Service Area: Collection Services

Not a Secured Creditor? Aim To Be Critical Vendor

Posted on October 4, 2019 by - In Other Commercial Credit News

If You Aren’t a Secured Creditor, Maybe You Can Be a Critical Vendor

You want to be a secured creditor! This is our mantra, it’s what we do: Securing Your Tomorrow. We want your company to always be in the best possible position to get paid, but we know there may be times when you will opt out of securing your receivable. If your customer files for bankruptcy protection, and you are not a secured creditor, do you know which creditor class you fall into? I hear your eyes rolling… I mean, I hear you saying, “We’d be an unsecured creditor, Kristin.” But, did you know that might not be the case? You may be a critical vendor.

You Always Want to Be a Secured Creditor

Secured creditors are at the front of the payment line when a debtor files for bankruptcy protection. You always want to be a secured creditor. (Yes, I’m going to hammer that notion home!) So who gets paid after the secured creditors?

#1: secured creditors

#2: administrative expenses

#3: unsecured creditors

The classes of secured & unsecured creditors are self-explanatory; secured creditors have perfected a security interest, whereas unsecured creditors are creditors without a security interest. The second group of people — “administrative expenses” — can encompass many different creditors.

Jason B. Binford recently wrote an article on critical vendors in bankruptcy & he said “Creditors will jostle for position in an attempt to be included in claim classes that take priority over general unsecured claims.”

I now picture creditors as concert goers, jostling their way through a sea of people trying desperately to get to the stage. I think the only way I could be more entertained is if they were jousting creditors!

Who Are These Jostling Creditors?

According to Binford:  “A creditor who provides goods and services to a debtor following the bankruptcy filing is entitled to administrative expense claims that must be paid in full in order for debtor to confirm a plan of reorganization,” or “A creditor who provides goods delivered to the debtor within 20 days prior to the bankruptcy filing is entitled to an administrative expense claim for the value of such goods.” (Psst! These creditors that delivered goods within 20 days prior to the bankruptcy filing may try to rely on 503(b) 9 claims.)

Then There Are Creditors Who Aim to be a Critical Vendor

Oooohhhh, sounds… well, it sounds critical. For creditors that don’t qualify under the administrative claims class or as priority for providing goods within 20 days, being identified as a critical vendor may be the only way to avoid the pit of general unsecured creditors.

So, how can a creditor become a critical vendor? First the creditor needs to convince the debtor that it should be designated as a critical vendor. Once the debtor is convinced and the creditor has been added to the ‘elite list’ of critical vendors, the court must be convinced.

While each jurisdiction determines critical-ness differently, here are the common tests applied by the courts, according to Binford.

  • dealing with the creditor is virtually indispensable to the profitable operations of the debtor;
  • a failure to deal with the creditor risks probable harm or eliminates an economic advantage disproportional to the amount of the claim; and
  • there is no practical or legal alternative to payment of the claim.

Passing these common tests will likely earn you a spot as a critical vendor. But, being a critical vendor may not be all glitz and glamour.

“Designating a claim as critical will usually come with strings attached. As a condition to being paid, the creditor likely will be required to provide the debtor with reasonable credit terms for a particular period of time. Thus, debtors can use critical vendor motions as leverage to obtain post-bankruptcy credit terms from parties that otherwise would likely require the debtor to pay in advance. Critical vendors incur a relatively small amount of risk in providing credit on a go-forward basis to the debtor. If the debtor later falters in bankruptcy and is forced to liquidate, the creditor will have an administrative expense claim for such post-bankruptcy receivables. While administrative expense claims will not be paid in full if a debtor is ‘administratively insolvent,’ such a claim is greatly preferred to general unsecured status.”

Don’t Be a Threat – Actually, Just Don’t Be Unsecured

Binford warns creditors about threatening to stop supplying to the bankrupt debtor. These threats, such as “Pay this pre-bankruptcy-past-due-amount or I stop all shipments to you”, can be viewed as a violation of the automatic stay. Creditors vying for critical vendor status should probably hire an attorney to assist them to avoid any missteps. However, I stand by my opening statement: you should always be a secured creditor! Then, as a secured creditor, you won’t have to jostle or joust to win over the powers that be.

