Service Area: Notice and Mechanic’s Lien Services

Idaho Supreme Court: Lien Rights for the Sub and Engineer

Posted on May 18, 2015 by - Mechanic's Liens & Bond Claims

Idaho Supreme Court: Is the Sub Required to file Multiple Liens & when do Lien Rights begin for the Engineer?

In a recent appeal heard before the Idaho Supreme Court, the court was tasked with determining, among other issues, whether an engineer’s lien relates back to the first day of physical construction or the first day services were rendered, as well as whether or not a supplier had to file multiple liens for materials provided to a mixed use, two phase project.

  • In this particular case, there are many parties making many different claims – here’s a breakdown of the parties we are going to focus on in today’s post:
  • The Project: Summer Wind at Orchard Hills Residential Golf Course Development (“Project”)
  • The Project Owner: Union Land Company (“Union”)
  • The Engineer: Stanley Consulting, Inc. (“Stanley”)
  • The Contractor: Extreme Line Logistics, Inc. (“ELL”)
  • The Subcontractor: Hap Taylor & Sons, Inc. dba Knife River (“Knife River”)

The Backstory

According to the court opinion, the Project was a “…multi-use development made up of approximately 91 residential building lots and a golf course and involved two phases.” Union hired contractor ELL for a portion of the construction, in turn, ELL subcontracted Knife River for paving on Phase 1 of the project.  A year into the project, ELL goes back to Knife River to “contract for additional work” (i.e. Phase 2).

Eventually, Knife River filed a lien on Phases 1 & 2, because ELL failed to remit payment to Knife River. Were multiple liens required?  Meanwhile, in a separate contract, Union hired Stanley to provide engineering services. Unfortunately, Union did not pay Stanley therefore Stanley also filed a lien.   Stanley & Knife River’s liens are overlapping, so who has priority?

First Issue: Priority – When do an engineer’s lien rights begin?

The district court determined that Stanley’s lien only related back to the date that “visible construction commenced”.  Fortunately, the appeals court did not agree with that decision.

According to the appeal court’s interpretation of statute and previous case law, if an engineer files a lien, the effective date of the lien is the first day that the engineer rendered its services.

“…Idaho Code section 45-501’s plain language unambiguously indicates that an engineer has a lien on services performed off-site and before construction commences, so long as those services were authorized under the relevant contract.”

Based on the statute wording, the appeals court granted judgment in favor of Stanley, permitting the effective date of the lien to date back to the first day professional services were rendered.

Second Issue: Multiple Liens – Are multiple liens required on a two-phase project?

Knife River sought remedy under Idaho’s mechanic’s lien statute and despite the vagueness of whether or not Knife River’s contributions were to two projects or one project, the district court held that Knife River’s single lien was valid.

The appeals court wanted to provide clarification on whether or not Knife River supplied under one or two contracts

“…the first question is whether Knife River paved the roadways and golf cart paths under one continuous contract or two separate contracts.”

Unfortunately, due to ambiguity (invoices with various job numbers, contract language advising that changes should be written [some were not], the entire project being viewed as one construction etc.), the appeals court remanded the case back to the district court, with the order that the district court determine “…whether one continuous contract governed the entirety of Knife River’s paving at Sumer Wind Development…”

A Few Good Lessons

  • Review statute carefully
  • Review contracts carefully
  • Maintain proper documentation (invoices, change notices, contract amendments)
  • When in doubt, consult an attorney

The appeals court text for this case can be viewed here: Stanley Consultants v. Integrated Financial Associates

Payment Bonds vs. Performance Bonds

Posted on May 5, 2015 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Payment Bonds vs. Performance Bonds

In this corner we have an $8.4 million bond, created & executed to protect you in the event the principal does not pay as promised! Please welcome PAYMENT Bond! And in this corner, we have an $8.4 million bond, created & executed to protect you in the event the principal does not perform as promised! Please welcome PERFORMANCE Bond!

Let’s…Get…Ready…To…

Clarify the differences between payment & performance bonds! (Admit it, you read this to yourself in the loud announcer voice.)

What is the Difference between a Payment Bond and a Performance Bond?

A payment bond is a promise of payment and a performance bond is a promise of performance.

  • A payment bond is a surety bond, most often on public projects, issued as assurance of payment to certain parties should the principal of the bond breach their construction contract.
  • A performance bond is a bond issued to one party of a contract as a guarantee of the performance of the other party to meet the obligations specified in the contract.

When Should I Make a Claim Against the Payment Bond?

