Service Area: Collection Services

Furnishing Labor and Performing Labor Are Different

Posted on August 12, 2019 by wpengine - Mechanic's Liens & Bond Claims, UCC Financing Statements

According to Oklahoma Court of Appeals, Furnishing Labor and Performing Labor Are Different

An Oklahoma Court of Appeals has determined mechanic’s lien rights don’t extend to a party furnishing labor, because under Oklahoma statute, furnishing labor and performing labor are not synonymous.

Protecting Lien Rights in Oklahoma

When you are furnishing to a private project in Oklahoma, you secure your right to file a mechanic’s lien by serving a prelien notice upon the owner and prime contractor within 75 days from last furnishing materials or service. The prelien notice may not be required if you are contracting directly with the owner, if the lien claim is less than $10,000, if the lien claim is for retainage only, or if the project is a non-owner-occupied residential project.

If you need to file a lien and you contracted with the contractor or the subcontractor, you should file the lien within 90 days from last furnishing. However, if you contracted with the owner, the lien deadline is within 4 months of last furnishing.

Oklahoma Court of Appeals States Furnishing Labor & Performing Labor Aren’t the Same

The Case: Advanced Resource Solutions, LLC v. Stava Building Corporation & Mid-Continent Casualty Company v. McDermott Electric, LLC

The Parties:

General Contractor: Stava Building Corporation (Stava)
Subcontractor: McDermott Electric, LLC (McDermott)
Sub-Sub and/or Supplier: Advanced Resource Solutions, LLC (ARS)

The Chain of Events

Stava hired McDermott as an electrical subcontractor for the construction on the Luther-Walmart project. McDermott contracted with ARS, a temporary staffing agency, and ARS provided temporary laborers. The contract between McDermott and ARS was “laborers for commercial construction on an open account.”

ARS provided laborers to McDermott on this open account, for the construction on the Luther-Walmart project, for several months. When McDermott failed to pay over $100,000 in outstanding invoices, ARS filed a mechanic’s lien. After the lien was filed, Stava filed a bond to discharge the lien from the property.

After Stava posted the bond, the question of whether ARS held a valid lien claim came up. Stava argued that Oklahoma’s lien statute states the lien claimant “must have performed labor” to have a valid claim. This is an excerpt of Stava’s argument from the court decision:

“ARS was a professional employer organization (PEO) and did not “perform labor” as required under the lien statutes. Therefore, ARS, a supplier or provider of labor, was not within the class of persons entitled to assert a mechanic’s lien in Oklahoma.”

Of course, ARS disagreed, claiming it is a “…temporary staffing company, as it was the direct employer of the licensed journeymen and apprentice electricians that worked on the Walmart Project. Thus, it was the employer that furnished labor within the meaning of the lien statutes and therefore a proper lien claimant.”

The Court Says

“ARS merely furnished labor, licensed apprentice and journeymen electricians to McDermott, who then actually labored. Furnishing labor is not the same as performing labor.”

Unfortunately for ARS, the Court of Appeals determined ARS is not within the class of parties entitled to mechanic’s lien rights. Why? Because technically, ARS wasn’t the party performing the labor, ARS provided people who performed the labor.

Is this a distinction without a difference?

No, as it turns out, the Court of Appeals decision indicates that statute may have afforded ARS lien rights if it were a contractor instead of a subcontractor. In other words, the statute specifically includes ‘performs’ labor or ‘furnishes’ labor under the statute for contractors, whereas the statute for subcontractors only includes ‘performs’ labor, not ‘furnishes’ labor.

“In the present case, under the contractor statute, § 141, any person who performs labor or furnishes labor, materials, or equipment under a contract to make improvements to real property shall have a lien on the real property for the value of that labor, materials, or equipment. However, under the subcontractor statute, § 143, the Legislature choose to limit potential lien claimants to those who actually perform labor or furnish materials or equipment. The Legislature did not include those who furnish labor.”

Did ARS Have Other Options? UCCs Maybe?

After reviewing this case, I spoke with Cindy Bordelon, NCS’ in-house UCC expert and manager. We discussed the details of the case and I asked Cindy whether ARS could have filed a UCC when it initially contracted with McDermott.

“Yes! Based on the case information, ARS provided the laborers on an open account, essentially extending credit. Article 9 allows the securing of an ‘Account’ which is defined by 9-106 as ‘any right to payment for goods sold or leased, or for services rendered.’ With a signed security agreement granting the security interest, ARS could have filed a UCC on McDermott.”

