Service Area: Notice and Mechanic’s Lien Services

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.

Prelien Notice Mistake Invalidates Mechanic’s Lien

Posted on February 5, 2015 by - Preliminary Notices & Construction Credit

Prelien Notice Mistake Invalidates Mechanic’s Lien in Minnesota

Today’s case is an unfortunate example of how one contractor lost its mechanic’s lien rights because its preliminary notice failed to meet the requirements outlined by Minnesota’s statute.

Here’s the Story

  • The Case: Niewind v. Carlson, 628 N.W.2d 649 (Minn. App., 2001)
  • The State: Minnesota
  • The Mistake: Preliminary notice did not meet statutory requirements
  • The Consequence: Loss of mechanic’s lien rights

In Niewind v. Carlson, 628 N.W.2d 649 (Minn. App., 2001), Chuck Niewind dba C & N Construction (Niewind), contracted with the Carlsons to build a home for the price of $291,725. Niewind provided extra work and claimed an additional $24,345.45 was due.

The Carlsons admitted Niewind completed extra work and that they owed him an additional $21,942.66 for the surplus work, but the Carlsons refused to pay anything because they claimed there were construction defects in the amount of $100,000.

Preliminary Notice Statute & Securing Lien Rights

Due to lack of payment, Niewind proceeded to secure his mechanic’s lien rights by serving a preliminary notice, filing a mechanic’s lien and ultimately he filed an action to foreclose the mechanic’s lien (aka suit).  The Carlsons asserted the mechanic’s lien could not be enforced because Niewind’s preliminary notice didn’t comply with Minnesota’s lien statutes.

Under the mechanic’s lien statute for Minnesota, a prelien notice (aka preliminary notice) must be in at least 10-point bold type, if printed, or in capital letters, if typewritten.  Minn. Stat. § 514.011, subd. 1, states that anyone who fails to provide notice shall not have a valid lien.

514.011 NOTICE.
Subdivision 1. Contractors.

Every person who enters into a contract with the owner for the improvement of real property and who has contracted or will contract with any subcontractors or material suppliers to provide labor, skill or materials for the improvement shall include in any written contract with the owner the notice required in this subdivision and shall provide the owner with a copy of the written contract. If no written contract for the improvement is entered into, the notice must be prepared separately and delivered personally or by certified mail to the owner or the owner’s authorized agent within ten days after the work of improvement is agreed upon. The notice, whether included in a written contract or separately given, must be in at least 10-point bold type, if printed, or in capital letters, if typewritten and must state as follows:

“(a) Any person or company supplying labor or materials for this improvement to your property may file a lien against your property if that person or company is not paid for the contributions.

(b) Under Minnesota law, you have the right to pay persons who supplied labor or materials for this improvement directly and deduct this amount from our contract price, or withhold the amounts due them from us until 120 days after completion of the improvement unless we give you a lien waiver signed by persons who supplied any labor or material for the improvement and who gave you timely notice.”

A person who fails to provide the notice shall not have the lien and remedy provided by this chapter.

Niewind’s prelien notice was in 11-point font, complying with the first requirement, but it was not in bold or capital letters.

The Consequence? An Invalidated Mechanic’s Lien

The district court declined to invalidate Niewind’s mechanic’s lien based on this technicality; however, the appellate court reversed that decision. The appellate court stressed that the statute requires strict compliance; prelien notices must be in bold type or capital letters, and the statute is clear and unambiguous as to the consequences for failure to provide proper notice.

This left Niewind’s mechanic’s lien unenforceable due to lack of compliance with Minnesota’s mechanic’s lien laws.

It’s a Tough Lesson

Niewind’s invalidated mechanic’s lien can be an auspicious warning. Mechanic’s Lien laws vary state to state, and yes, one state may be more lenient than another, but it’s best to follow the statute to the letter.

