Service Area: Notice and Mechanic’s Lien Services

Florida: Serving a Notice to Owner

Posted on August 9, 2016 by - Mechanic's Liens & Bond Claims

Furnishing to a Construction Project in Florida? Make Sure You Serve the Florida Notice to Owner

If you are furnishing to a construction project in Florida, you should bookmark this post! This post is dedicated to serving preliminary notices in Florida and includes pertinent deadlines and requirements.

You’ve Got 45 Days

In Florida, the private preliminary notice is also referred to as the Notice to Owner (“NTO”). Those furnishing to a private project in Florida should serve notice upon the owner, and upon all parties in the contractual chain between their customer and the owner, prior to or within 45 days from first furnishing materials or services.

In Florida, the preliminary notice must be received within the 45-day period, which means that simply mailing it on the 45th day is insufficient. If you supply specially fabricated materials, your clock begins sooner, and the notice must be served prior to or within 45 days from the date fabrication begins.

Florida NTO Tidbits

  • It’s recommended you also serve a copy of the notice upon the lender when they are listed on the Notice of Commencement.
  • If you provide materials or services to a leasehold property, serve demand upon the lessor for a copy of the provisions in the lease that prohibit a lien against the property. If a copy is not provided to the claimant, the lessor’s property may be subject to a lien, rather than the claimant being limited to liening the leasehold interest.
  • On residential (single- or multiple-family dwellings of up to and including four units) improvements, a prime contractor must include a statutory notice provision in their contract.

Little known fact: When contracting directly with the owner on a private project, no notice is required. Keep in mind, just because it isn’t required doesn’t mean that serving a notice won’t help to get you paid. NCS Best Practice is to serve a notice on every project.

How Should I Serve My Notice?

With a side of rice and fresh veggies! Kidding, only kidding. I recommend serving the Notice to Owner via certified mail but Florida statute dedicates an entire section of their statute to the “Manner of serving notices and other instruments.”

Here’s a small snippet

713.18 Manner of serving notices and other instruments. —

(1) Service of notices, claims of lien, affidavits, assignments, and other instruments permitted or required under this part, or copies thereof when so permitted or required, unless otherwise specifically provided in this part, must be made by one of the following methods:

(a) By actual delivery to the person to be served; if a partnership, to one of the partners; if a corporation, to an officer, director, managing agent, or business agent; or, if a limited liability company, to a member or manager.

(b) By common carrier delivery service or by registered, Global Express Guaranteed, or certified mail, with postage or shipping paid by the sender and with evidence of delivery, which may be in an electronic format.

(c)  By posting on the site of the improvement if service as provided by paragraph (a) or paragraph (b) cannot be accomplished.

Florida Notice to Contractor – Public Projects

If you are furnishing to a public project, there are only a few differences than when furnishing to a private project. Of course, for public projects, you are securing your right to make a claim against the bond, as mechanic’s lien rights are not available on public projects. The public notice is referred to as a Notice to Contractor instead of a Notice to Owner. Plus:

  • If you are contracting with the owner on a public project, bond claim rights are unavailable.
  • If you are contracting with the general contractor on a public project, no notice is required.
  • If you are furnishing to a Department of Transportation project, you should serve the notice upon the prime contractor prior to or within 90 days from first furnishing.

Love a Quick Comparison

I’m visual and love charts and graphs explaining information, so here’s a comparison we provide to subscribers of The National Lien Digest.

As always, please remember that this information is not an exhaustive list of all things Florida; rather, it’s an outline of the steps necessary to secure your rights.

Bond Claim Rights on Louisiana Public Projects

Posted on July 25, 2016 by - Mechanic's Liens & Bond Claims

Bond Claim Rights on Louisiana Public Projects

Are you furnishing to a public project in Louisiana? Let this case be a lesson of the importance of strictly adhering to deadlines set forth by statute!

The Case

Non-Flood Protection Authority (“Owner”) is the owner of the public improvement, commonly known as James Wedell Hangar Project, at the New Orleans Lakefront Airport.

Owner hired general contractor, GM&R Construction Company (“GM&R”), who hired two subcontractors: M&M Concrete (“M&M”) and Tom Branighan (“Tom”).

The first date of importance is the date Owner filed the Certificate of Substantial Completion: May 28, 2014.

Why Does Substantial Completion Matter?