Mechanic’s Lien Rights in Alabama

Posted on September 27, 2019 by - In Other Commercial Credit News, Mechanic's Liens & Bond Claims

Sweet Home Alabama & Mechanic’s Lien Rights

I can’t help but start singing “Sweet Home Alabama” anytime I hear someone say Alabama. Today, in addition to singing “Sweet Home Alabama,” I’m going to hum my way through mechanic’s lien rights in Alabama. Although, “Sweet Home Alabama, where liens are so due” doesn’t have quite the same feel as the original.

Sweet Home Alabama, Where Liens Are So Due!

Securing lien rights for private projects in Alabama begins with serving a preliminary notice. Serve the preliminary notice upon the owner prior to first furnishing materials or services. The owner’s receipt of the preliminary notice prior to furnishing may allow for a full balance lien, provided the owner does not disclaim responsibility before the materials are used.

If the preliminary notice was not served prior to furnishing, or if a Notice of Objection has been received from the owner, you should serve a Notice to Lien upon the owner as soon as possible after each furnishing to trap funds, and serve a Notice to Lien upon the owner after last furnishing. Serving the construction lender with the notice may improve the priority of your lien.

The mechanic’s lien deadline varies and is dependent on whether you contracted with the owner, GC, Sub, or if you provided only laborers.

  • When contracting directly with the prime contractor or a subcontractor: File the lien within 4 months from last furnishing materials or services.
  • When contracting directly with the owner: File the lien within 6 months from last furnishing materials or services.
  • Laborers: File the lien within 30 days from last furnishing labor.

Who Has Priority in Alabama: Lender or Lien Claimant?

Authors Madeline Hughes and Stephen Pudner recently reviewed GHB Construction and Development Co., Inc. v. West Alabama Bank and Trust in their article Alabama Supreme Court Clarifies Construction Lien Priority.

The lien claimant argued its mechanic’s lien had priority over the construction lender’s mortgage. Unfortunately for the claimant, the lender’s mortgage was created prior to the lien claimant’s first furnishing, which meant the lender’s mortgage had priority.

The language within Ala. Code § 35-11-211 (a) states a materialman’s lien takes priority over all other liens and encumbrances created “subsequent to the commencement of work.”

“Such lien as to the land and buildings or improvements thereon, shall have priority over all other liens, mortgages, or incumbrances created subsequent to the commencement of work on the building or improvement.”

There was an additional point of contention that the lender hadn’t disbursed funds prior to the lien claimant’s first furnishing, but whether or not funds have been disbursed impacts priority in Alabama. Hughes & Pudner recapped the case:

“This holding emphasizes Alabama’s policy of ensuring that construction projects continue to be funded. This case tells contractors that: 1) contractors should not assume their work will take priority over future-advance mortgages even when the work is performed before the loan proceeds are extended; and 2) a contractor’s commencement date is crucial and will control priority against other lenders, and therefore, it is imperative that contractors memorialize that date and that they know whether any mortgages have been entered into and recorded before that date. In Alabama, it does not seem to matter whether that mortgage is a future advance or traditional mortgage.”

It’s A 180 On The 180 Equipment, LLC Decision

Posted on September 23, 2019 by - UCC Financing Statements

It’s A 180 On The 180 Equipment, LLC Decision: The Collateral Description of “See Attached”

An Illinois Court of Appeals has reversed the Bankruptcy Court’s decision in 180 Equipment, LLC v First Midwest Bank, which had allowed the bankruptcy trustee to avoid the security interest of First Midwest Bank.

Recap of Events from What Happens When a UCC-1 Collateral Description References the Security Agreement?

180 Equipment, LLC (180 Equipment) obtained a loan from First Midwest Bank (Bank) and granted Bank a security interest in 26 specifically identified “categories of collateral, including accounts, chattel paper, equipment, general intangibles, goods, instruments and inventory and all proceeds and products thereof.”