Even though ARS says they provided the laborers for a specific project, the Luther-Walmart?

“Certainly. Actually, since it appears ARS provided the laborers on an open account, McDermott could have used the laborers on any project, and a valid UCC filing could have protected ARS.”

If you furnish labor (i.e. temporary staffing) or if you furnish materials & are too remote for lien rights, you may want to consider implementing UCCs.

Construction Lienholder Group Wins in Bankruptcy

Posted on August 9, 2019 by wpengine - In Other Commercial Credit News

Grab Your Rally Cap! Construction Lienholder Group Wins in Bankruptcy

If ever there were a time in construction litigation for folks to put on their rally hats, it would be in the case of M & G USA Corp, where the Construction Lienholder Group took grass roots action to ensure their lien rights were protected in a bankruptcy.

Man, Who Doesn’t Love A Good Underdog Story?

This week I read an article by Daniel Lowenthal, Delaware Court Grants Substantial Contribution Award to Mechanic’s Lien Creditors, which recapped a Delaware Bankruptcy Court decision in the M & G USA Corp case.

Here are the events leading up to the decision:

– In 2013, the debtor began construction of an industrial plant in Texas (anticipated completion was 2015)

– In 2017, the construction was incomplete, costs and delays were out of control, plus there were “hundreds of millions of dollars in mechanic’s liens being filed.” The debtor filed for bankruptcy protection.

– After the bankruptcy was filed, a group of mechanic’s lien creditors formed an ad hoc creditor committee: Construction Lienholder Group (CLG). In the words of Lowenthal “They made it known right away that they would be heard in the case.”

I’m starting to rally! I picture mechanic’s lien filers in superhero capes standing atop an unfinished industrial plant in Texas, preparing to fight.

CLG asked the judge to appoint an official lienholder committee, but the judge denied the request. “He said they hadn’t satisfied the ‘heavy burden imposed by 11 U.S.C. § 1102(a)’ and he doubted the ‘propriety or wisdom” of allowing’ a group of putatively secured creditors” to have an official committee in the case,” according to Lowenthal. If an official committee had been recognized, the CLG would have been able to recover professional fees. Despite the judge’s denial of official committee recognition, CLG forged ahead knowing they would be responsible for their own fees.

As the bankruptcy case progressed, CLG retained legal representation, then actively participated in the 363 sale, objected to the debtor’s bankruptcy plan, and even negotiated $32M in DIP financing which allowed the debtors to sell the industrial plant with a clear title.

Once the bankruptcy plan had been confirmed, CLG filed a motion arguing it had made a substantial contribution to the bankruptcy case and should be reimbursed for administrative expenses.

Picture them on the steps of the courthouse, stating the facts of their case, and standing their ground… waiting patiently for the judge to decide.

Of Course, How Would We Know Our Superheroes Are Heroes If There Isn’t A Villain?

The bankruptcy trustee swooped in and, according to Lowenthal, counter-argued that “…the lien creditors were likely to receive full payment on their claims, that an award of $1.6 million would amount to a “windfall,” that their actions in the case were motivated to protect their own interests, that the motion practice they undertook was costly, and that their ultimate compromise was not necessary for the plan to confirm.”

What Will the Judge Say?

With immense disappointment the crowd falls quiet, heads down, shoulders slumped. Then the murmurs started… here comes the judge. A hopeful hush falls over the crowd as the judge speaks.

“…substantial contribution is a high bar to satisfy. Parties-in-interest are presumed to be ‘self-interested unless they establish that their actions are designed to benefit others who would foreseeably be interested in the estate’…The Bankruptcy Code doesn’t define ‘substantial contribution’ but the contribution must provide ‘tangible, clearly demonstrable benefits to the estate.’”

So, did it? Did CLG provide “tangible, clearly demonstrable benefits to the estate?”

You betcha!

The judge cited two actions CLG took which positively impacted the case. The first? CLG “negotiated for an additional $32 million DIP cushion in the DIP Facility’s lienholder reserve.” These funds allowed the debtor to sell the plant with a clear title, as I mentioned above. If CLG hadn’t negotiated these funds, it is likely the mechanic’s liens would have discouraged potential buyers. Plus, the judge declared CLG played a meaningful role in negotiating the bankruptcy plan.

(They) “facilitated and encouraged the negotiations that led to a settlement between the mechanic’s lienholders and other economic stakeholders…”

But wait, there’s more!