In Louisiana, unpaid parties must serve a sworn statement of amounts due upon the public entity and record it in the office of the recorder of mortgages for the parish in which the work is done. It must be recorded within 45 days after acceptance of the project or within 45 days  after a notice of default (whichever first occurs).

Back to the Case

Neither M&M nor Tom were paid in full with claim amounts of $56,572.00 and $49,729.20 respectively.

On August 18, 2014, M&M filed its statement of claim – 82 days after the filing of the Certificate of Substantial Completion. GM&R notified M&M that its claim was untimely and, subsequently, M&M sent a notification to Owner and GM&R advising that the claim would be cancelled, even though M&M hadn’t been paid in full.

On September 24, 2014 – 119 days after the filing of the Certificate of Substantial Completion – Tom served its statement of claim, but did not file it.

General Contractor Makes Bank

In early October 2014, GM&R went to the Orleans Parish Clerk of Court and obtained a “Lien and Privilege Certificate” to provide to Owner. This certificate confirmed there were no existing or prior liens. Upon receipt of this document, Owner promptly remitted final payment to GM&R.

GM&R is now paid in full.

If All Else Fails, Claim, Claim Again?

December 2014 rolled around and M&M and Tom were still unpaid even though both parties filed claims with the parish mortgage recorder. For those doing the math, we are now over 200 days from the date of substantial completion.

Fast forward to April 2015. Having not been paid, M&M and Tom filed suit against Owner to recover their monies. Owner disputed the subcontractors’ rights to file suit, based on the untimely filing of their claims.

“You’re Late!” The Court Agreed

According to the Order:

“It is undisputed that M&M Concrete and Tom Branighan did not timely file their claims in accordance with subsection 2242(B). The Non-Flood Protection Authority recorded its acceptance of work, via its “Certificate of Substantial Completion,” in the mortgage records on May 28, 2014. At the earliest, M&M Concrete served the Non-Flood Protection Authority with a sworn statement of its claim on August, 18, 2104, nearly three months later. Tom Branighan did not serve the Authority with its claim until September 24. Because M&M Concrete and Tom Branighan failed to comply with the applicable deadline, the Court grants summary judgment on the cross-claim for their outstanding debts against the Non-Flood Protection Authority.”

The Lesson

Know the various statutory deadlines BEFORE you find yourself making late claims. Track deadlines diligently and don’t risk non-payment by delaying the filing of your claim. As always, seek legal guidance!

Bonus: Louisiana Public Projects (excluding DOT projects)

Here are the notice and claim requirements for public projects in Louisiana, courtesy of The National Lien Digest©.

Notices

Notice of Non-Payment: Serve notice of non-payment upon the owner and prime contractor within 75 days from the last day of the month for EACH month in which materials were furnished, but within the period in which a sworn statement must be filed. If the notice of non-payment is not given, the sworn statement will be limited to a claim under the payment bond and will not act as a lien on the funds being held by the public entity.

  • A notice of non-payment is not required:
    • when contracting directly with the prime contractor,
    • when providing labor and materials or only labor,
    • when the general contract has not been recorded, or
    • to protect your rights under the payment bond.

Lessor of equipment: Serve a copy of the lease upon the owner and prime contractor within 10 days after the equipment is first placed on the project site.

Bond Claim

Serve sworn statement of amounts due upon the public entity, and record it in the office of the recorder of mortgages for the parish in which the work is done, within 45 days after acceptance of the project or a notice of default (whichever first occurs). When contracting directly with a subcontractor, also serve a notice upon the prime contractor within 45 days after acceptance of the project or a notice of default. The sworn statement also acts as a lien against the funds being held by the public entity.

Need help serving your notice or bond claim? NCS can help!

What is a Demand to Commence Suit?

Posted on July 12, 2016 by - Mechanic's Liens & Bond Claims

What Is a Demand to Commence Suit?

We often discuss the art of preliminary notices and mechanic’s liens, rather than the litigious land mine of suit. Today we will step carefully into that minefield to discuss a case in New York where the lien claimant’s mechanic’s lien was vacated because they failed to comply with a demand to commence suit.

What is a Demand to Commence Suit?

A demand to commence suit is a notice served upon the lien claimant that requires the claimant to proceed with enforcing their claim or the lien will be vacated. Many states, like New York and Illinois, have incorporated this action into the mechanic’s lien statute.