Remember, mechanic’s lien laws are often complicated and are not always written in a straightforward manner; however, strict adherence to these laws is required. It’s unfortunate that something as simple as using the wrong font can invalidate the rights of a lien claimant, but the laws are in place to protect all parties.

How To Find a Construction Law Attorney

Posted on February 3, 2015 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

How to Find an Attorney that Understands the Intricacies of Construction Law

You sent your preliminary notice; your customer’s invoices became past due.

You sent a demand letter; your customer didn’t budge.

You filed a mechanic’s lien, miscommunication is running rampant between the parties within the contractual chain, and yet you still aren’t paid…

It’s Time to File Suit.

“Suit” is an action in a court of law to enforce a claim.  (When enforcing a lien, suit is also referred to as “foreclosure”.)  Since suit is an action brought before the courts, it needs to be handled by an attorney – preferably an attorney that specializes in construction law. But how do you find an attorney that understands the intricacies of construction law, is able to take on your case, and do so at a moderated cost?

Many credit professionals turn to NCS and say “Help!”, because our network of attorneys provides extraordinary expertise.  Due to the valuable relationship cultivated with NCS, our attorneys provide their services at lower hourly rates.  But for those who would prefer to take the path less traveled, begin the search for the right attorney.

Hiring an attorney, a new vendor, should be very similar to the way you hire employees and qualify customers for credit. Before you commit, make sure you can create a comprehensive picture of the attorney’s qualifications, experience & costs.  NCS recommends asking the following questions & taking the following steps when looking for an attorney to take on your suit/foreclosure efforts.

First: the daunting task of actually searching for & locating an attorney.

  • Ask for a referral: ask your business circles for attorney recommendations. Often times, social networks, like LinkedIn, may assist in this effort.
  • Search the web: there are many websites available, but do your due diligence to ensure you are selecting reputable sites.

Second: the interview process.

Yes, you need to interview a perspective attorney. They are going to become an extension of your business – you are hiring them to assist you with your accounts receivable. Here are a few interview questions:

  • What are your core competencies? i.e. Are you familiar with mechanic’s lien/construction law and do you practice these areas of law regularly? If you are interviewing an attorney that typically handles divorce cases, but once in a blue moon handles construction litigation, then perhaps it would be better to move on to the next attorney in your list. Think of it this way: If you need to have a tumor removed from your brain, would you want to go to a general surgeon who dabbles in many types of surgeries or a neurosurgeon that specializes in tumor removal?
  • Have you handled cases like this in the past? You aren’t asking for specifics on a particular case (which is protected by attorney-client privilege), you are simply asking if the attorney has represented a lien claimant in a suit case similar to yours.
  • What is your hourly rate and what is included in that hourly rate? It’s important to know what is included in that hourly rate. Some attorney’s charge separately for research, phone calls and document drafting & mailing, while others are willing to bill on a contingency fee basis.
  • How frequently will you update me on the events of the case? Open communication is imperative, so set an expectation up front. If the attorney provides updates monthly, are you OK with that? Would you prefer an attorney update you weekly? If so, ask.

Finally: embark on the relationship, but do so with caution.

Once you have found, qualified & committed to an attorney, trust the attorney to complete the task at hand efficiently and effectively, but do not go into auto-pilot mode, be an active participant in your case. Of course, if the idea of qualifying an attorney to handle your suit has successfully made your head spin and your stomach knot up with anxiety, contact NCS.

North Carolina Notice to Lien Agent

Posted on January 28, 2015 by - Mechanic's Liens & Bond Claims

North Carolina: the Lien Agent & the Notice

The mechanic’s lien law in North Carolina experienced a rather large change in April 2013: the introduction of the Lien Agent. I would like to believe that the Lien Agent is a super-secret spy infiltrating the construction credit industry on behalf of mechanic’s lien claimants everywhere! Alas, while the Lien Agent may have some super powers, like preventing hidden liens, it’s not quite the super spy I’d hoped for.

Why is there a Lien Agent in North Carolina?

