Do lien waivers per draw actually protect the owner from the GC's subs, or only from the GC?

Question

The paperwork side of a heavy rehab deserves attention before anyone funds one. Say 160k of rehab released over six draws, a GC with four regular subs plus a lumber and a cabinet supplier. The draw package has the GC signing a waiver each time he is paid. Here is the question that rarely gets a straight answer: that waiver is signed by the GC, so does it do anything at all about a plumbing sub who never got his share of draw three? A lien attaches to the property rather than to whoever owed the money, so the owner is the one paying twice and the GC is the one who then has to be chased. Conditional versus unconditional waiver forms and joint check agreements get mentioned as the fix, and the sequencing of either has to be understood well enough to write it into a contract. It is also worth settling whether the preliminary notice some states require is a threat to the owner or a gift, since it presumably tells the owner who can lien in the first place.

Rena Expert · Accepted Answer

A waiver binds the party who signs it and nobody else. The GC's waiver on draw three releases the GC's claim for that work, and the plumbing sub who wasn't paid still has whatever lien rights the statute gives him, because the claim runs against the property. So your instinct about paying twice describes the actual exposure.

The mechanism operators use is a waiver from every party with lien rights above a threshold you set, subs and material suppliers included, collected as a condition of each draw rather than at the end. Conditional and unconditional matter in sequence: a conditional waiver takes effect once the payment clears, an unconditional one takes effect on signature whether the check is good or not, so you generally hand out conditional forms with the check and collect the unconditional version after funds clear. Joint checks made payable to the GC and the sub together are the blunter tool, and they slow your draw cycle down because two signatures have to be gathered before anyone deposits.

Preliminary notice, where a state requires it, works in your favor as information. It's how you learn a framing supplier you never contracted with is in the chain. Lien deadlines, notice requirements, waiver forms and whether statutory language is mandatory all vary by state, and several states publish forms you cannot modify, so have a construction attorney in that state build your draw package.

The failure that catches people isn't draw three. It's the final draw and retainage. Hold back 10 percent until you have unconditional waivers from everyone and the title company is satisfied, because an unreleased lien discovered in escrow stops the closing, and on a gut already running 130 or 140 days you're funding another month of interest, insurance and utilities while a bond or a payoff gets sorted.

joe_delgado5 · Answer

One thing to plan for: the paperwork itself costs you days. My small subs, the two-truck outfits, either lose the form or sign the wrong box, and my lender won't release until the package is clean. Figure a week between inspection and money hitting the account and build the schedule off that, not off the GC's promise. Also decide your threshold before you start. Chasing a waiver for a 400 dollar tile order is how draws die.

Do lien waivers per draw actually protect the owner from the GC's subs, or only from the GC?

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