In its simplest form:

  • Demand = request
  • Commence = start
  • Suit = an action in a court of law to enforce a claim

In Avoiding Surprise and Prejudice to Lien Claimants, attorney James T. Rohlfing explains the demand in section 34 of Illinois statute as “…a demand [that] may be served on a party asserting a lien, who must then move to foreclose his lien within 30 days or lose his right to do so – ‘fish or cut bait.’ The purpose of this section is to permit an owner, or others with an interest in real property, to force the issue of validity of a lien claim already filed, and to clear any potential cloud created by a lien against the owner’s property…important protection for owners who are troubled by unenforceable or invalid liens, allowing them to quickly and easily dispose of them with a simple notice.”

In New York, statute dictates that the lien claimant has thirty days from the date of the notice to proceed with suit or the mechanic’s lien will be vacated.

“Such notice shall require the lienor to commence an action to enforce the lien, within a time specified in the notice, not less than thirty days from the time of service, or show cause at a special term of a court of record, or at a county court, in a county in which the property is situated, at a time and place specified therein, why the notice of lien filed or the bond given should not be vacated and cancelled, or the deposit returned, as the case may be.” – Section § 59 (LIE, Article 3, §59)

Case in Point: Matter of Chauve Enters. LLC, 2016 NY Slip Op 30553 – NY Supreme Court 2016

Chauve Enterprises LLC (“Chauve”) leased commercial property from Clinton Housing Development Company (“Clinton”).  Bannister Brothers Construction, Inc. (“Bannister”) furnished to the improvement of the property.

In January 2015, Bannister filed a mechanic’s lien in the amount of $22,821, and both Chauve & Clinton were named in the lien. By September, Bannister had not moved to foreclose on the lien, so Chauve took action.

“On September 25, 2015, petitioner [Chauve] served respondent [Bannister] with notice, pursuant to Lien Law § 59, to commence an action to enforce its lien within thirty days or show cause why an order should not be entered vacating the lien.”

What did Bannister do? Well, I can tell you what they did not do – they did not respond to the notice nor did they commence suit.

“Respondent [Bannister] did not respond to the notice. Petitioner [Chauve] commenced the instant proceeding by filing its verified petition on or about December 18, 2015 seeking to vacate the lien pursuant to Lien Law § 59.”

Statute is quite clear. If the claimant does not respond to the demand or fails to proceed with suit, then the mechanic’s lien is automatically extinguished. No action = no rights. According to the Supreme Court decision:

“Under the circumstances herein, this Court finds that the lien filed by respondent [Bannister] should be vacated. Respondent [Bannister] was served with the notice to commence an action… This allowed respondent thirty days to commence an action to enforce the lien… However, respondent [Bannister] not only failed to commence any such action within thirty days, but also failed to oppose the instant motion. Thus, respondent has failed to demonstrate any reason why the lien should not be vacated.”

Takeaway

It’s important to understand that, as a claimant, you have rights to recover monies through the mechanic’s lien process. However, parties impacted by the mechanic’s lien filing also have rights. Don’t try to navigate the mechanic’s lien and suit processes without the guidance of a legal professional.

Securing your lien rights does not stop when you file the lien. You must continue to monitor deadlines and next actions and be prepared for a “next action” to be dictated by the action of another (like the owner serving you with a demand to commence suit). Pay attention or pay the price.

Public Project Bond Claims: When the Owner is Your Customer

Posted on June 28, 2016 by - Preliminary Notices & Construction Credit

Do You Have Bond Claim Rights?

Are you furnishing to a public project? Is your customer the project owner? Be careful, as typical mechanic’s lien and bond claim rights will not apply.

“Can’t I just file a mechanic’s lien?”

You may be saying, “If I haven’t been paid, I’ll just file a mechanic’s lien.” But, mechanic’s liens cannot be filed against publicly owned property – it’s the law. Because you cannot file a lien against public property, the statutes were written to provide alternative remedies: payment bonds, and in some states, liens on funds/public improvement liens.

“OK. If I can’t file a mechanic’s lien, can I make a claim against the payment bond?”

Unfortunately, no. When furnishing to a public or federal project, typically, the remedy to recover monies due is to make a claim against the general contractor’s bond. If the general contractor is not in your contractual chain, you cannot make a claim against their bond.

Let’s get visual!

Here’s an example of the contractual chain for a public project.