The answer to that is simple – how long are you willing to wait for payment? Although each state has guidelines for when to serve a bond claim and to whom the claim should be served (often the deadline is 90 days from last furnishing), the real question should be “Are you willing to wait 90+ days for payment?” IF the answer to that question is “No way, I don’t want to wait 90 days or more for payment!” then you should proceed with a claim against the principal’s payment bond sooner rather than later.

How Do I Know if a Bond Has Been Issued?

In some cases you may uncover surety or bonding information when you obtain a copy of the Notice of Commencement or while gathering job information. Otherwise, you could inquire with the owner of the project, ask the bond principal (i.e. the GC) or even hire an outside vendor to proceed with a bond investigation.

Some public entities, like Texas Department of Transportation, provide a list of active construction projects on their website. The information provided may include the project name/location, the costs affiliated with the construction and the name of an individual you can contact for further information.

Best Practice

When securing your receivables, it’s important to obtain a copy of the payment bond, and often easiest to obtain a copy at the start of a project. It’s possible to obtain a copy just before you make a claim, but once payment problems arise, folks tend to be more reluctant to cooperate and provide copies of bonds. Also, there may be cases where your credit decision might hinge on whether or not a project is bonded.

Bear in mind, each state has its own statute dictating whether or not payment bonds are required as well as the steps necessary to secure your right to make a claim against the payment bond.

Supplying Rental Equipment to a Construction Project

Posted on April 9, 2015 by - Mechanic's Liens & Bond Claims

3 Things to Know if You’re Supplying Rental Equipment to a Construction Project

Although great strides have been made within the last several years, there are still instances where construction law differs for those who provide rental equipment to a construction project.

Many states, like California, Connecticut & Florida, specifically include rental equipment within their statute, allowing providers of rental equipment to secure mechanic’s lien rights as long as they follow the same guidelines set forth by statute for any labor and/or material supplier securing rights.

Other states may not specify rental equipment within their statute, but case law has supported the inclusion of rental equipment (Arkansas, Ahern v. Salter, 2014).  And then, there are those states that do not provide protection for the rental equipment supplier within their statutes or their case law.

Know the Statute Specific Requirements For Rental Equipment

We already know that mechanic’s lien statutes in each state are different – “like snowflakes, no two states are alike” – so it should come as no surprise when I say “You should always double check statute before serving your preliminary notice or filing a mechanic’s lien.”

Although no two states are alike, some states do have things in common. Can you name two states that have separate requirements for those that are providing rental equipment? Louisiana & Missouri!

Missouri

According to The National Lien Digest, you should serve the notice upon the owner within 15 business days from the first use of the rental equipment. Persons who use rented machinery or equipment in performing work should file the lien within 6 months after the indebtedness shall have accrued. Persons who rent machinery or equipment to others should file the lien within 60 days after the date the last rental machinery or equipment was removed from the project.

Louisiana

Lessors of Equipment: at the time of entering the contract, obtain the lessee’s signature on a notice to be served upon the owner and the prime contractor within 10 days from when the equipment is first placed on the project site.

In other states, like Illinois, rental equipment liens are allowed on commercial projects, but are not allowed on a single-family residence, or a multi-family residence of fewer than 12 units in a single building.

Case law (Griffin Dewatering Corp. v. B.W. Knox Construction Corp., 2001 WL 541476) confirmed there are no provisions under Delaware statute to protect those who provide rental equipment.

Know Your Last Furnishing Date

Even if service of the rental equipment is a part of the contract, the date the service was received is not used to determine the last furnishing date. Typically, the owner is only responsible for the work that was performed to improve his property, therefore the last furnishing date would be the last date the equipment was used on the job, not the date the equipment was picked up or serviced

Know that Multiple Liens May be Required

If you supply multiple pieces of equipment to a property, there is a chance that a separate lien will be required for each piece of equipment. Attorneys have conflicting opinions as to whether or not a separate contract for each piece of equipment requires separate liens or whether one lien is sufficient, and it is quite possible that two attorneys in the same state will have differing opinions.

My advice: know that it is a possibility & always make sure you use a construction oriented attorney.

Best Practice

Even though each state does not specifically call out rental equipment within their statute, it does not automatically mean you won’t be entitled to secure mechanic’s lien rights. It’s best to serve a notice on every project – make sure you follow statute parameters – and when in doubt, seek a legal opinion.

