Service Area: Collection Services

Watch Your Language, Your Lien Waiver Language

Posted on May 18, 2020 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Watch Your Language, Your Lien Waiver Language: How One Subcontractor Waived Its Right to Lien

“Watch your language!” Does it sound like I’m having flashbacks to my rowdy unruly teenage years; my dad hollering when I got a bit too sassy? Maybe. But today I’m ignoring those flashbacks and focusing on watching my lien waiver language. Lien waiver language is easily overlooked or ignored, despite its critical role in the security of your mechanic’s lien rights. Today we’ll review lien waiver language and a true story of a waiver that prevented one claimant from leveraging its mechanic’s lien.

4 Primary Lien Waiver Types

Every lien waiver should clearly identify the property name & project location, the debtor’s name (your customer), the invoice or purchase order number, the payment amount and the disputed claim amount. If the lien waiver is for partial payment, you should also include the payment period or a through date.

There are four primary types of lien waivers:

  1. 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.
  2. 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 contractor/subcontractor/supplier will have waived their rights to that partial payment.
  3. Final Conditional: A signed document agreeing to waive rights to a claim, conditioned upon receipt and clearance of a final payment. If the contractor/subcontractor/supplier does not get the final payment, or the payment does not clear, the waiver does not waive their rights.
  4. Final Unconditional: A signed document agreeing to waive all rights to a claim. The waiver is not conditioned upon clearance of a final payment.  The contractor’s/subcontractor’s/supplier’s rights will be waived whether or not payment is received or cleared.

Waive Not, Want Not

A spin on another phrase from my youth: waste not, want not. While I may find it entertaining, I’m reasonably certain the subcontractor in today’s case isn’t as amused. (You can view the case here.)

The subcontractor (sub) & general contractor (GC) executed an agreement which stated the sub would perform all work necessary for a lump sum amount. Within the contract there was additional language stipulating the sub would do whatever it takes to maintain the project schedule & the GC would not be charged.

“The Subcontractor is responsible to mobilize as many times as necessary to conform to job site conditions and the project schedule. Any fees associated with these mobilizations are to be covered by this Subcontractor. The GC and client will not incur any costs associated as a result of these mobilizations.”

Throughout the course of its work, the subcontractor executed lien waivers for various pay periods. Here’s language from the lien waiver:

“… the undersigned acknowledges and agrees that it will have received payment in full, less retainage withheld, for all services and work performed and all materials and equipment furnished or stored in connection with the construction of the Project through the Period Ending Date, and hereby now and forever waives, releases and quitclaims, with respect to the Project, all claims and rights to claim against the Contractor, the Owner, the Lessor, the Lender or the land upon which, or the improvements within which, the Project is situated, except for retainage withheld… “

Well, as you might have guessed, the relationship between the sub & GC grew tenuous and the GC terminated the sub. The sub sought recovery of $626,340 in “delay damages for change order requests… an alleged unpaid balance of the Subcontract.” Unfortunately, the sub was barred from pursuing the claim. Why?

It’s all in the lien waiver. And frankly, it’s pretty clear –

“…that it will have received payment in full, less retainage withheld, for all services and work performed and all materials and equipment furnished or stored in connection with the construction of the Project through the Period Ending Date, and hereby now and forever waives, releases and quitclaims, with respect to the Project, all claims and rights to claim against…”

Hereby Now and Forever Waives – Seems Permanent

The sub waived its rights to claims when it executed the waivers. According to the court opinion “In each of the written releases, Metro certified that, ‘there are no additional costs or claims for any extras or additional for work, services, material and/or equipment on the Project.’” And, in case there was any doubt on the waiver language, the court furthered “there is no ambiguity in the releases here…”

Now, in this case the sub had two documents working against its claim: the subcontract and the lien waivers. But the court opinion was clear, even without the terms of the subcontract, the executed waivers barred the sub from pursuing it’s claim.

No Ownership, No Lien in North Carolina

Posted on May 4, 2020 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

No Mechanic’s Lien Rights in North Carolina for a Design Firm Hired by the Property “Owner” Who Didn’t Purchase (aka Own) the Property

In construction, there are often multiple contracts and agreements being executed simultaneously, between a multitude of parties. Frequently, the sale of a property occurs while construction is underway or construction contracts are executed, before a property is officially sold.

Unfortunately, there may be times when construction is underway and then the bill of sale on the property falls through. So, what happens if you are furnishing to a project and the party that hired you doesn’t actually purchase the property you were hired to improve? For one design firm in North Carolina, it meant mechanic’s lien rights didn’t exist.

The Case of Davis & Taft Architecture, PA v. DDR-Shadowline, LLC

DDR-Shadowline, LLC (DDR) was interested in purchasing property from Shadowline Partners, LLC (Shadowline); the property was to become a student housing complex. DDR hired Davis & Taft Architecture, PA (Davis), a design firm, to provide architectural services for the planned student housing complex.