The owner hired the general contractor and the general contractor hired various subcontractors and suppliers.
A graphic of a pyramid with the bottom blue section reading subcontractors and suppliers with icons of construction workers, the middle light green section reading general contractor with an icon of a contractor, and the top green section reading owner with an icon of a piggy bank.
If the subcontractors or suppliers aren’t paid, they can seek relief via the general contractor’s payment bond.
A graphic of a pyramid with the bottom blue section reading subcontractors and suppliers with icons of construction workers, the middle light green section reading general contractor with an icon of a contractor, and the top green section reading owner with an icon of a piggy bank. One icon of a construction worker in the bottom section is circled in red with an arrow pointing to the icon of the general contractor holding a paper that says bond.
But let’s see what happens when we remove the general contractor.
A graphic of a pyramid with the bottom blue section reading subcontractors and suppliers with icons of construction workers, and the top green section reading owner with an icon of a piggy bank. There is a red circle with question marks between the two sections.
When we remove the general contractor from the picture, the bond “disappears” as well. Once there is no bond to claim against, the suppliers are left with one option: pursue a claim directly against their customer who, in this case, is the project owner.

“Can I file a public improvement lien? After all, ‘public’ is in the name!”

Unfortunately, the answer to this question is also no. On public projects where there is a public improvement lien, you are filing a lien that freezes the funds owed by the owner to the general contractor. Since you contracted directly with the owner, there is no general contractor whose funds you can lien.

“OK, so tell me what I can do.”

As mentioned above, in the event you have a contract with the owner on a public project, and you are not paid, you would attempt recovery of monies by pursuing the project owner directly. We often refer to this option as Suit Against Your Debtor.

“Does that mean I’ll never get my money?”

Don’t lose hope. When contracting with the owner on a public project, you don’t have the security of a bond or mechanic’s lien, but that doesn’t mean you won’t ever recoup your money. Once monies are past due, seek guidance from a legal professional that has experience in construction litigation!

Protecting Lien Rights on Arkansas Residential Projects

Posted on May 16, 2016 by - Mechanic's Liens & Bond Claims

Protecting Mechanic’s Lien Rights on Arkansas Residential Projects

If you furnish materials or services to a private project in Arkansas, make sure you know whether it’s considered residential or commercial, as there are varying notice requirements. These are the notice requirements for private projects in Arkansas, according to The National Lien Digest©.

Residential (with 4 or fewer units):

  • Include notice in contract or serve residential notice upon the owner before first furnishing materials or services. (The notice may be served after furnishing, but the lien, when later filed, will only be effective from the date the notice was served.)
  • A residential contractor who fails to give the notice may be fined up to $1,000.00, and is barred from bringing an action to enforce any provision of the residential contract.
  • No residential notice is required when:
    • the notice is incorporated within your contract,
    • the prime contractor or another lien claimant has served the notice upon the owner,
    • the prime contractor furnishes a payment and performance bond, or
    • when contracting directly with the owner and providing services or materials.

Commercial and Residential (with more than 4 units):

  • Serve notice of non-payment upon the owner and prime contractor after last furnishing materials or services, but within 75 days from last furnishing materials or services.
  • The 75-day notice is not required of prime contractors contracting directly with the owner.

Case: Was the Notice Required? 

In April 2016, an appeals court in Arkansas reversed a circuit court’s ruling, which shifted an invalidated lien to a valid lien. The case is Hammerhead Contracting & Development, LLC V. Ladd, 2016 Ark. 162 – Ark: Supreme Court 2016. Hammerhead Contracting & Development, LLC (Hammerhead) contracted with Dale Ladd (Ladd) for the construction of Ladd’s new home – making this a residential project.

In Arkansas, there is a notice requirement for those furnishing to a residential project. BUT, there are exceptions to this notice requirement and the appeals court determined Hammerhead was not required to serve the notice, based on one of these exceptions.

There are two sections within the Arkansas code that appear to conflict, however, as the appeals court states “The first rule of statutory construction is to construe a statute just as it reads, giving the words their ordinary and usually accepted meaning…” Let’s take a look.

Owner’s Argument

Ladd’s argument was based on 18-44-115 (a) 1 and 4, which indicates that if a residential contractor does not serve a notice, they forfeit their mechanic’s lien rights.

18-44-115.  Notice to owner by contractor — Definitions.

(a)(1) No lien upon residential real estate containing four (4) or fewer units may be acquired by virtue of this subchapter unless the owner of the residential real estate, the owner’s authorized agent, or the owner’s registered agent has received, by personal delivery or by certified mail, a copy of the notice set out in this subsection

(4) If a residential contractor fails to give the notice required under this subsection, then the residential contractor is barred from bringing an action either at law or in equity, including without limitation quantum meruit, to enforce any provision of a residential contract.