Aside from the additional funds and the significant negotiations, the judge also noted the exceptional group for having:

“… identified and contacted all of the lien claimants, something Judge Shannon described as an ‘arduous task.’ And he further emphasized that the CLG did its work in the case ‘without expectation of compensation.’”

Let’s start that slow clap people!

The judge determined CLG would be compensated under the administrative claims. “…Based on time, the nature, the extent, and the value… of the services provided.”

The Takeaway? Don’t Just Sit There!

I am inspired by the Construction Lienholder Group! They took on the bankruptcy court and they won. They played an active and substantial role in this bankruptcy; they didn’t simply submit a proof of claim form and hope for the best. This should be a reminder to all of us that we shouldn’t be complacent with the rules. It’s OK to buck the system – in a safe way of course – because sometimes you gotta fight for your rights… your mechanic’s lien rights.

Legislative Changes in Tennessee: What Builders Need to Know

Posted on August 2, 2019 by wpengine - In Other Commercial Credit News

Legislative Changes in Tennessee for the Construction Industry

Earlier this year we shared a post that was all about Tennessee. Since that post, there have been some legislative changes that may impact those in the construction industry. A recent article from Bass, Berry & Sims PLC recaps some of the key changes and what those changes could mean for you.

What’s New Tennessee?

Repeal is the word for Tenn. Code Ann. § 66-21-108.

In May 2018, Tennessee legislature enacted statute that allowed an owner to recover up to $100,000 in attorney’s fees, reasonable costs, and damages, if the owner successfully challenged the validity of a mechanic’s lien filed on their property.

“This created a significant risk of liability for general contractors and subcontractors in the event their recorded mechanic’s or materialmen’s liens were later found to be invalid.” – Bass, Berry & Sims PLC

As of April 2019, this statute has been repealed (with an exception for the owners of certain residential units.) It sure didn’t take legislators long to make changes!

Continuing Education, Certified Electrical Inspectors and Construction Managers for Utility Districts

According to Bass, Berry & Sims PLC, residential contractors licensed after January 1, 2009, will need to complete eight hours of continuing education every two years. Bonus for those of you in trade organizations: “…active membership in a trade association, if proof of such membership is filed with the board, constitutes four hours of continuing education annually, and could cover the biannual requirement.”

Electrical inspectors are joining the plumbing and mechanical inspectors in certification requirements. Of course, the certification requirements vary by trade. Electrical inspectors will need to be certified by the Tennessee State Fire Marshal and then comply with recertification every three years.

Construction managers aren’t just for city, county, or local government organizations anymore. Tennessee is welcoming utility districts into the fold. “Under the revised law, utility districts and utility authorities are also authorized to contract with construction managers for new projects or additions to existing facilities.”

More Time to File a Mechanic’s Lien? Not this Time.

You know the saying “kickin’ the can down the road?” Apparently, that’s the name of the game for the Tennessee Senate Commerce and Labor Committee (Committee). The Committee opted to hold off on a bill that would extend the time for filing a mechanic’s lien from 90 days to 12 months and would give suppliers more time to serve the notices of non-payment. But that’s not all – Bass, Berry & Sims PLC says pay-if-paid would be no more.

“Perhaps most significantly, the bill would prohibit the use the “pay-if-paid” provisions in contracts between prime contractors and subcontractors. These commonly used provisions make payment from the owner a condition precedent to the prime contractor’s obligation to pay its subcontractors and suppliers.”

We’ll have to wait & see what comes from the Tennessee Senate when they review the bill again in 2020. Stay tuned for more updates on legislative changes!

Virginia’s Mechanic’s Lien Form Has Changed

Posted on July 26, 2019 by wpengine - In Other Commercial Credit News

Virginia is for Lovers of Mechanic’s Liens: Virginia’s Mechanic’s Lien Form Has Changed

Virginia is for lovers… lovers of mechanic’s liens? Maybe that’s not the slogan the state of Virginia had in mind. Although I may be one of the few that loves mechanic’s liens, today I would like to share the love & discuss the changes to Virginia’s mechanic’s lien form which went into effect July 1, 2019. The changes include the addition of the property owner’s address, the date from which interest is claimed, and identifying any amount of the claim that is not due at the time of the lien.

Securing Mechanic’s Lien Rights in Virginia

If you are furnishing to a private commercial project in Virginia, you are not required to serve a preliminary notice to secure your mechanic’s lien rights. However, we always recommend serving a non-statutory notice to ensure other parties are aware you are furnishing to the project.