Davis was contracted, by DDR, to provide $230,000 in design services. Within the Agreement for Purchase and Sale of Real Property between Shadowline and assignee DDR, there was a specific section outlining the amount of Davis’ contract and the terms in which Davis should be paid.

Davis was paid all but $80,000 for which it filed a lien on Shadowline’s property.

Did you catch that? “Filed the lien on Shadowline’s property.” See, the sale of the property from Shadowline to DDR never went through. And DDR is the one that hired Davis; Shadowline, the actual property owner, didn’t hire Davis. When Davis proceeded with suit to enforce the mechanic’s lien, the court said “no.” Because statute specifically states the contract needs to be with the owner of the property – not the “would be owner” or the “owner to be.”

“Any person who performs or furnishes labor or professional design or surveying services or furnishes materials or furnishes rental equipment pursuant to a contract, either express or implied, with the owner of real property for the making of an improvement thereon shall . . . have a right to file a claim of lien on real property on the real property to secure payment of all debts owing for labor done or professional design or surveying services or material furnished or equipment rented pursuant to the contract.”

Davis filed an appeal, which resulted in the same decision: you contracted with a party that had no rights to the property, therefore no lien rights exist.

My advice? Keep an eye on living documents – the documents that haven’t’ officially been executed. I recognize it is tough to wait for the annoying red tape of documents, especially when you have been hired for a job. But, in the long run, it may be best to ensure t’s are crossed and i’s are dotted before moving forward.

North Carolina Mechanic’s Lien Rights

First, let’s review the steps for securing mechanic’s lien rights in North Carolina, starting with the preliminary notice. For private projects in North Carolina, you should serve a Notice of Subcontract upon the prime contractor as soon as possible to trap funds. If you don’t serve the Notice of Subcontract, you may defeat your lien against the property. The Notice of Subcontract may not be required if: contracting directly with the owner, contracting directly with the prime contractor, or if a Notice of Contract was not properly filed and posted by the owner or prime contractor.

Then there’s the Notice to 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.

A Notice to Lien Agent is not required:

  • when the Lien Agent information was not provided by the owner within 7 days from receipt of a written request from a lien claimant or was not posted at the project or included within the building permit,
  • when the lien is filed prior to the conveyance of the property to a bona fide purchaser,
  • for design professionals contracting directly with the owner when the Lien Agent information is included within their contract, or
  • to maintain a lien on funds.

You should renew the Notice to Lien Agent within 5 years from the date the Notice to Lien Agent was delivered. If not renewed within 5 years, the Notice to Lien Agent will expire.

In the event you need to proceed with the lien, you should file the lien within 120 days from last furnishing. Bear in mind, North Carolina is an unpaid balance lien state, which means the lien is enforceable for the unpaid portion of the contract.

  • Serve a copy of the lien upon the owner and, when contracting with a subcontractor, upon the contractor, within 120 days from last furnishing materials or services.
  • Serve a copy of the lien on funds upon all parties within the contractual chain.
  • When contracting directly with a third-tier subcontractor, a lien on property is not available and a lien on funds is limited to the funds owed to the third-tier subcontractor.  Serve the lien on funds as soon as possible to trap funds.

Lastly, should you need to file suit, it should be filed within 180 days from your last furnishing.

Construction Notice of Delay and COVID-19

Posted on April 27, 2020 by - In Other Commercial Credit News

Construction Notice of Delay and COVID-19

Are you furnishing to a construction project? If so, should you send a Notice of Delay? The National Law Review posted an article entitled “Contractors:  It’s Time to Send Your COVID-19 Notice” written by R. Thomas Dunn of Pierce Atwood LLC, suggesting that contractors send a formal COVID-19 Notice of Delay as soon as possible to notify their contracting party of any delays and/or additional costs on their construction projects.

In his article, Dunn explains the time to send the notice is now. The notice is an opportunity to maintain open lines of communication during this uncertain time.

“This is not an adversarial notice. Your contracting party will understand the impacts experienced and should appreciate the proactive approach in communicating the COVID-19 impacts.  If discussions have occurred between your contracting party, I would still send a formal notice as to avoid further legal defenses down the line.  Also, providing the formal notice creates a structure that is helpful in creating a productive communication pathway regarding the delays/costs incurred and ways to mitigate them.”

Review the Notice of Delay with Your Legal Team

We recommend that you and your legal team review your contracts to determine whether a Notice of Delay is required. If a Notice of Delay is required, confirm the terms of your agreement to ensure the correct parties are served and served by the appropriate method (fax, email, certified mail, registered mail, etc.).

In addition to the information required to be included per your contract, it is recommended, to include a description of the expected impact of the delays and/or additional costs, the impact on the supply chain or labor chain, if applicable, and when you expect to be back to normal. Updates to the notice should be provided as additional information is known.

