When is the Lender a Required Party

When is the Lender Required to Receive a Copy of the Preliminary Notice?

When you need to secure mechanic’s lien or bond claim rights, serving a preliminary notice upon the required parties is just as important as ensuring the proper notice is served in the correct manner.

Did You Know? 72.55% of states have either a required or optional preliminary notice that should be served on commercial projects in order to preserve mechanic’s lien rights. 19 states require a preliminary notice be served in order to secure claim rights for public projects.

The Owner & The General

The majority of states with a preliminary notice requirement, request the notice be served upon the owner and/or the general contractor. But sometimes, a state’s statute may also require that the lender receive a copy of the notice.

What is a Lender?

A lender is the party (or parties) funding the project. Often the lender is a financial institution, but sometimes, especially in the case of P3s, the lender may be a corporation or other entity.

Arizona statute 33-992.01, defines the Construction Lender as “any mortgagee or beneficiary under a deed of trust lending funds all or a portion of which are used to defray the cost of the construction, alteration, repair or improvement, or any assignee or successor in interest of either.”

Which States Require the Lender be Served with a Copy of the Notice?

  • Alabama – In Alabama, on private projects, claimants should serve the notice upon the owner and construction lender prior to first furnishing materials or services.
  • Arizona – In Arizona, on private projects, claimants should serve notice upon the owner, prime contractor and construction lender within 20 days from first furnishing materials or services.
  • California – In California, on private projects, serve notice upon the owner, prime contractor and lender within 20 days from first furnishing materials or services.
  • Oregon – While not required, serving the lender with the preliminary notice in Oregon may provide you greater priority when a lien is later filed.

What happens if I don’t serve the Lender?

In the event you do not serve the lender (or any required party for that matter) and the validity of your notice is called into question, it will ultimately be up to the legal jurisdiction. In my case law research, courts frequently interpret the statute liberally to protect the parties supplying to a project, but there are some courts that have upheld the statute word for word.

(Some states, like Minnesota, are VERY particular about notice requirements)

Best Practice

Serve all parties within the contractual chain, even if they aren’t required to receive a copy of the notice. It is best for everyone to know that your company is furnishing to the project, and that all parties know you intend to be paid for the services you provide!

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