institution may require that the contractor, subcontractors and suppliers verify that they have been paid, before releasing funds for subsequent phases of the project.

    Preliminary Lien Notices
    Shortly after your job commences, you will probably receive preliminary lien notices from subcontractors and material suppliers. Don’t panic! This does not mean that a lien has been filed against your property. The law requires you to be furnished with these notices to alert you that those persons have worked on or have supplied materials for your job and expect to be paid. These persons may have what are called mechanic’s lien rights.

    Mechanic’s Liens
    The law provides that those who furnish labor or materials to your home can record a “Claim of Lien” or “Mechanic’s Lien” against your home if they are not paid. Even if you have paid your general contractor in accordance with the contract, if he or she fails to pay any subcontractor or materials supplier who performed work or supplied materials in connection with your project, you still run the risk of having a mechanic’s lien filed against your home. You could be required to pay a bill twice to keep from losing your home in a foreclosure proceeding.You can protect yourself from unwarranted liens by identifying subcontractors and materials suppliers in your written contract and getting signed conditional lien releases from the subcontractors and suppliers. After you’ve made a payment for work or materials, get signed unconditional lien releases.

    Another preventive step is to file a Notice of Completion with the County Recorder’s office after work on your project is completed. This notice reduces the amount of time a contractor, subcontractor or materials supplier can file a mechanic’s lien against your home.

  2. Avoiding Complaints and Problems. Some warning signs of possible trouble ahead are the following:
    1. You can’t verify the name, address and telephone number or credentials of the contractor.
    2. The contractor gives you a toll-free phone number and a post office box as his or her address.
    3. The salesperson tries to pressure you into signing a contract by using scare tactics, intimidation or threats. (If you are pressured into signing, remember you usually have three days to cancel a contract.)
    4. The company or salesperson says your home will be used for advertising purposes (as a model job, or show-house, or by display of their sign), and that you will be given a special low price. The contractor tells you this is a special price available only if you sign the contract today.
    5. The contractor doesn’t comply with your request for references, or the references have some reservations about the contractor’s work.
    6. You are unable to verify that the contractor is licensed, insured, and/or bonded when required.
    7. You are asked to pay for the entire job in advance, or to pay cash to a salesperson instead of writing a check or money order to the company itself.

    You are asked to sign a completion certificate for the job by appeal, threat, or trick, before the job is properly completed.

Read part 6 “What if Problems Occur?”