Contractor’s Argument

Hammerhead’s argument was based on 18-44-115 (a) 8(A) & (B), which indicates that selling directly to the owner eliminates the notice requirement.

18-44-115.  Notice to owner by contractor — Definitions.

(8) (A) If the residential contractor supplies a performance and payment bond or if the transaction is a direct sale to the property owner, the notice requirement of this subsection shall not apply, and the lien rights arising under this subchapter shall not be conditioned on the delivery and execution of the notice.

(B) A sale shall be a direct sale only if the owner orders materials or services from the lien claimant.

According to the appeals court decision:

“… Ladd asserted that, given the statutory definition of “contractor” in Arkansas Code Annotated section 18-44-107(1), “`contractor’ means any person who contracts orally or in writing directly with a person holding an interest in real estate, or such person’s agent, for the construction of any improvement to or repair of real estate,” there was no “conceivable” scenario in which any transaction between a homeowner and a contractor would not be a direct sale. According to Ladd, that construction of the statute would “lead to an absurd result” and defeat the “plain purpose” of the law, which required that contractors give customers notice of the potential for a lien to be filed.”

Theoretically, Ladd isn’t wrong – a contract between an owner and a general contractor would always be a direct sale, making the preliminary notice optional at best. Fortunately for Hammerhead and unfortunately for Ladd, the appeals court interpreted statute “just as it reads”, which affords Hammerhead the ability to proceed with a valid mechanic’s lien despite not serving a preliminary notice.

Commentary

This case went before the circuit court & the appeals court – likely to go back to court on another appeal – that is a lot of litigation and even more time and money. No, I’m not an attorney, but I do see both sides to this case and must admit the statute seems a bit contrary. When examined for too long and interpreted for anything other than words on a page, nearly anything could be argued for or against.

As a credit professional, I understand the immense benefits of properly securing mechanic’s lien rights. I can’t help but wonder how much money Hammerhead could have saved, if they served preliminary notices as a regular business practice. Not serving a simple document could have prevented some of this litigation (recognizing that litigation would have ensued when Hammerhead filed suit) – why wouldn’t you take advantage of that simple document?

Note: In the event statute changes, based on the arguments in this or any other case, The National Lien Digest information provided at the time of this post may become inaccurate. NCS updates The National Lien Digest in real-time, as statute changes occur, and we recommend you access The National Lien Digest for the most current information.

A Lesson in Last Furnishing Dates and Lien Rights

Posted on May 2, 2016 by - Mechanic's Liens & Bond Claims

A Lesson in Last Furnishing Dates: Massey Asphalt Paving, Inc. v. Lee Land Development, Inc.

Determining the last furnishing date has proven to be tricky for claimants under the mechanic’s lien and bond claim statutes for a LONG time – perhaps dating as far back as the creator of the mechanic’s lien, Thomas Jefferson. (OK, I don’t actually know that the disputes go back that far – my point is, furnishing dates have been a bit of a sore spot for a long time.)

We’ve discussed furnishing dates before, and today we will take a look at a recent case from Alabama, where the claimant’s mechanic’s lien was invalidated because its deadline was calculated from the last date of corrective work.

The Chain of Events

On March 4, 2016, Alabama Court of Civil Appeals published an opinion in the case of Massey Asphalt Paving, Inc. v. Lee Land Development, Inc.

Lee Land Development, Inc. (“Lee”) hired Massey Asphalt Paving, Inc. (“Massey”) to provide labor and materials related to paving work for the Lee Gardens and Lee Commercial Park projects. Lee failed to remit payment to Massey for the materials and labor provided, so Massey filed a mechanic’s lien.

A Broken Link

Massey sought foreclosure on their mechanic’s lien, and during the foreclosure action, the court ruled that Massey’s mechanic’s lien was invalid because it was not filed timely.

In Alabama, the mechanic’s lien deadline is based on the claimant’s last furnishing date. When contracting directly with the owner, file the lien within 6 months from last furnishing materials or services.

Section 35-11-215, Ala. Code The lien declared in this division shall be deemed lost unless the statement referred to in Section 35-11-213 shall be filed by every original contractor within six months and by every journeyman and day laborer within 30 days, and by every other person entitled to such lien within four months, after the last item of work or labor has been performed or the last item of any material, fixture, engine, boiler, or machinery has been furnished for any building or improvement on land or for repairing, altering, or beautifying the same under or by virtue of any contract with the owner or proprietor thereof, or his agent, architect, trustee, contractor, or subcontractor.