Two Questions to Ask Before Releasing a Mechanic’s Lien

Posted on April 1, 2015 by - Mechanic's Liens & Bond Claims

Always ask yourself these two questions before you release a mechanic’s lien

What is a Release of Lien?

“A release of lien is a document recorded upon the satisfaction of a claim of lien. Statutory penalties may be incurred if a lien is not released upon satisfaction”

What should I know before releasing a lien?

Once you have made the decision to file a mechanic’s lien, the next decision you will need to make is when to release the mechanic’s lien. Before you rush to release your security, you should ask yourself:

“Have I been paid in full?  Has the payment cleared?”

Too obvious? Perhaps, but if you can answer “yes” to both of these questions, you should feel confident that it is safe to release the mechanic’s lien.

If you have not been paid in full and/or the payment has not cleared, you should be very cautious. Think of the proverbial “Do not pass go, do not collect $200.” If you release the mechanic’s lien, and you have not received/cleared full payment, you may forfeit your security and subsequent recourse on unpaid funds.

I’ve been paid; do I have to release the lien right away?

Some states have a specific time frame described in their statute (i.e. in Arizona, the lien must be released within 20 days from satisfaction), but a good rule of thumb is to promptly release the lien once the lien has been satisfied. Not only is a timely release of the satisfied lien required by law, it is also a respectful business practice.

Do I have release options?

In some states you can file a partial release of lien. A partial release of lien is just what it sounds like – you are releasing a portion of the original mechanic’s lien, as opposed to the full amount of the mechanic’s lien. For example: you filed a lien for $100,000 and your customer has paid you $25,000; you could file a release for the $25,000 and the lien will remain in place for the balance of $75,000.

Make sure you consult an attorney before proceeding with a partial release. You want to make sure you are adhering to statute and not forfeiting your lien rights.

What if I haven’t been paid, but my customer agrees to pay me if I release the lien?

Your customer doesn’t want to pay until the lien is released, and you don’t want to release the lien until you are paid.  It is not uncommon to Exchange a Release of Lien for payment.

Essentially, you will give your customer the executed (but not recorded) release of lien and your customer will give you payment in certified funds. Then, you can deposit the payment and your customer can record the release of lien.

Best Practice

Though an exchange is fairly common, it may not hurt to have an intermediary – just to help keep everyone honest.

Problems with Preliminary Notices

Posted on March 18, 2015 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Here Are 5 Mistakes Commonly Seen with Preliminary Notices

Securing your mechanic’s lien and bond claim rights often begins with serving a preliminary notice. If the first step in securing your rights (serving a preliminary notice) isn’t a solid step, you may find yourself with an invalid mechanic’s lien and unpaid claim.

1. Not Serving a Preliminary Notice

This may seem like a no-brainer, but it is an all too common problem. Contractors, subcontractors & suppliers find themselves in a position where they haven’t been paid, so they pursue the remedy of a mechanic’s lien or bond claim. Unfortunately, much to the dismay of these claimants, the courts interpret the law strictly and if a preliminary notice is required per statute and no preliminary notice was served, no lien rights exist.

Three cases come to mind: Mel Stevenson & Associates, Inc. V. Giles (2004), J. Roux Design & Associates, Inc. V. Backes Et Al (2005), and JE Dunn Construction v. (West Edge BK) (2010). In all three cases, the claimants didn’t serve a preliminary notice, filed a mechanic’s lien, pursued suit to enforce the mechanic’s lien and the lien was thrown out because a preliminary notice was required and not served.

2. Serving an Improperly Formatted Document

Nearly every state has a unique notice format and requirements which are enforced with strict scrutiny.  Some states are particular about the font type and size, which words or phrases are or are not in bold/italic/underlined and even the margin sizes.

Some companies learn this the hard way: “…A contractor must strictly comply with all statutory requirements for prelien notices.  Because Niewind did not provide prelien notice in the statutorily required type, the mechanic’s lien did not attach to the Carlsons’ property…”

3. The Notice is Missing Required Information (claim/contract/materials description)

Along the same lines as serving an improperly formatted document, often times, claimants serve an incomplete notice. Missing required information from a notice can be just as toxic as serving no notice at all. Again, review statute carefully and be sure to include the information required, such as specific parties, furnishing dates, contract & claim amounts or a description of the materials/labor provided.

4. Neglecting to Serve the Required Parties

Most states whose statute requires a preliminary notice to be served are quite specific as to which parties must receive a copy of the notice. If you don’t serve a required party with the notice, you may end up like Shady Tree Farms in Shady Tree Farms v. Omni Financial – Shady Tree Farms’ preliminary notice wasn’t served on the lender (a required party) and the trial court held that the mechanic’s lien for $1,959,244.50 could not be enforced.