In its Financing Statement, Bank identified the collateral as “All Collateral described in First Amended and Restated Security Agreement dated March 9, 2015 between Debtor and Secured Party.” However, Bank did not include the Security Agreement with the filing of its Financing Statement.

When 180 Equipment filed for bankruptcy protection, the trustee argued that Bank’s security interest was unperfected because it failed to sufficiently describe the collateral. “The trustee… contends that the mere reference to the collateral as being described in the amended security agreement does not suffice to indicate, describe or reasonably identify any collateral.”

Bank argued the filing of the Financing Statement was enough to put other creditors on notice. “…the purpose behind the filing of a financing statement is merely to provide notice to third-party creditors that property of the debtor may be subject to a prior security interest, and that further inquiry may be necessary to determine the identity of the collateral.”

The Bankruptcy Court’s decision? The Bankruptcy Court agreed with the trustee. Bank’s Financing Statement failed to sufficiently identify the collateral. Referring to the Financing Statement, the Bankruptcy Court states “Rather, it attempts to incorporate by reference the description of collateral set forth in a separate document, not attached to the financing statement. The financing statement, on its face, provides no information whatsoever, and therefore no notice to any third party, as to which of the Debtor’s assets First Midwest is claiming a lien on, which is the primary function of a financing statement.”

The Appeals Court Reversed the Bankruptcy Court Decision

As mentioned above, Bank argued its Financing Statement was enough to put other creditors on notice. Although the Bankruptcy Court ruled against Bank’s argument, the Court of Appeals agreed with Bank.

How did the Appeals Court determine Bank’s Financing Statement complied with Article 9? In the Appeals decision, the Court focused on the plain language of Article 9. Specifically, the Court reviewed §9-502, §9-504 and §9-108. These sections are paraphrased below:

9-502: Financing Statement is sufficient if it includes the name of the debtor, the name of the secured party, and indicates the collateral.

9-504: Financing Statement is sufficient if it provides “a description of the collateral pursuant to Section 9-108” or “an indication that the financing statement covers all assets or all personal property.”

9-108: Examples of Reasonable Identification include “(1) specific listing; (2) category; (3) except as otherwise provided in subsection (e), a type of collateral defined in [the Uniform Commercial Code]; (4) quantity; (5) computational or allocational formula or procedure; or (6) except as otherwise provided in subsection (c), any other method, if the identity of the collateral is objectively determinable.”

Did I indicate a possible trend? In its decision, the court aimed to define “indicates.” Ultimately, if the Financing Statement indicates the collateral description, the requirements under §9-502 are satisfied.

“…the ordinary meaning of ‘indicate’ is to serve as a ‘signal’ that ‘point[s] out’ or ‘direct[s] attention to’ an underlying security interest. That plain reading of the text allows a party to ‘indicate’ collateral in a financing statement by pointing or directing attention to a description of that collateral in the parties’ security agreement.”

That definition of indicates means Bank’s Financing Statement’s reference to the Security Agreement is sufficient — because it directs subsequent creditors to the Security Agreement.

The Appeals Court states the onus lies with subsequent creditors. If a creditor’s search turns up a Financing Statement and the Financing Statement references the collateral in the security agreement (e.g. “See Security Agreement), the creditor should then request a copy of the Security Agreement to confirm whether there is a conflicting interest in the collateral.

“While financing statements and security agreements both must describe the collateral, ‘the degree of specificity required of such description depends on the nature of the document involved—whether it is a security agreement or a financing statement…’ The ‘prudent potential creditor would request a copy of the security agreement,’ and ‘need look no further than the security agreement’ to resolve questions about the adequacy of the collateral description. The different treatment of these two documents highlights the distinct function each serves under Article 9: the financing statement provides notice of an underlying security interest, while the security agreement creates and specifically defines that interest.”

What a Win! But, Take Precautions

Although the Court of Appeals has reversed the Bankruptcy Court’s decision, as a best practice you should ensure the Financing Statement provides a collateral description, and if attachments are referenced the attachments should be recorded with the Financing Statement.