According to the court decision, Massey completed paving work in April 2008, did some “corrective work” between October & November 2008 and then filed their lien in November 2008. Based on their last furnishing date of April 2008, their lien deadline would have been sometime in October 2008.

Massey argued that their last furnishing was actually the “corrective work” and that would make their November 2008 filing timely. The court disagreed, and cited other cases that indicated warranty, repair & corrective works were insufficient as a last furnishing date.

“Holdings from other jurisdictions generally are in line with our conclusion…[R]emedial work such as warranty work, corrective work, [or] repair work ․ does not extend the time for filing a claim of lien.”; Tym v. Ludwig, 196 Wis.2d 375, 387, 538 N.W.2d 600, 604 (Ct.App.1995) (“To be valid, a construction lien must be filed within six months of the last day labor or materials are furnished by the lien claimant. Warranty or repair work on an original installation does not extend the time for filing a construction lien. Thus, the time for filing the lien claim is measured from the date of the original installation, not from the date of the later repair work.” (citations omitted)); Woodman v. Walter, 204 Mich.App. 68, 70, 514 N.W.2d 190, 191 (1994) (stating that it was “join[ing] the majority of other jurisdictions” in concluding that the “period [for filing a claim of lien] commences on the date of completion of the original installation work and is not extended by the later performance of warranty work”); and Central Coast Elec., Inc. v. Mendell, 66 Or.App. 42, 45, 672 P.2d 1224, 1226 (1983) ( “It would pervert the legislature’s purpose in fashioning the time limitation [for filing a claim of lien] to allow the time to be extended merely because warranty work was performed.”).”

Take Away

Determining a last furnishing date can be difficult; however, a good rule of thumb is to use the last date of a substantial furnishing – don’t rely on punch list work, warranty work, remediation & small shipments* (*in comparison to total contract) for calculating deadlines

The Pitfall of Not Filing a Notice with the Utah SCR

Posted on April 18, 2016 by - Mechanic's Liens & Bond Claims

Southeast Directional Drilling, LLC v. Kern River Gas Transmission Company: the Pitfall of Not Filing a Notice

In order to secure mechanic’s lien and bond claim rights in Utah, the claimant must first file a preliminary notice with the State Construction Registry (SCR) within 20 days from first furnishing materials or services. Fail to file the notice and a claimant’s rights under the mechanic’s lien and bond claim statutes could go right out the window – even the claimant’s rights to take action against the debtor for failing to obtain a payment bond.

The Facts of Southeast Directional Drilling, LLC v. Kern River Gas Transmission Company

In 2010, Kern River Gas Transmission Company hired a general contractor, Barnard Pipeline, Inc., who in turn hired several subcontractors, including Southeast Directional Drilling, LLC. The project, Apex Expansion Project, was for construction of a section of a natural gas pipeline that runs through several states (over 1700 miles in length).

A Notice of Commencement was filed in the Utah SCR, and it identified the project owner as Kern River Gas Transmission Company and the project as Apex Expansion Project. Subcontractor, Southeast Directional Drilling, LLC, did not file a preliminary notice with the Utah SCR.

The Argument

Unfortunately, not only did Southeast Directional Drilling, LLC fail to file its preliminary notice, but the project was not bonded.

When it was discovered that the project was not bonded, Southeast Directional Drilling, LLC filed suit against Kern River Gas Transmission Company, for “failure to obtain a payment bond in accordance with Utah Code Annotated § 14-2-1.”

As it turns out, in Utah, if a preliminary notice isn’t filed with the SCR, claimants are not permitted to take action against another party for failure to obtain a bond.

“Because SEDD (Southeast Directional Drilling, LLC) failed to provide the preliminary notice prior to the commencement of the action on the payment bond, SEDD may not make a claim against Kern River for failure to obtain a payment bond. Utah Code Ann. § 14-2-5(2).”

Southeast Directional Drilling, LLC tried to argue that statute only requires a preliminary notice to be served if a claimant is seeking a claim against the bond, not if the claimant is suing because a party failed to obtain a payment bond.

Again, the court disagreed with Southeast Directional Drilling, LLC, advising that if the statute wanted to specifically say a notice was only required in order to make claims under the bond, it would have.