Notice of Delay Samples

Dunn provides a template for the Notice of Delay in his article:

[VIA EMAIL / FED EX / CERTIFIED MAIL – Contract Requirement]

[Name/address listed in contract]

RE:  Notice of Delay and Increased Cost Due to COVID-19 Pandemic on Project _____________

Dear ___________:

The COVID-19 Pandemic, which has been declared a national emergency by President Trump on March 13, 2020 [and _______________ (local authorities)] has caused unanticipated delays and increased costs to the above-referenced Project that were beyond the Contractor’s control.  See Sections _____ of the Contract.

In particular, Contractor has experienced the following delays and impacts to project performance: _________________.  [If applicable,] the project has been suspended since ____________(date).

Contractor requests a time extension of ____ days at this time in response to the COVID-19 delays and impacts.  Contractor invites the Owner to participate in a conference call to discuss this request for a time extension and to outline a plan to reduce the impact on the Contract Time and Contract Price.

In addition, Contractor is experiencing increased costs resulting from the COVID-19 pandemic including ______________ (explain).  Contractor is collecting its costs and will provide updated information to the Owner in the near future.  In the meantime, we are available to discuss different options to reduce the amount of costs incurred in connection with the Project.

Contractor reserves all rights and remedies it has pursuant to the Contract and is confident it will be able to get through these events with Owner and all project participants.  Please contact me to discuss these issues and, again, we will provide periodic updates as soon as possible.

The Associated General Contractors of America have also provided a sample copy of the Notice of Delay COVID-19 letter.

NOTICE OF POTENTIAL DELAY AND RESERVATION OF RIGHTS

(Check Contract for person(s) to send letter and manner required to send i.e. fax, email, certified or registered mail)
Insert Date

Re: COVID-19 Pandemic

To Whom It May Concern:

We are all aware of the ongoing outbreak of the Coronavirus 2019 (COVID-19), which was recently declared a pandemic by the World Health Organization and the President and Governor have declared a national and state emergency, respectively. Although the situation continues to evolve rapidly, (Insert Company Name) remains fully committed to pursuing the completion of our work in a safe, diligent and reasonable manner under the current circumstances. We must recognize, however, there is a strong likelihood that we will encounter certain delays as a result of this pandemic.

We anticipate our work will be delayed and our productivity will be negatively impacted by the cumulative effect of this outbreak. Potential impacts may include, but are not limited to, labor shortages due to infection or quarantine as well as material shortages and significant delays in lead times as a result of factory closings across the globe. In addition, we are monitoring whether there will be a mandatory shut down. At this time, it is not be possible to quantify the delay or compute the impact costs.

While this notice may seem premature, our contract requires that we furnish you written notice of any delays in a timely fashion. Accordingly, pursuant to the terms of our contract, please consider this correspondence to be our formal notice of potential delays to our performance through no fault of our own and that are beyond our control, including, but not limited to, changed conditions, constructive suspension of work, constructive change, force majeure/act of God, etc. (Insert Company Name) hereby reserves all rights it may have under our contract and applicable law to protect its legal and commercial interests, including without limitation the right to seek an extension of time and an increase in our contract price. Please keep records as you deem appropriate to confirm any extensions or increased or unabsorbed costs if we do, in fact, submit same. I can assure you that we are evaluating all options to minimize and mitigate the impact to your Project. As more information becomes available, we would like to discuss our options for successfully completing this Project.

We will continue to keep your project representatives informed of these delays and their effect on overall job completion. We will diligently seek to minimize to the best of our ability, the effects of these delays on our work. Your cooperation in minimizing these impacts are appreciated as work our way through this unprecedented event.

NCS Stands Ready to Protect Your Rights During this Difficult Time

NCS has included the basic template from the Associated General Contractors of America within our Online Services Account Management portal for our clients.

Adjustments will need to be made based on the requirements of your contract and/or the information that is available to you. When finalized, the document should be signed by a person who is authorized to bind your company.

Call 800-826-5256 or email SecureYourTomorrow@ncscredit.com with any questions.

Your Credit Management Arsenal & COVID-19

Posted on March 19, 2020 by - Credit Risk Management, In Other Commercial Credit News, Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit, UCC Financing Statements

COVID-19 and Your Credit Management Arsenal

If you extend credit, you are vulnerable to risk — whether furnishing to a single construction project or selling on revolving terms. This vulnerability grows exponentially in the midst of tragic events, such as the COVID-19 pandemic. Although economic loss is inevitable, you have the power to mitigate the loss through UCC filings, mechanic’s liens, and a fully loaded credit management arsenal.

Credit Management Requires Innovation

Credit Management isn’t simply about reducing risk. It’s reducing risk while promoting long term growth and improving sales. Now more than ever, credit requires innovation. Fortunately, in the era of Big Data, innovation is at your fingertips.

It is imperative to examine and fully understand the data and the potential implications. Listen to industry experts and analysts; review credit indexes, credit reports and bankruptcy reports, as well as lien filings & foreclosures. It’s vital to analyze the collective opinions and statistics to effectively create a comprehensive credit picture.