What’s New in Mechanic’s Lien & Bond Claim Law?

Posted on September 20, 2019 by - In Other Commercial Credit News

What’s New in Mechanic’s Lien & Bond Claim Law?

There have been some key developments and changes to mechanic’s lien and bond claim laws throughout the U.S. Notably, changes to retainage in Illinois and Minnesota, new Notice of Nonpayment form in Florida, and bond claim deadline changes in Oklahoma.

Mechanic’s Lien & Bond Claim Law | What’s New Illinois?

Illinois SB1636 restricts the amount of retainage that can be held on a private construction project. A construction contract may provide for withholding up to 10% of any payment made prior to completion of 50% of the contract. When a contract is 50% complete, no more than 5% of the amount of any subsequent payments made under the contract may be held as retainage.

In Illinois Imposes Retainage Limits in Construction Contracts, author Gregory S. Gistenson states “Retainage limits have been introduced in one form or another in every session of the Illinois General Assembly dating back to at least 2005.” WOW!

What else is new? Illinois SB0104 amends the State Prompt Payment Act and requires that contractors pay each subcontractor and material supplier, or provide written notice of refusal to pay, within a set time period after receiving payment from the state or agency. The legislation provides a penalty for a contractor’s failure to pay in accordance with statute. Further, on or before July 2021, the Department of Transportation shall publish on its website a searchable database that allows for queries by the name of a subcontractor or the pay item such that each pay item is associated with either the prime contractor or a subcontractor.

Mechanic’s Lien & Bond Claim Law | What’s New Minnesota?

HF2 requires that project owners and public entities release retainage no later than 60 days after substantial completion, and that unless there is a dispute, contractors must pay all remaining retainage to their subcontractors no later than 10 days after receiving payment from the owner/public entity. After substantial completion, the owner/public entity may withhold no more than 250% of the cost to correct or complete work known at the time of substantial completion.

Mechanic’s Lien & Bond Claim Law | What’s New Florida?

Florida’s new Notice of Nonpayment! Effective 10-1-19 HB1247 provides a newly prescribed form for a Notice of Nonpayment (bond claim), for both private and public projects. The legislation requires a Notice of Nonpayment to be under oath and the claim must include additional information, where applicable, stating the portion of the claimed amount being held for retainage, previous payments made and the value of future furnishings to be made.

The legislation also clarifies that negligent inclusion or omission of any information in the Notice of Nonpayment that has not prejudiced the contractor or surety does not defeat an otherwise valid claim. However, willfully exaggerating the amount unpaid or willfully including a claim for work not performed or materials not furnished is fraudulent.

When providing rental equipment, the Notice of Nonpayment must be served no later than 90 days after the date the rental equipment was on the job site and available for use.

Mechanic’s Lien & Bond Claim Law | What’s New Oklahoma?

Rounding out our changes is Oklahoma. Effective 11-1-19, HB2305 adjusts the time frames for filing an action against a payment bond. When contracting with a subcontractor, a bond claim must be made within 90 days from last furnishing materials or services. If contracting with the prime contractor, a bond claim is optional. Under HB2305, suit to enforce a claim under the bond must be made within 1 year from last furnishing materials or services; however, the deadline for suit will be extended to 2 years from last furnishing materials or services if a claim was made against the bond within 1 year from last furnishing materials or services.

Public Projects and Preliminary Notices

Posted on September 16, 2019 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

public projects and preliminary notices

Public Projects & Preliminary Notices: Preliminary Notices Aren’t Just for Private Projects

Do you know there are 19 states that require a preliminary notice be served to protect bond claim or public improvement lien rights? A common misconception is that preliminary notices are only required for private projects (securing mechanic’s lien rights), but that’s just not true. In today’s post we are going to review the 19 states with preliminary notice requirements on public projects.