5. Proper Service of the Preliminary Notice

We have previously discussed this particular issue on our blog: “Overnight Delivery, Registered Mail, Certified Mail! Oh My!” Review statute closely and deliver the notice as required by statute, whether it’s via certified mail, FedEx, Pony Express or Carrier Pigeon.

The power of a preliminary notice is frequently underestimated and even misunderstood.

Utah’s State Construction Registry (aka SCR)

Posted on March 5, 2015 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Preliminary Notices: Understanding Utah’s State Construction Registry (aka SCR)

Securing mechanic’s lien and bond claim rights, in the state of Utah, begins with the preliminary notice.

“A person who desires to claim a construction lien on real property shall file a preliminary notice with the registry no later than 20 days after the day on which the person commences providing construction work on the real property.” (UT Title 38, Chapter 1a, Part 5, Section 501)

Since 2005, Utah has managed preliminary notices, notices of commencement and notices of completion differently than the majority of states. In Utah, these notices are housed, online, in the State Construction Registry (SCR).

What is the Utah SCR?

“SCR” stands for State Construction Registry. It is an online database for required notices for commercial, public & residential construction projects. Filing notices with the SCR increases visibility of all parties within a contractual chain.

The National Association of State Chief Information Officers (NASCIO) may have said it best, when they referred to the SCR as a bulletin board:

“…an online project “bulletin board,” providing full disclosure to property owners, contractors and other interested parties, of people providing goods and services to a construction project… to implement an efficient and standardized system for protecting lien rights…”

Who Benefits from the Utah SCR?

Quite frankly, the simple question is who does not benefit from the SCR – and the answer to that is no one. All parties benefit from the SCR:

  • Owners – the SCR provides information on all parties furnishing materials/labor to their real property.
  • Contractors/Banks/Title Companies/ Architects – the SCR provides information on all parties that are furnishing materials/labor to a project.
  • Subcontractors & Suppliers – the SCR provides information on all parties that are furnishing materials/labor to a project.

Hmm, noticing a trend? As well you should! The SCR provides a clear picture of when a project begins, who will be participating in the project and when the project ends. The SCR can provide transparency – the lack of which is one of the most frustrating obstacles in protecting mechanic’s lien rights.

Not Just for Preliminary Notices

The SCR website also provides email alerts to participating parties, notifying them of changes to the preliminary notice and when a notice of completion has been filed.

Technology + SCR for the Win

In the age of smart phones, Utah capitalized on the opportunity to put those smart phones to work. A QR Code is generated for each notice filed with the SCR. Notices are often posted at the jobsite, which can make connecting to the SCR as simple as a click on your phone.

From the SCR website:

“SCR QR Codes will save you time because you won’t have to find and write down all of the job information: Owner, Original Contractor, Job Address, County and Parcel Numbers…If the SCR filing is posted on the job site, everyone working on the job would be able to scan the QR code and use the correct job information in their Preliminary Notice without having to type it in again.”

Is It Really that Easy to Post a Notice to the SCR?

If, through due diligence, you obtain the Tax ID# (private project) or the SCR# (public project) from the building permit, or from the person with whom you contracted, posting the notice on the SCR is a simple process.  If the Tax ID# (or SCR#) is not obtained prior to posting your notice, the process becomes more complicated.  Research may be required in order to determine the correct Tax ID#/SCR#.  The SCR provides an excellent search engine by which this information may be found, but without the exact Tax ID#/SCR#, it can sometimes be challenging to link to the correct project when multiple listings are posted.

Need help? We’re here for you!

The 4 Primary Types of Lien Waivers

Posted on February 18, 2015 by - Mechanic's Liens & Bond Claims

The 4 Primary Types of Lien Waivers

Lien Waivers are common in construction credit. Project owners will often require lien waivers from contractors, subcontractors & suppliers to alleviate the possibility of mechanic’s lien filings.

There Are 4 Primary Types of Lien Waivers

  • Partial Conditional: A signed document agreeing to waive rights to a claim for a dollar amount or through a specified date, conditioned upon receipt and clearance of the partial payment.
  • Partial Unconditional: A signed document agreeing to waive rights to a claim for a dollar amount or through a specified date. The waiver is not conditioned upon clearance of a payment.  If the check is not received, or does not clear, the client will have waived their rights to that partial payment.
  • Final Conditional: A signed document agreeing to waive rights to a claim given conditioned upon receipt and clearance of a final payment. If the client does not get the final payment, the waiver does not waive their rights.
  • Final Unconditional: A signed document agreeing to waive rights to a claim. The waiver is not conditioned upon clearance of a final payment.  The client’s rights will be waived whether or not payment is actually received or cleared.