Technology and Data Sources that Assist Credit Professionals

Technology has proven to be an immense asset; mining the right data is a challenge faced by many. Credit reports, state and county recording offices, industry trade/credit groups and message boards, and even online reviews provide pertinent information. Keep these in your credit management arsenal —

Credit Reports

Credit bureaus have compiled information relevant to a business’s credit, analyzed the data, and provided it for consumption as a trustworthy recommendation. Credit professionals use credit reports to review an entity’s viability.

Credit reports are likely to include general financials (payment trends, debt to income, outstanding collections/judgments, UCC filings, DBT), though some comprehensive reports provide additional bits of relevant data, such as the entity’s status with the Secretary of State.

Compliance with Secretary of State

A business should be in good standing with the Secretary of State. A lapse in compliance with the Secretary of State can be an early warning sign of an entity’s financial distress, though this information is frequently overlooked. If a corporate search reveals a status of anything other than “active,” it is worth further exploration.

A company’s corporate status could change for a multitude of reasons, including a change in the company name, the dissolution of the company or neglecting to file an annual report or changing the formation type.

Our research discovered, in an average year, 23% of businesses experience a change in their corporate status with the Secretary of State. Of these changes, over 10% of businesses dissolve or close their doors. As we navigate the current crisis, these numbers are likely to increase exponentially.

Industry Trade & Credit Groups

In many instances, your peers could be one of your greatest resources. Although credit-granting processes and credit management have evolved, common issues remain: debtor isn’t paying timely, debtor is providing a “pay-when-paid” excuse, debtor has little credit history, etc. These aren’t new issues for credit professionals and your peers have encountered them time & time again. Take advantage of the experiences of others – of course, please do so at a safe distance! (Too soon?)

Mechanic’s Lien Activity

A review of mechanic’s lien filings may uncover, among other valuable information, significant financial distress. If a business has been party to several mechanic’s lien filings, red flags fly, as this party has been unpaid. Unless they have an abundance of working capital, several filings should raise concern.

Accounts Receivable

Don’t overlook the valuable information within your own accounts receivable (AR) payment trends and behaviors provide additional insights. The trend of accounts 30 days beyond terms (or 60, 90, 120), is an early warning sign of stifled cash flow.

When negative trends appear in AR, it provides an early opportunity to evaluate the collectability of past due accounts. If collection efforts are necessary, creditors should leverage the security of mechanic’s liens and UCC filings.

Keep in mind, trends from AR do not have to be negative to provide valuable information. Data is what you make of it. Positive trends in AR (i.e. fewer clients 30+ DBT) likely correlate to a company’s growth and/or improved working capital.

Competitive Intel

Credit reports and mechanic’s lien activity provide obvious benefits for analyzing credit, but they can also provide valuable competitive intelligence. Know what your competitors are doing. Are they filing UCCs? How much credit are they extending via open and/or revolving lines of credit? Are they filing mechanic’s liens? Are they entangled in mechanic’s liens, indicating money issues?

Bankruptcy Information

In the fall of 2018, retail and restaurants landed at the top of Standard & Poor’s Distress Ratio list: “As of Nov. 15, the retail and restaurants sector has the highest distress ratio at 19.5%, followed by telecommunications at 15.6%.”

Several major restaurant chains and retailers have filed for bankruptcy in an economic boom; imagine what will happen over the next 6 months – 1 year.  Some experts believe the restaurant industry is an early predictor of the overall economy — if restaurants are down, other facets of the economy will soon follow.

Of course, restaurants aren’t the only entities filing for bankruptcy. The healthcare industry is facing the enormous task of caring for those who have fallen/will fall ill. As if caring for the ill wasn’t enough, hospitals were already struggling financially.  There have been nearly 5,000 healthcare industry bankruptcies in the last 5 years. Unsecured creditors have been receiving, if anything, pennies on the dollar – pennies!

Regardless of the economic state of the country, understand and remember that bankruptcy will always be a risk. Do not become complacent. Remain vigilant and take precautions to ensure you are a secured creditor.

Credit Management Arsenal

Credit Management requires an array of accessible resources and considerations. Credit reports should provide a company’s net worth, payment history, likelihood of default, and credit limit recommendations, even UCC filings and collection placements. Periodically review the company’s status with the Secretary of State. Monitor and review mechanic’s lien activity, whether related to your customer, project or competitors. File UCCs on all customers and monitor for bankruptcies.

We are here to help you establish and maintain a successful credit risk mitigation program. I feel like an infomercial when I say this, but don’t wait – you need to get these processes in place now.

We are in this together!

Who Signs the New Jersey Preliminary Notice

Posted on February 24, 2020 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Authorized Signatures: A Critical Element in Mechanic’s Liens

As if it’s not challenging enough to keep track of notice and lien deadlines and requirements for each state, you also need to be sure the person signing a mechanic’s lien is authorized to do so. Why? Because you don’t want your mechanic’s lien invalidated and discharged, and you certainly don’t want to be saddled with additional attorney fees, like the claimant at the center of today’s post.