19 States with Preliminary Notices for Public Projects

Arizona, California, Florida, Georgia, Iowa, Louisiana, Massachusetts, Michigan, Montana, Nevada, New Jersey, North Carolina, Ohio, South Carolina, Texas, Utah, Washington, Wisconsin and Wyoming all have a preliminary notice requirement for public projects.

Arizona: 20 days from first furnishing

Serve notice upon the prime contractor within 20 days from first furnishing materials or services. A late notice may be served, but the bond claim, when later served, will only be effective for materials and services provided 20 days prior to serving the notice and thereafter. Serve an amended notice if the contract amount stated within your notice increases by 20% or more.

California: 20 days from first furnishing

Serve notice upon the prime contractor and public entity within 20 days from first furnishing materials or services. A late notice may be served, but the stop notice, when later served, will only be effective for materials and services provided 20 days prior to serving the notice and thereafter.

Florida: 45 days from first furnishing

Serve notice upon the prime contractor prior to or within 45 days from first furnishing materials or services. When supplying specially fabricated materials, serve notice prior to or within 45 days from the date fabrication begins. The notice must be received within the 45-day period.

Georgia: 30 days after first furnishing

Serve Notice to Contractor upon the prime 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: 30 days after first furnishing

Serve notice upon the prime contractor within 30 days after first furnishing materials or services. No notice is required when contracting directly with the prime contractor.

Louisiana

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

Notice of Non-Payment: Serve notice of non-payment upon the owner and prime contractor within 75 days from the last day of the month for EACH month in which materials were furnished, but within the period in which a sworn statement must be filed.

Massachusetts: 20 days from receiving final written approval for specially fabricated materials

When furnishing specially fabricated materials, a notice may be served upon the prime contractor within 20 days from receiving final written approval for such materials. Serving the notice will protect the right to serve a bond claim even if the materials are not incorporated into the project.

Michigan: 30 days from first furnishing

Serve notice upon the prime contractor within 30 days from first furnishing materials or services.

Montana: 30 days after first furnishing

Serve notice upon the prime contractor after first furnishing, but within 30 days from first furnishing materials or services.

Nevada: 30 days after first furnishing

Serve notice upon the prime contractor after first furnishing materials or services, but within 30 days from first furnishing materials or services. A late notice may be served, but the bond claim, when later served, will only be effective for materials or services provided 30 days prior to serving the notice and thereafter.

New Jersey

Bond Claim: Serve notice upon the prime contractor prior to furnishing materials or services. A late notice may be served, but the bond claim, when later served, will only be effective for materials and services provided after serving the notice.

Municipal Mechanic’s Lien: Serve notice upon the public entity within 20 days from first furnishing materials or services. A late notice may be served, but the lien, when later filed, will only be effective for materials and services provided after serving the notice.

North Carolina: 75 days from first furnishing

Serve a Notice of Public Subcontract on the prime contractor within 75 days from first furnishing materials or services.

A late notice may be served, but the bond claim, when later served, may only include materials or services provided within 75 days prior to serving the Notice of Public Subcontract and thereafter.

Ohio: 21 days from first furnishing

Serve notice upon the prime contractor within 21 days from first furnishing materials or services. A late notice may be served, but the bond claim, when later served, will only be effective for materials and services provided 21 days prior to serving the notice and thereafter.

South Carolina: as soon as possible

Serve a Notice of Furnishing upon the principal of the bond as soon as possible. The bond claim, when later served, will be limited to the amount owed by the principal of the bond at the time the Notice of Furnishing was received.

Texas

Notice of specially fabricated materials: Serve notice upon the prime contractor no later than the 15th day of the second month in which claimant received and accepted the order.

Notice of retainage: Serve notice upon the prime contractor no later than the 15th day of the second month following first furnishing materials or services, stating the total dollar amount to be retained and the general nature of the retainage agreement.

Notice of non-payment: Serve notice upon the prime contractor no later than the 15th day of the second month following each month in which materials or services were furnished.