North Carolina had a “hidden lien” problem with construction projects. The mechanic’s liens weren’t hiding under bushes or behind trees, but rather hiding from future property buyers and lending companies. So, the North Carolina legislature came up with a solution: designate a party, for each private construction project, who must receive notification from any contractor or subcontractor supplying materials or labor to said project.

Who is the Lien Agent?

The Lien Agent is designated by the property owner if the project is $30,000.00 or more at the time the original building permit is issued, or, if no building permit is required, at the time the contract is entered into by the owner. According to LiensNC “Only title insurance companies and title insurance agents licensed to do business in North Carolina can serve as Lien Agents”

When should I notify the Lien Agent?

Serve the Notice to Lien Agent within 15 days from first furnishing labor or materials OR before the property is conveyed to a bona fide purchaser.

Is the Notice to Lien Agent the same as the Notice of Subcontract?

NO! These are two separate documents and you should serve both notices in order to protect your mechanic’s lien rights.

  • Serve a Notice of Subcontract on the prime contractor if the owner or prime contractor has properly filed and posted a Notice of Contract.
  • Serve Notice to Lien Agent within 15 days from first furnishing labor or materials or before the property is conveyed to a bona fide purchaser.

Will I always need to serve the Notice to Lien Agent and the Notice of Subcontract?

No, there may be circumstances when one or both of these notices may not be required. However, it is a best practice to serve these notices on every project to avoid any surprises when it’s time to file a mechanic’s lien or proceed with suit to enforce the mechanic’s lien. It would be awful to find out that your mechanic’s lien is invalid because you didn’t serve a notice, serve the correct notice or serve the correct parties with a copy of the notice.

How do I find out who the Lien Agent is?

You could take advantage of a service provider, like NCS, or you could visit the LiensNC website.

“The LiensNC website is a collaborative effort of NIC Services, LLC (NIC) and LiensNC, LLC (LLC) to provide a web-based online system to facilitate the filing of notices to the mechanics lien agents (MLA). The singular goal of this massive effort is to make the filing and finding of MLA notices as simple and as fast as possible for all users. This has been a joint effort of the title insurance underwriter members of the LLC.”

Do you have additional questions about the Notice to Lien Agent or need assistance with serving the Notices? Contact us today!

Serve Notice After First Furnishing

Posted on January 14, 2015 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Serve the Preliminary Notice AFTER You Begin Furnishing

Did you know some states require the preliminary notice to be served after you begin furnishing? Georgia, Iowa, Nevada & Wisconsin case law and/or statute instruct the claimant to serve the required preliminary notice once furnishing has commenced.

Georgia, Iowa, Nevada, and Wisconsin

Georgia

  • Private Projects: Serve Notice to Contractor within 30 days after first furnishing materials or services or within 30 days from the filing of the Notice of Commencement, whichever is later.
  • Public Projects: Serve Notice to Contractor within 30 days after first furnishing materials or services or within 30 days from the filing of the Notice of Commencement, whichever is later.

Iowa

  • Private Projects: Serve notice within 30 days after first furnishing materials or services.
  • Public Projects: Serve notice within 30 days after first furnishing materials or services.

Nevada

  • Private Projects: Serve notice after first furnishing materials or services, but within 31 days from first furnishing materials or services.
  • Public Projects: Serve notice after first furnishing materials or services, but within 30days from first furnishing materials or services.

Wisconsin

  • Residential Projects: Serve notice within 60 days after first furnishing materials or services (10 days if a prime contractor).
  • Public Projects: Serve notice within 60 days after first furnishing materials or services.

Most of us are familiar with states like California: serve the preliminary notice within 20 days of first furnishing. Typically, in states like California, it’s OK to serve the notice before you begin furnishing, as long as you serve the notice within the 20 days. But, as with everything in the construction credit industry, not all state statutes are the same.