New Jersey Changed Its Statute

In 2011, New Jersey amended its mechanic’s lien statute. One change under the 2011 revisions was to modify the signature requirements of the lien. Prior to 2011, the statute dictated the lien should be signed by a “duly authorized officer” of the claimant company. In 2011 the NJ 2A:44A-6 statute was amended to “the lien claim form…shall be signed, acknowledged and verified by oath of the claimant…” removing the “duly authorized officer” requirement.

This change was more than 10 years ago, why does it matter now? Because as recent as December 2018, a case was before a NJ Court of Appeals regarding a 2008 mechanic’s lien. You can read the appeals decision for Diamond Beach, LLC v. March Associates, Inc., NJ: Appellate Div. 2018, but here’s the gist –

In 2008, the lien claimant filed a lien signed by claimant’s “Accounting & Information Systems Manager” who was not a duly authorized officer of the company. The project owner contested the lien, arguing the lien was invalid because it was not executed by a duly authorized officer of the company. Not only did the court agree with the owner and discharge the lien, the court also awarded attorney fees to the owner. The claimant tried to argue the 2011 statute changes retroactively applied to its 2008 lien; as you’d imagine, the court disagreed with that argument.

“…the Legislature did not ‘express its intent that the [signatory change] apply retroactively, either expressly or implicitly,’ and there is no suggestion at all that the parties expected retroactive application.”

Ok. But That Was Then. What’s the Big Deal Now?

Well, there’s a tricky thing about NJ statute. Yes, “duly authorized officer” was removed from the text under NJ 2A:44A-6. However, under the current notary section of the lien form (NJ 2A:44A-8), the language implies the person signing the lien is an officer of the company:

On this ____ day of ______ 20__, before me, the subscriber, personally appeared (person signing on behalf of claimant(s)) who, I am satisfied is the Secretary (or other officer/manager/agent) of the Corporation (partnership or limited liability company) named herein and who by me duly sworn/affirmed, asserted authority to act on behalf of the Corporation (partnership or limited liability company) and who, by virtue of its Bylaws, or Resolution of its Board of Directors (or partnership or operating agreement) executed the within instrument on its behalf, and thereupon acknowledged that claimant signed, sealed and delivered same as claimant’s act and deed, for the purposes herein expressed.

Confusing? Contradictory? Contentious? Yes, yes, and yes! Although statute was updated to remove “duly authorized officer” the lien form itself was not modified to remove language that implies the signatory is an officer of the company.

Best Practice: Any time you are executing a mechanic’s lien, ensure it is signed by an individual authorized by your company to sign a legal document on the company’s behalf.

Just in Case You Wondered: New Jersey Mechanic’s Lien Rights

New Jersey is an unpaid balance lien state, which means the lien is only enforceable for the unpaid portion of the contract. Also, only those contracting with the owner, prime contractor, or a first-tier subcontractor have mechanic’s lien rights.

In New Jersey, there are different requirements depending on whether you furnish to a commercial project or residential project. Here’s a breakdown:

Preconstruction Management Services Lienable In NY?

Posted on February 17, 2020 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Preconstruction Management Services May Be Lienable In New York

In December 2019, the Court of Appeals heard a New York property owner contest a mechanic’s lien filed by a preconstruction management services firm, because the owner claimed the services provided by firm weren’t lienable. The Court of Appeals sided with the preconstruction management services firm – let’s check out why.

Matter of Old Post Rd. Assoc., LLC v. LRC Constr., LLC, 2019 NY

April 2016, the property owner, Old Post Road Associates, LLC (Old Post) hired LRC Construction, LLC (LRC) to perform preconstruction management services. August 2017, LRC filed a mechanic’s lien for $250,000. February 2018, Old Post filed an order to have the lien discharged, claiming the lien was invalid because preconstruction management services aren’t lienable services under NY lien law.

What Are Preconstruction Management Services?

What exactly are preconstruction management services? According to the court opinion, the preconstruction management services LRC provided to Old Post included “consulting with agents of Old Post regarding, inter alia, construction phasing and the preparation of construction budgets.”

OK, I could sort of see how these may not be lienable.

But the court denied Old Post’s petition to discharge the lien, because the lien wasn’t “entirely invalid on its face.”

Uh – what – the lien has a face?

In other words, although the lienability of the services may be questionable, the lien itself reasonably complied with statute. Because the lien reasonably complied, there was no reason to summarily discharge it. It would be up to a foreclosure trial to determine whether the services provided were lienable.

As you’d imagine, Old Post filed a claim with the Court of Appeals (the case we are reviewing here). And the Appeals Court said the same thing: there’s nothing wrong with the lien and you must wait until foreclosure to determine whether the services are lienable.