Utah: 20 days from first furnishing

File preliminary notice with the State Construction Registry within 20 days from first furnishing materials or services or within 20 days from the filing of a notice of commencement, whichever is later. A late preliminary notice may be filed; however, the bond claim will only be enforceable for materials and services furnished 5 days or later after the notice is filed.

Washington

Bond Claim: Serve notice upon the prime contractor within 10 days from first furnishing materials or services.

Public Improvement Lien: Material suppliers must serve notice upon the prime contractor within 60 days from first furnishing materials or services. A late notice may be served, but the lien, when later filed, will only be effective for materials and services provided 60 days prior to serving the notice and thereafter.

Wisconsin: 60 days after first furnishing

Serve notice upon the prime contractor within 60 days after first furnishing materials or services.

Wyoming: 60 days from first furnishing

Serve notice upon the prime contractor within 60 days from first furnishing materials or services.

Remember, Just a Guideline for Notices & Public Projects

Please remember, this post provides a general guideline for these states. There may be circumstances where the notice is recommended but not required; frequently, when selling to the prime contractor on a public project, the notice isn’t required. Carefully review the information in The National Lien Digest or within each states’ statute to confirm you are serving the proper notice upon the proper parties within the proper time frame.

Even if the notice isn’t required, it’s a best practice to serve the notice so all parties within the ladder of supply are aware you are furnishing to the project!

Legalities of Filing a Lien During Ongoing Projects

Posted on September 13, 2019 by - In Other Commercial Credit News

Can I File a Mechanic’s Lien If I’m Still Furnishing Materials or Labor?

Construction projects can take a long time to complete; Rome wasn’t built in a day. Getting paid in the construction industry takes just as long – longer maybe. So, it’s not surprising when a construction company comes to us and wants to file a mechanic’s lien even though they are actively furnishing materials and/or labor to a project. Clients frequently ask, “Can I file a mechanic’s lien if I’m still furnishing to the project?” I wish the answer were as simple as “yes” or “no.”

OK, So Can I File a Lien if the Project is Ongoing?

Like how I dodged that question? The truth is, whether a lien can be filed prior to your last furnishing may depend on varying factors, but primarily on statute. For example, in New York, statute indicates the lien may be filed “at any time during the progress of work” which implies you could still be furnishing when you file your lien.

N.Y. LIE Article 1, Section 10 (1.) Notice of lien may be filed at any time during the progress of the work and the furnishing of the materials, or, within eight months after the completion of the contract, or the final performance of the work, or the final furnishing of the materials, dating from the last item of work performed or materials furnished;

However, other states like California, explicitly state the lien should be filed AFTER furnishing has been completed.

C.A. Civ. Code, Article 2. Conditions to Enforcing a Lien [8410 – 8424]

    1. A claimant other than a direct contractor may not enforce a lien unless the claimant records a claim of lien within the following times:

(a) After the claimant ceases to provide work.

(b) Before the earlier of the following times:

(1) Ninety days after completion of the work of improvement.

(2) Thirty days after the owner records a notice of completion or cessation.

One California Subcontractor Learned the Hard Way

I was just reading Precision Framing Systems Inc. v. Luzuriaga, Cal: Court of Appeal, 4th Appellate Dist., 2nd Div. 2019. In this case, the subcontractor filed its lien while it was still furnishing to the project. When the subcontractor filed suit to enforce its lien, the project owner argued the lien was filed too soon. The circuit court agreed with the project owner, and subsequently the appeals court also sided with the owner. California statute is clear, you must complete furnishing prior to filing the lien.

The subcontractor argued that when it filed its lien, it didn’t know it would have to provide additional materials/labor. The additional furnishing was to fix an issue, not work within the terms of the contract. If it was work outside of the contract, wouldn’t that mean the furnishings within the contract had already been completed, making the lien valid? In reviewing the case further, I came across a recent article, by attorney Garrett Murai, in which he explained the Court of Appeals decision:

“The Court of Appeals, noting that [the] subcontract required that [subcontractor] supply and install ‘trusses . . . necessary to complete the . . . project,’ held that the repairs performed in February 2014 were part of [subcontractor’s] ‘work’ and that because [subcontractor] had recorded its mechanics lien in January 2014 it had done so prematurely.

