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Fraudulent Lien Waiver
Release Forms

By Diane Dennis

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Fraudulent Lien Waiver Release Forms Could Very Well Cost You Your Business - And A Whole Lot More!

But all of your release forms are valid you say?

That may be but what about the waiver release forms submitted to you by your subcontractors.

Subcontractors what about release forms from your sub-subs?

When receiving lien waiver/release forms from your contractors and suppliers don't rely on them at face value.

Avoiding Fraudulent Lien Waiver Release Forms

We all want to trust our Subs and believe the best of them. But in today's day and age that trust could be fatal to your company.

Call the issuing company(ies) and make sure the releases are legitimately from the issuer(s).

Speak with a supervisor, not a clerk, to make sure you get the straight scoop.

But It Can't Happen To You...

Really?

Consider the trusted, long-time subcontractor who hits a terribly rough patch in life. Whatever that rough patch might be you, yes YOU, can get burned beyond belief.

How? 

  • He submits a legitimate conditional waiver/release from his supplier (and one from himself) to his GC 
  • He forges his supplier's endorsement and deposits the check at his bank (which is typical procedure for this company - the contractor deposits [legitimately] endorsed checks to his account and pays his supplier)
  • He submits his own unconditional waiver/release form, as well as a forged unconditional from his supplier, to his GC 

He splits town and no one is the wiser - until the supplier starts making calls looking for payment.

Oh Please, That Story Is So Far-Fetched...

Think it's far-fetched? Unfortunately it's not. It happened.

Tip

Joint checks have become very common. But as mentioned in the story above the sub was able to forge his supplier's endorsement.

Although your sub(s) will major-league balk at this, maybe think about sending the joint check straight to the supplier and a photocopy to your sub(s).

The supplier will get the signature from the sub, deposit the check into their own clearing account (many suppliers have clearing accounts specifically for joint checks) and then they'll cut a check to the sub for the balance.  

BUT ...

Make sure your contract with your sub(s) has clauses that allow for:

A) Contacting the sub's supplier direct to notify them that payment is being issued

B) Payment via joint checks

C) Delivery of the joint check straight to the supplier

Without those clauses you could end having trouble with your sub(s) over these methods.

Have no doubt that your sub(s) will balk at this but never forget the bottom line which is that you absolutely MUST protect your customer (and your company)!

The GC was a vendor of mine and the supplier happened to be my supplier as well.

Guess who had to pay for the materials a second time? The General Contractor ... (!!!)

His contract with his customer had a clause - a standard clause amongst most contracts - that stated that the GC would keep the customer's property free of liens (and you know that the subcontractor's supplier will file a lien if they don't get paid).

If the GC had confirmed the unconditional waiver/release form with his subcontractor's supplier he would have had a much better chance of catching up with the deadbeat sub. 

Not that it's the GC's fault that he didn't expect to get scammed by his trusted sub but sadly in today's day and age you have to be ready for it.

But It's Not The GC's Fault That He Received Fraudulent Lien Waiver Release Forms

Well, true but...

He's had this sub working for him for many years and all has been fine. He has no reason to suspect that things are about to go south.

So yeah it's really not the General's fault that he received a fraudulent release from his sub.

But...

In a case like this the person at fault isn't the issue.

The issue is the clause in the GC's contract with his customer that states that he'll keep his customer's property free of liens.

You're not going to be able to remove that clause from your contract so you're going to have to be vigilant. No one wants to receive a fraudulent lien waiver release form but without following up on them that's exactly what you might be facing.

Then you get to pay for the material a second time.

Not the GC's fault but still the GC's responsibility...

Please Verify Those Lien Waiver Release Forms

As sad, and even as uncomfortable as it is, it's time to change your frame of mind from blind trust to "I better verify this before relying on it".

Attention subcontractors... This applies to you as well! You might have sub-subs who have suppliers or you might be dealing with a dishonest, embezzling employee of your supplier who issues you a forged unconditional.

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