However, the Court of Appeals did touch on what is lienable under NY statute:

“Lien Law § 3 provides, in pertinent part, that a contractor ‘who performs labor or furnishes materials for the improvement of real property with the consent or at the request of the owner thereof . . . shall have a lien for the principal and interest, of the value, or the agreed price, of such labor . . . or materials upon the real property improved or to be improved.’ The term ‘improvement,’ as defined in Lien Law § 2(4), ‘includes the demolition, erection, alteration or repair of any structure upon, connected with, or beneath the surface of, any real property and any work done upon such property or materials furnished for its permanent improvement, . . . and shall also include the drawing by any architect or engineer or surveyor, of any plans or specifications or survey, which are prepared for or used in connection with such improvement.’”

But these aren’t services LRC provided, right? So LRC’s lien is invalid, right? Well, maybe.

It turns out, LRC submitted that it is a construction management firm which “…employed construction professionals, architects, and engineers, and that, in addition to the consulting services it rendered, LRC also prepared ‘site logistics and access plans’ for the property, and performed ‘a constructability review for the project’ at the property.”

And, if we liberally interpret statute, these services could potentially fall under the category of “improvement.”

“Since LRC would be entitled to file a mechanic’s lien if its architects and/or engineers prepared the site logistics, access plans, or constructability review, the mechanic’s lien is not invalid on its face. Accordingly, the dispute regarding the validity of the mechanic’s lien must be resolved at the lien foreclosure trial.”

You Didn’t Even Answer the Question

You’ve made it this far & we still don’t know with certainty whether preconstruction management services are lienable under NY statute. You’re right. In this case, at this moment, we have no idea whether a foreclosure trial will result in a valid or invalid lien for LRC. But we did learn something…

We learned: a lien needs to reasonably comply with statute to avoid discharge, parties should have documentation supporting the materials or services provided, the lien should be filed timely, and parties should be prepared to not always get an answer the first time around.

In this case, the claimant (LRC) took the proper steps to file its lien for unpaid services and it was prepared to provide the documentation necessary to support its claim. And, unfortunately, in many cases that wind up in court – it’s not a fast process. Litigation can take time – a lot of time – be prepared.

Commercial Credit Management Tips for Notices & Liens

Posted on February 10, 2020 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

10 Tips for Commercial Credit Management of Notices & Mechanic’s Liens

It’s part three of our three-part series of Commercial Credit Management Tips from NCS. Previously we provided favorite tips for Collections and UCCs. Today we wrap up this series with tips for Notices & Liens.

Commercial Credit Management Tips for Notices & Liens

Tip #1: No Notice Required? Serve a Non-Statutory Notice

There are instances where a preliminary notice isn’t required. As a best practice, serve a non-statutory notice. A non-statutory notice is a notification to an owner that its land has been or will be improved by the goods or services supplied. Often, the owner of a property is unaware that a supplier has provided value to a property or project until the notice is served. View the notice as a courtesy to the owner, advising of your involvement in providing quality products and services to the project.

Tip #2: First Furnishing, Last Furnishing & Completion

Furnishing dates most often dictate the notice, lien/bond claim, and suit deadlines. First Furnishing is the date on which the claimant first provides materials or performs services on a project. Here are some typical examples of first furnishing:

  • if you are providing only materials, the date the materials first arrive on the job site
  • if you are providing only labor to the project, the date you first arrive on location
  • if you are providing materials and labor to the project, the first date either materials or labor are provided to the job site

Last Furnishing is the date on which the claimant last substantially furnishes materials or performs services on a project.

Here are some examples of questionable last furnishing dates: punch list work, warranty, remediation. The key when using last furnishing to calculate a deadline is that it needs to be substantial.

Completion, which can also affect deadlines, is the date of fulfillment of the prime contract for work of improvement. Note: Completion is typically when the general contract is complete, not necessarily the date your contract is complete. Acceptance is an official act where entry is made in the government records that a public work under contract is completed and accepted.

Tip #3: Understanding Releases and Waivers

When signing any release or waiver for a project, make sure you are only releasing what you intend to release. Points to consider:

  • Unconditional or Conditional: does the language within the waiver reflect the title of the release/waiver and does it express your intention? If the waiver is “conditioned” upon receipt of payment, use a conditional waiver form.
  • Final or Partial: If additional payments are to be received, a partial waiver form should be used.
  • Is the project information correct?
  • Are the invoice(s) correctly and clearly identified?
  • Is the amount shown in the waiver the amount you received?
  • Is the amount shown correct as to the date released and waived through?

The most common mistakes made with releases and waivers are signing a waiver, thinking it is conditional, only to find the language was unconditional, and discovering the date released or waived through includes additional invoices that were not part of the amount paid.

Tip #4: Defining Your Contractual Chain

You’re filling out a job information sheet or completing an NCS Service Request form and see spaces for an owner, a prime contractor, a subcontractor. You aren’t sure who it is you’re selling to. Are you a supplier that ‘never’ sells to a general contractor? Has your customer ever said, “There isn’t a GC on this project,” when you ask for job information?