The Court of Appeals also explained that the fact that the general contractor deemed [subcontractor’s] work to be complete is irrelevant, since the scope of [subcontractor’s] work was established by its contract not by ‘the factually unsupported legal opinion of two witnesses.’

Finally, explained the Court of Appeal, while ‘it may seem unfair to hold that [subcontractor] recorded its claim prematurely’ when ‘it did not know that it had any work left to do’ that the Court had ‘not found any case law suggesting that a claimant’s subjective knowledge or belief as to whether it has ceased to provide work is relevant’ and further that ‘nothing in the Mechanic’s Lien law prohibited [subcontractor] from recording its claim again after the repairs were prepared.'”

Best Practice – Finish Furnishing Before Filing the Lien

As a best practice, you should complete furnishing before filing the mechanic’s lien. Bear in mind, this is a general rule of thumb; there may be extenuating circumstances that would permit or necessitate the filing of a lien prior to finishing furnishing. When in doubt, seek a legal opinion, carefully review statute, and carefully review your contract.

Oregon Lien Rights Extended by Change Order

Posted on August 30, 2019 by - In Other Commercial Credit News, Mechanic's Liens & Bond Claims

Here’s a Case in Oregon where One Claimant’s Lien Deadline Was Extended, Thanks in Part to a Change Order

In Oregon, the mechanic’s lien should be filed within 75 days from last furnishing materials or services. So how did one subcontractor file a valid lien nearly a year after its technical last furnishing? The answer is in the change order!

At a Glance: Protecting Oregon Mechanic’s Lien Rights

The preliminary notice deadline for private Oregon projects can sneak up on you. You should serve a Notice of Right to Lien upon the owner within 8 business days from first furnishing materials or services. A late notice may be served, but the lien, when later filed, will only be effective for materials and services provided 8 business days prior to serving the notice and thereafter.

The mechanic’s lien deadline is 75 days from last furnishing materials or services, or within 75 days from completion, whichever is earlier. Suit to enforce the lien should be filed within 120 days from filing the lien.

Bethlehem Construction, Inc. v Portland General Electric Company

Here’s a quick timeline for Bethlehem Construction, Inc. (“Subcontractor”) furnishings & subsequent lien filing:

– Subcontractor finished furnishing under the original contract in April 2015 ($122,851 contract)

– Subcontractor was called back to the job in December 2015 for additional work, identified under a change order ($578.13 change order)

– Subcontractor filed a mechanic’s lien in January 2016 for furnishings under original contract and additional change order

Obviously, if the subcontractor’s last furnishing was in April 2015, the lien filing date of January 2016 would have been far beyond the “75 day rule.” At least that was the argument made by the opposing parties. However, the change order that was issued for the subcontractor’s additional work in December 2015 directly referenced the original contract.

For the Court of Appeals, the change order was key: the change order referenced the original contract, which meant both the April furnishing and December furnishing were under the same contract.

“The document was entitled ‘Change Order Request,’ had the original contract number and name in the ‘reference’ field and specified the ‘scope of change’ to the original contract. That document evidences Owner and Subcontractor shared intention that the later work and the earlier work comprised two parts of one single contract.”

But wait – isn’t a furnishing of less than $600 a bit low to be “significant” for a last furnishing amount – perhaps even trivial? According to Blake Robinson in his article Oregon Court of Appeals Clarifies Timing Rule for Constructions Liens, the furnishing of less than $600 wasn’t trivial… not even trifling.

“The court also concluded that the later work was not ‘trivial or trifling’—which was significant because the 75-day deadline to record a lien is not extended by the contractor or subcontractor returning to the project to perform ‘some trifling work or a few odds and ends after apparently completing the job and removing its equipment.’ Here, the later work was not trivial or trifling because the Change Order Request specifically required the work, and the work was ‘significant to the project.'”