Additional Resources from NCS

Interested in knowing which states have preliminary notice requirements for private projects (commercial & residential) or public projects? Check out these NCS Quick References!

For additional clarification on each state’s statute, please take a look at The National Lien Digest© or consult an attorney.

Small Mistake High Price in Mechanic’s Liens

Posted on December 2, 2014 by - Mechanic's Liens & Bond Claims

In the Field of Mechanic’s Liens, a Small Spelling Error has Large Price Tag

Mechanic’s Lien laws are notoriously complex and courts across the nation are often strict when determining compliance with statutes.  A New York court issued a decision which highlights the high costs of seemingly minor technical mishaps in the filing of a mechanic’s lien.

The Supreme Court of New York

New York County ruled in A. & L. Construction Corp. v. East Harlem Developers, LLC, that the plaintiff, A. & L. Construction Corp., lost the ability to foreclose its mechanic’s lien due to a minor error in the spelling of its name on the lien.

A. & L. Construction (A. & L.) filed proceedings to foreclose a mechanic’s lien against East Harlem Developers in the amount of $150,229.79.  The defendant, East Harlem Developers, filed a motion for summary judgment alleging the mechanic’s lien was invalid because the plaintiff, A. & L. Construction, is not the corporation named on the mechanic’s lien and the contract.

Evidently, on both the mechanic’s lien and the contract, the entity listed is “A&L Construction Corp.,” not “A. & L. Construction Corp.”  The defendant alleged it never did business with A&L Construction, which had different owners than A. & L., never did business with the defendant, and was dissolved three years before the parties contracted and work begin on the project.

The court explained that A. & L. had actually filed a previous action to enforce its mechanic’s lien which was dismissed for lack of standing.  A. & L. was instructed to re-file an action with its correct legal name and to correct its corporate name on the mechanic’s lien.  While A. & L. filed the current action with the correct name, it did not amend the existing mechanic’s lien.

“The Mechanic’s Lien is Unenforceable!”

A. & L. contended it was a mere scrivener’s error that misspelled the corporate name on the contract and mechanic’s lien. It urges that this minor error should not affect the validity of its mechanic’s lien.

The court, however, disagreed.

It turned to the language of the lien statute which requires the notice of lien state the name of the lienor. It found A. & L. failed to provide any evidence that the spelling was a scrivener’s error besides the plain assertion.  Accordingly, the court held the lien to be unenforceable and granted summary judgment to East Harlem.

The case of A. & L. illustrates the harsh consequences of even a minor error in the realm of mechanic’s liens. The difference between “A&L” and “A. & L.” is miniscule.  It is hardly even noticeable; a difference of two periods and two spaces.  A. & L. had likely taken to referring to itself as the simplified A&L for shorthand purposes, and failed to correct itself on official documents.

To a layperson, the error appears minor and understandable.  However, to the New York court, the error was significant enough to cost A. & L. a $150,229.79 mechanic’s lien.

What Are Joint Check Agreements?

Posted on November 18, 2014 by - Preliminary Notices & Construction Credit

What Are Joint Check Agreements?

No, it has nothing to do with twisting your arm while depositing a check at the bank, although I’m certain some may believe this to be true. A Joint Check Agreement is an agreement between multiple parties, allowing one party to make payment through a check issued to two or more payees. These types of agreements require the consent of multiple parties (i.e. the GC & the Sub or the Owner & the GC) and are often used as an additional tool in managing risk associated with construction credit.

What’s the benefit of a Joint Check Agreement?

The primary benefit of a joint check agreement is the additional security it can provide.

  • General Contractors like joint check agreements because they help to ensure the subcontractor will pay its suppliers with the appropriate funds (i.e. Circumvent robbing Peter to pay Paul).
  • Material Suppliers and other parties contracted with subcontractors like joint check agreements for added security on a potentially risky credit situation. (i.e. perhaps there is a lack of solid credit info on the general contractor)

What information should be included in a Joint Check Agreement?