A prime or general contractor is typically described as the party who contracts with the owner and is responsible for day-to-day oversight of a construction project. You might be thinking, “My customer never acts as a general contractor because they aren’t responsible for anything else on this job.” Generally, what you want to do is look at the complete picture of the contractual chain.

The key is that if your debtor is selling directly to the owner; their contract is “prime” with the owner. Even though your debtor may not be overseeing other aspects of the project, they are working with the owner and should be listed as the prime contractor.

Remember, the prime contractor is the party who contracts with the owner. So, if your debtor is selling directly to the owner, and you must choose who you sold to, the answer is…drum roll please…the Prime Contractor.

Tip #5: Confirm Your Job Is Bonded

“What do you mean it’s not bonded – it’s a government job!”  Not all government jobs are bonded. Some states have bond thresholds or requirements, but the only sure-fire way to know the job is bonded is to get the bond. Take some of the guesswork out of your security stance and ask for a copy of the payment bond up front. If the job isn’t bonded, at least you’ll know to investigate alternative security measures at the onset.

Tip #6: Use Public Liens Where Available

A bond claim is probably the most well-known form of security when providing labor and materials on a public works project. However, some states allow for a lien on public funds, which can trap money unpaid from the public entity to the general contractor. Though this service is often referred to as a Public Improvement Lien, states may call this type of claim something else: Municipal Mechanic’s Lien (NJ), Lien on Funds (NC), or Stop Notice (CA). There are 15 states that allow for a public lien on funds in addition to serving a claim against a payment bond.

Tip #7: How to Handle Sovereign Territory Projects

Sovereign land projects can be a big issue in terms of determining the best course of action for security. If a project is located on an Indian Reservation, the mechanic’s lien / bond claim statutes may not apply. Often, a project name or owner name can tip you off as to whether a project is located on tribal land or owned by a tribal authority. A simple owner search via the county assessor may help confirm if the project is considered government land and/or owned by the authority.

In some instances, the tribal authority may require a payment bond; however, this is not public information. We recommend a) proceeding with the statutory Preliminary Notice if applicable or a Non-Statutory Notice of Furnishing and b) having NCS investigate whether the project is bonded.

Tip #8: Waiting until the last minute to record a Mechanic’s Lien? Think again!

Factors like inclement weather, county closures, state holidays and the wait times for document recording can cause MAJOR delays in recording. When unforeseen circumstances arise, other methods of service may be required, which can be costly. Timely submission of requests enables cost effective methods of service, ensuring lien rights are protected.

Additionally, statute differs with each state dictating which means of serving a notice is acceptable. While some statutes allow for overnight delivery, other statutes require that documents be sent via certified mail, which slows the delivery time. This can be a crucial factor when the document must be received by the deadline. Again, timely submission will help to ensure your rights.

Tip #9: Learn the Distinction Between Full Balance Lien and Unpaid Balance Lien

It’s important to understand how the difference between a Full Balance and an Unpaid Balance Lien State can affect your lien rights. In a Full Balance Lien State, the lien is generally enforceable for the full amount owed, regardless of payments made by the owner. An Unpaid Balance Lien State protects the owner from having to pay twice for materials and labor provided to their construction project. When your lien is limited to the unpaid portion of the general contract, it is critical to file the lien as soon as possible, so that it is filed prior to the owner paying the prime contractor.

Tip #10: Protect Security When Negotiating a Settlement

With settlements including security and different sources of recovery, it’s important to only release the parties you are settling with and only for the amount they are paying. For example, you may have a mechanic’s lien on owner XYZ’s property for $10,000.00. Your debtor/customer is ABC. You accept XYZ’s offer to settle the lien for $8,000.00. In the settlement agreement it should state that the mechanic’s lien settles for $8,000.00 and releases XYZ only, allowing you to pursue ABC for the remaining $2,000.00 balance.

Commercial Credit Management Tips for UCCs

Posted on January 27, 2020 by - Credit Risk Management, UCC Financing Statements

10 Tips for Commercial Credit Management of UCC Filings

It’s part two of our three-part series of Commercial Credit Management Tips from NCS. Previously we provided favorite tips for Collections, today let’s review UCCs.

Commercial Credit Management Tips for UCCs

Tip #1: Timely File Your UCCs

You should always file your UCC-1 before you ship goods to your customer. As soon as you have the signed Security Agreement, file your UCC to ensure you’re a secured creditor. To properly perfect your security interest, you must understand the different types of UCC filings and the respective filing deadlines. Failure to meet deadline requirements may jeopardize your position as a secured creditor.

  • PMSI in Equipment (US Filing)– the UCC-1 must be filed no later than 20 days from the date your customer receives the equipment.
  • PMSI in Equipment (Canadian filing)– the PPSA must be filed no later than 15 days from the date your customer receives the equipment.
  • The definition of “receipt” is hotly contested in courts; to be most conservative, NCS calculates based on the date you first shipped equipment to your customer.
  • PMSI in Inventory or Consignment– the UCC-1 must be filed, a reflective UCC search performed, and notification letters should be sent and received prior to shipping inventory to your customer. Shipping inventory before you’ve completed these steps may result in an unsecured status.
  • Blanket– the UCC-1 should be filed prior to shipping goods to your customer.