Survive the Oregon Trail, I Mean the Oregon Mechanic’s Lien

Oregon’s statute is clear: the lien deadline is 75 days from last furnishing or 75 days from completion. Ensure your lien rights are secure by timely filing your lien and always have proper backup documentation, such as change orders, to support your claim.

Oh, and watch out, you wouldn’t want to die of dysentery.

C’mon, I can’t write about Oregon without a solid reference to the greatest computer game of all time.

Illinois Mechanic’s Lien and Bond Claim Rights

Posted on August 26, 2019 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

What You Should Know About Protecting Lien & Bond Claim Rights in Illinois

In 2019, Illinois HB2722 passed, which added protection under the payment bond for those who provide rental equipment to public projects. The legislation (effective 1/1/20) defines material, labor, apparatus, fixtures and machinery to include those rented items that are on the construction site and those rented tools that are used or consumed on the construction site in the performance of the contract on account of which the bond is given.

What else should you know about Illinois mechanic’s lien and bond claim rights? Read on! 

Protecting Mechanic’s Lien Rights in Illinois

For private commercial projects, there is generally no statutory provision requiring a preliminary notice — but the pros know serving a non-statutory notice is a terrific best practice!

The lien is a two-step process: 1) serve the Notice of Lien and 2) file the Lien.

  1. Serve a copy of the notice of lien upon the owner and the lender within 90 days after last furnishing materials or services. The notice of lien is not required when contracting directly with the owner.
  2. File the lien within 4 months after last furnishing materials or services. In certain circumstances a lien may be filed after 4 months from last furnishing materials or services, but it will have limited effectiveness.

The lien is enforceable for the unpaid portion of the contract, except when the owner has disregarded the requirement to obtain sworn statements from contractors when making payments.

For private residential projects, which would be an owner-occupied single-family residence, there is a preliminary notice requirement.

  • Contractors contracting directly with the owner: Provide a printed statement to the owner as part of your contract or as a separate printed statement and serve a Contractor’s Sworn Statement prior to payments being made by the owner.
  • Those not contracting directly with the owner: Serve notice upon the owner within 60 days from first furnishing materials or services. A late notice may be served, but the lien, when later filed, will only be effective for amounts not paid to the prime contractor at the time the notice is received.

The mechanic’s lien guidelines for residential projects are the same as commercial projects, with one extra step: when contracting directly with the owner, serve a copy of the lien upon the owner within 10 days after filing the lien.

Should you need to proceed with suit to enforce your lien, whether on a commercial project or residential project, file suit within 2 years from last furnishing materials or services, but within 30 days from receipt of a demand to commence suit.

Did You Know? While the statute allows liens for those who lease construction equipment on a commercial project, the statute does not allow liens for those who lease construction equipment if the improvement is either a single-family residence or a multi-family residence of fewer than 12 units in a single building.

Need more details on mechanic’s liens in Illinois? Click here to read full statute!

Protecting Bond Claim & Public Improvement Lien Rights in Illinois

Like private commercial projects, public projects do not have a preliminary notice requirement. As a best practice, serve a non-statutory notice & include a request for a copy of the payment bond. Typically, for state projects or any political subdivision thereof, payment bonds are required for general contracts exceeding $50,000.

In the event you need to proceed with a bond claim, serve the bond claim notice upon the public entity within 180 days from last furnishing materials or services. Within 10 days from serving the public entity, serve a copy of the bond claim notice upon the prime contractor. File suit to enforce the bond claim within 1 year from last furnishing materials or services, but within 90 days from serving the public improvement lien, if a public improvement lien was served.

When proceeding with a public improvement lien, you should serve the lien upon the public entity and the prime contractor as soon as possible to trap funds, but within 30 days from written demand. The claim is a lien on the funds owed to the prime contractor by the owner at the time the lien is served.

Key Suit Notes for Public Improvement Liens

  • File suit to enforce the public improvement lien within 90 days from serving the lien.
  • On State projects, file suit at least 15 days prior to the date the appropriation of funds will lapse.
  • Serve a copy of the complaint upon the owner within 10 days from filing.

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