Let’s break down the contents of a sample Joint Check Agreement provided by The Credit Research Foundation.

First, include the date of the agreement, the invoice(s)/purchase order(s) to be covered under the agreement, your company name & address as well as your customer’s name & address.

Date Purchase Order Number
Your Company Name Your Customer’s Name (Party 2)
Your Company Address Party 2 Address
Your Company City/State/Zip Party 2 City/State/Zip

Gentlemen:

YOUR COMPANY NAME has been requested by PARTY 2 to furnish certain (specify:  parts, components, etc.) on credit under purchase order number: ___________________ dated: ________________. The project is identified by PARTY 3 purchase order # __________________, dated: _________________.

Next, identify the authorized signors (the individual at each company that is permitted to execute this type of agreement) as well as the terms and conditions of the sale.

PARTY 2 and PARTY 3 understand and agree that: (1) the undersigned signors are authorized agents of said companies and are duly empowered to enter into and make a binding agreement on behalf of their respective companies; (2) YOUR COMPANY NAME standard terms and conditions of sale which appear on each of YOUR COMPANY NAME invoice and the application of credit shall govern all sales of goods and/or equipment from YOUR COMPANY NAME to PARTY 2 in accordance with its contract with PARTY 3.

Make sure to include wording that covers the materials/labor provided for the particular project. Including a specific project helps alleviate “robbing Peter to pay Paul” (i.e. monies paid are for that particular project).

Applicable only to the products furnished by YOUR COMPANY NAME and as a condition precedent to furnishing said materials for use and incorporation in the aforementioned project, YOUR COMPANY NAME requests that until it is paid in full, all payments made or to be made by PARTY 3 to PARTY 2 with respect to said project, be made payable by check or checks jointly payable to PARTY 2 and YOUR COMPANY NAME. It is understood that all payments shall be timely and in the form of an immediate and unconditional negotiable instrument. Upon issuance of a check by the PARTY 3, it shall be promptly endorsed by PARTY 2 and delivered to YOUR COMPANY NAME. It is understood that this is a continuing Agreement applicable to the original purchase order and the YOUR COMPANY NAME invoice(s) and to any subsequent billing related to this project only.

Identify what actions should be taken in the event one party fails to uphold their end of the agreement. Lastly, include language prohibiting the altering of said agreement and include spaces for all three parties to sign.

Should PARTY 2   refuse to endorse any joint check tendered by PARTY 3, then upon demand by YOUR COMPANY NAME, PARTY 3 agrees to issue a single party check payable to YOUR COMPANY NAME for the amount shown upon the unpaid invoice (s) relating to the goods/materials furnished to and used by  PARTY 2 under purchase order #: __________________________   dated: __________________.
Notwithstanding any additional contract terms that may now or hereafter exist between PARTY 2 and   PARTY 3, this agreement may not be altered or modified without the written consent of YOUR COMPANY NAME or its authorized representative.
This agreement will assist YOUR COMPANY NAME in fulfilling the requirements of PARTY 2 under its contract with   PARTY 3 and is for the mutual protection of each party. In no way should it be interpreted as casting doubt on the ability, integrity or credit worthiness of any interested party. Duly authorized signors should promptly execute this Agreement in the spaces provided below and upon completion, return this original Joint Check Agreement to YOUR COMPANY NAME. An acknowledgment will be mailed to you.

Your Company Name Party 2 Name            Party 3 Name           
By By By
Title Title Title

At-a-Glance: Joint Check Agreement Content Breakdown

  • The name and address of each party associated with the agreement
  • The name/address of the project to which the materials/labor are being supplied
  • The date the parties entered into the agreement
  • The credit terms
  • The steps to be taken, in the event the agreement is not upheld
  • Signatures of all parties involved

Although joint check agreements are an excellent tool for mitigating risk, there are potential pitfalls. Before entering into Joint Check Agreement, or any contractual agreement, it is always best to have legal counsel review the document & its terms.