 Tip #2: The Proper Time to Terminate a UCC Filing

When should you terminate the original UCC Financing Statement? Section 9-513 of the Uniform Commercial Code states that a secured party must terminate a UCC filing within 20 days of a request from the debtor if any of the following exist:

  • There is no obligation secured by the collateral and no indication there will be a future obligation
  • The financing statement covered consigned goods that are no longer in the debtor’s possession
  • The debtor never authorized the filing of the original financing statement

Otherwise, the UCC filing will remain active until the 5-year lapse date. This can cause financial complications between the debtor and their bank. NCS Tip: Terminate your UCC filings in a timely manner.

Tip #3: Understand the Difference Between A Corporate Certificate and Articles of Incorporation

The UCC 2010 Amendment changes to Article 9 regarding the debtor name state that when filing a UCC on a registered organization, you must review the “public organic record” (i.e. Articles of Incorporation) to verify the entity legal name including any amendments and reinstatements.

The state’s public record (Corporate Certificate) is a representation of the public organic record that has been data entered. This is insufficient because there can be clerical errors in the name that could deem the UCC filing seriously misleading and may leave you unsecured.

Tip #4: Monitor for Name Changes

Are you aware that if your customer changes their name you must amend your UCC Filing or your security is jeopardized? Section 9-507 (c) of the UCC tells us that we have 4 months to amend our UCC filing when the debtor name changes. If not amended, the UCC filing is not effective to perfect a security interest in collateral acquired by the debtor before or within four months after the change. Make sure your Security Agreement requires the debtor to advise you of any changes to name, address, or organizational structure. It is the secured party’s responsibility to ensure the UCC filing is updated and contains the correct information. Best practice is to monitor your customer for change.

Tip #5: Maintain Priority in Inventory

When continuing a Purchase Money Security Interest in inventory filing, be aware of the requirement to re-notify the previously secured creditors. Section 9-324 of the Uniform Commercial Code outlines the requirements to establish priority in inventory. It states that the secured party must send notification to the holders of any conflicting security interests, and that the holders of these conflicting security interests receive the notification within five years before the debtor receives possession of the inventory. This means in order to maintain priority upon continuation, all previously secured parties will again need to be notified. Failing to do so will jeopardize your priority position in your goods. NCS Tip: Make sure you are searching and notifying when you continue your PMSI UCC Filings

Tip #6: Protect Your Inventory with Warehouse Filings

Are you storing your inventory in a third-party warehouse? If so, you should file a UCC-1 Financing Statement to publicly announce your ownership. Under Article 7 of The Uniform Commercial Code, the warehouseman may have a lien against your inventory. If the warehouseman’s business were to fail, their bank may unknowingly liquidate your inventory. Filing a UCC-1 Financing Statement will let everyone know who the inventory belongs to and keep your interest safe.

Tip #7: When Selling Under Consignment, Review the Secured Transaction Provisions

If you are selling under consignment you may want to review the secured transaction provisions. Consignment falls under Revised Article 9. In order to have priority rights over a previous secured interest, the consignor must now comply with the same rules that apply to a Purchase Money Security Interest in inventory. Meaning, if you are selling under consignment, you must get a consignment agreement signed; file a financing statement; and search and notify all previously secured creditors. If you do not, you risk losing your inventory to previously secured creditors.

Tip #8: When should I file a Fixture Filing?

A fixture is defined as goods that have become so related to real property that an interest in them arises under real property law (Article 9-102[41]). A few examples are gas/fuel pumps, ovens, and external signs. If your UCC Security Agreement calls out “fixtures,” you should consider filing a UCC Fixture. The Fixture filing will be filed at the county level against the real estate and will appear on a title search. This will alert potential buyers/sellers that the debt needs to be paid before the title of the property can be transferred.

Tip #9: Conduct A Reflective Search After Every UCC Filing

Often, we take for granted when a UCC is instantly recorded online that all is well. BUT how do you know your filing will appear in a UCC-11 search? Each Secretary of State office has their own software to house UCC filings that sometimes can be unreliable or outdated. The only way to determine if your UCC filing is indexed correctly is to conduct a Reflective Search. If that Reflective Search does not display the filing, you have a problem.

Tip #10: UCC and Default

If your customer has defaulted on payment(s) and you have filed a Purchase-Money-Security-Interest UCC, you need to determine whether you would like your equipment/inventory (aka goods) back.

  • If you do not want your goods back, you can place your claim with an attorney to file suit. By filing suit, you may receive Judgment, which allows you to garnish accounts and/or attach to assets.
  • If you do want your goods back, and your customer has the goods, you have the right to repossess without disturbing the peace.

If you are unable to peacefully repossess the inventory/equipment, you could take legal action by filing a temporary restraining order or by filing suit against your debtor.