“Are lien waiver requirements the same in all states?”

The majority of states do not require a particular lien waiver format; however, there are some states with statutory requirements: Arizona, California, Colorado, Florida, Georgia, Massachusetts, Michigan, Mississippi, Missouri (residential), Nevada, Texas, Utah, Wyoming.

lienwaivers map

“Is a Lien Waiver the same as a Release of Lien?”

No, and this is a common misconception. A lien waiver acknowledges receipt of payment whereas a release of lien releases a previously recorded document.

“Should I Sign This Waiver?”

The two main things to check when you are asked to sign a waiver: 1. Is it a partial or final waiver? and 2. Is it a conditional or unconditional waiver?

1. Is it a partial or a final waiver?

  • If it is a partial waiver, confirm that the dollar amount is correct.  If the waiver includes a “paid through” date, be sure the dollar amount stated is correct for that time period.
  • If it is a final waiver, confirm that payment of the amount stated includes everything billed or to be billed, that remains owed, on that project.

2. Is it a conditional or an unconditional waiver?

  • The preferred waiver is a conditional waiver, which will specify that the waiver is conditioned upon receipt and clearance of the payment amount.  If the payment is not received or does not clear, the waiver will not apply.
  • An unconditional waiver does not state the payment has to clear the bank.  If you do not receive the promised payment, or the check bounces, your rights remain waived.

When in doubt, seek a legal opinion – signing the “wrong” document could eliminate your mechanic’s lien and bond claim rights.

Federal Construction Projects & The Miller Act

Posted on February 16, 2015 by - Mechanic's Liens & Bond Claims

Federal Construction Projects & The Miller Act Bond Claim

The Miller Act is the federal payment bond statute that requires general contractors to furnish payment bonds, on projects over a certain threshold, contracted by the United States.

A Wee Bit of History

In 1894, Congress passed the Heard Act, which was the first attempt by Congress to provide some form of payment security to unpaid subcontractors. Unfortunately, the Heard Act was a bit of a mess and it took several years for Congress to clean it up. Then in 1935, Congress passed the Miller Act. Although there have been some changes to the Miller Act since its inception, fundamentally the core remains unchanged.

The Miller Act requires prime contractors on federal projects to submit a payment bond to ensure payment for materials and services provided by their suppliers and subcontractors. Instead of filing a mechanic’s lien against a project, your right of recovery would be against the surety on the payment bond. The surety must be listed on the Treasury List and approved by the U.S. Department of Treasury.

The payment bond must be obtained by the prime contractor prior to being awarded a federal construction contract exceeding $100,000. To ensure the project you are working on is protected by The Miller Act, a copy of the payment bond should be requested at the beginning of the project.

What if the total original contract is for $100,000 or less?

If the federal construction contract is less than $100,000 but more than $25,000, the contracting officer and prime contractor must agree to a payment protection of:

  • A payment bond
  • An irrevocable letter of credit
  • A tripartite escrow agreement (a federally insured financial institution distributes payments); or
  • A certificate of deposit

Who is covered under The Miller Act?

All those who provide labor and/or materials used in the prosecution of the work, to the prime contractor or first-tier subcontractor, are covered. Note: Those providing only materials to a material supplier are not protected by The Miller Act. Those furnishing to second-tier subcontractor are also too far removed to have rights under The Miller Act.

How is a claim made?

No preliminary notice is required at the start of the federal project. However, a non-statutory notice is recommended so the prime contractor knows you will be protecting your rights. Those furnishing to a subcontractor must serve their bond claim within 90 days from last furnishing materials or services.

In Pepper Burns Insulation, Inc. v. Artco Corp., it was upheld that the prime contractor must receive the claim by the deadline. If payment does not result from the notice of the bond claim, a suit to enforce the bond claim must be filed within one year from when materials or services were last furnished.

NOTE: There are some instances where a Miller Act payment bond may not be available. The bonding requirements on a federal project may be waived by the contracting officer in certain circumstances. The contract may be considered a supply contract rather than a construction contract. The federal government may also be funding a project where the fee owner is a private or public entity.