“…the statute itself implements different terms when referring to claims or actions “on a payment bond” and “payment bond claims” generally. See Utah Code Ann. §§ 14-2-1(4) and 14-2-5(2). If the Utah legislature had intended, the preliminary notice bar to apply only to a right of action “on a payment bond”—which presumes that there is a payment bond in place—it would have used the language “on a payment bond” or “against a payment bond” in section 14-2-1(5). Instead, the statute uses much broader language, and bars all “payment bond claim[s]” under the chapter.”

The court furthered their explanation:

“Finally, the statute bars a claim for failing to obtain a bond where no preliminary notice was filed in order to avoid an absurd result. Preliminary notice is required to be given to the designated agent (not just the payment bond principal) to provide notice to all actors involved in a construction project—including owners— of potential claims against them. The Utah statute, however, requires preliminary notice to the owner so that it may fully protect itself in the event that there is no bond in place.”

The Lesson

File or serve the preliminary notice! The lack of filing/serving may impact more than your rights to secure a mechanic’s lien or bond claim.

Importance of Complying with Arizona State Lien Laws

Posted on March 21, 2016 by - Mechanic's Liens & Bond Claims

Failure to Substantially Comply With State Law Renders Arizona Lien Unenforceable

You put substantial time, energy, and materials towards completion of the project for which you were hired. You serve your preliminary notice, making sure you comply with all your state’s requirements for a valid mechanic’s lien.  You complete the work but unfortunately do not receive payment.

Then you take all the requisite steps to establish a valid mechanic’s lien and have no reason to believe you will not fully recover. However, when you file to foreclose the lien, you learn it is invalid due to your failure to comply with some very specific state requirements concerning the preliminary 20-day notice and claim of lien.

Although you thought you followed the law down to every last detail, you have lost your essential remedy of a mechanic’s lien.

The Case

This tragic scenario is exactly what occurred in the Arizona case of MLM Const. Co., Inc. v. Pace Corp, 172 Ariz. 226, 836 P.2d 439 (1992).  In MLM Construction, Pace Corporation contracted to construct a shopping center on property owned by Garden Lakes Center Associates, in Phoenix, Arizona. BCN lumber was a subcontractor on the project, and MLM Construction Company entered into a subcontract with BCN to provide carpentry labor and materials for $64,945.00.

MLM provided the agreed upon materials and labor and served a preliminary 20-day notice, as required under Arizona Rev. State. Ann. § 33-992.01. The preliminary notice form was titled “Arizona Preliminary Notice in accordance with Arizona Revised Statutes § 33-992.01 and § 33-992.02.”

Arizona Revised Statute § 33-992.01(C)(5) required, however, that the preliminary notice state in bold-faced type, “[i]n accordance with Arizona Revised Statutes § 33-992.01, this is not a lien and this is not a reflection of the integrity of any contractor or subcontractor.”   While MLM’s notice complied with all other requirements set out in § 33-992.01, it failed to include this language. The appellate court was left to grapple with the question of whether MLM complied with the statute sufficiently to have his lien be perfected.

The Court Says No

The court held that the statutory requirements for mechanic’s liens must be strictly followed in order to perfect a lien.  he court found that while substantial compliance with the law can be sufficient to perfect a lien, in this case, the failure to include the language that “this is not a lien…” was a fatal defect.  The omitted language was of sufficient significance, that failure to include it could not result in substantial compliance.  MLM’s lien was held to be unenforceable on this ground.

The deficient preliminary notice was not MLM’s only mistake.

The Arizona court also found that MLM’s lien failed on one additional ground.  Arizona Revised Statute § 33-992.02 requires a lien claimant prove he served his preliminary notice by either obtaining the recipients’ signatures on written documents acknowledging receipt, or by affidavit of the person making the service, showing the time, date, place, and manner of service.

Arizona Revised Statute § 33-993 (A), requires that a copy of the preliminary notice and proof of service must be attached to the notice and claim of lien.  MLM failed to attach any proof of service to his notice of lien.  The court found this failure, even though service was accomplished, rendered MLM’s lien unenforceable.

The case of MLM Construction highlights the technical details involved in the lien process and the ease with which one can make a costly mistake along the way.  MLM believed it took all requisite steps, but MLM’s failure to comply with Arizona’s lien laws on two small technical details cost it.

The takeaway: consult with professionals when securing mechanic’s lien or bond claim rights!