Should you need to file a mechanic’s lien, serve the lien upon the owner and prime contractor within 90 days from the last day of the last month in which materials or services were furnished, but within 90 days from the project completion or work termination. The lien may only include, except for 10% retainage, materials or services furnished within 150 days prior to the last furnishing date stated in the lien. Accordingly, multiple liens may be required.

Two points of interest for lien filers in Virginia:

Virginia is an unpaid balance lien state, so if you need to file a lien you should file it sooner rather than later.
Virginia statute dictates that a subcontractor, lower-tier subcontractor, or material supplier may not waive or diminish their lien rights, right to assert bond payment claims, or the right to assert claims for additional costs in advance of furnishing any labor, services, or materials.

In the unlikely event that you need to proceed with suit to enforce your lien, you should file suit within 6 months from filing the lien or within 60 days from the project completion or work termination, whichever is later.

What’s in the Virginia Mechanic’s Lien

According to § 43-4. Perfection of lien by general contractor; recordation and notice the lien shall include the name and address of the property owner, the name and address of the lien claimant, the claimant’s contractor license number, a description of the materials or services provided, the claim amount, any amounts of interest due, and in addition to a statement declaring your intention to claim a lien, a description of the location of the real property.

New to the form is a section regarding monies that are not yet due: “Amount claimed: $__________. If any part of the amount claimed is not due as of the date of this mechanic’s lien, identify the date or event upon which it will be due and the sum(s) to which the due date(s) or event(s) apply: _________.”

How important is the new section? According to Virginia construction lawyer, Christopher G. Hill, this change is important and leaving it blank could cost you your lien rights.

“… addition of a specific section of the form spelling out which portion if any are claimed but not due (for instance retention or money subject to pay if paid clauses) as of the date of the recording of the memorandum of lien. Failing to spell this out on your memorandum of lien could potentially cost you a valid lien given the picky nature of these powerful but finicky beasts.”

Yikes! If you have questions or concerns about your lien rights in Virginia, it’s always best to seek a legal opinion.

“Virginia Love” picture is courtesy of Virginia.org

Key Collection Questions & Important Documentation

Posted on July 22, 2019 by Kiwi - Credit Risk Management

Prep to Collect: Key Collection Questions & Important Documentation

You’ve gone around and around with your debtor for weeks, maybe even months, but still haven’t received past-due payments. You decide you need collection assistance and think about hiring an attorney. These four collection questions can help determine the best debt recovery plan for your business and better assist in communicating with and demanding payment from your customer.

Four Questions to Consider When Placing Your Collection with an Attorney

How Much Am I Owed?

The amount of money you’re owed can greatly impact how you proceed with the collection process. If it’s a larger past-due payment and/or from a high-risk account, you may want to bypass an in-house placement and send your case right to an experienced attorney for review.

How Past-Due Is the Payment?

It’s important to know exactly how long your receivable has gone unpaid. There could be a pertinent underlying reason for late payments, such as your debtor experiencing financial distress, or maybe there are payment issues higher up the ladder of supply. It’s critical to get out in front on the collection process because the longer an amount goes unpaid, the harder it is to collect. Some studies indicate that after six months the collectability of a past-due amount can be reduced by as much as 52%.

Am I Involved In an Ongoing Dispute with the Debtor?

If you’re involved in an ongoing dispute with the debtor, over issues such as invoice discrepancies or quality-of-work, it could result in late payments. Therefore, we recommend placing your collection with an attorney who will work quickly to resolve dispute(s) and ultimately get you paid.

Is It a Secured Amount?

If you have security in place, such as a UCC filing, mechanic’s lien or bond claim, we recommend attorney involvement to best leverage your security. For example, if you have a lien on an unpaid project, an attorney can assist in resolving the balance owed, including, if necessary, foreclosing on that lien. Similarly, if there is a UCC in place, an attorney can proceed with replevin action or repossession through the courts.

Importance of Documentation in the Collection Process

Why Do I Need Supporting Documentation?

Any collection professional needs thorough, up-to-date information to best demand payment from your debtor. Providing the proper documentation at the start of the collection process will allow an attorney to efficiently and effectively handle your claim – putting you in the best position for receiving payment.

What Type of Documents Do I Need?

Supporting documentation? The more the merrier! Every collection attorney requires basic information such as the debtor’s full name, physical address and the amount owed. However, we recommend you also provide any additional paperwork that supports your claim. This could include signed invoices, written contracts or agreements, proofs of delivery and/or bills of lading. With access to proper backup documentation, the collector can speak more intelligently regarding your claim and even speed-up the collection process.

Important Documents to Include

Contract or Agreement
Credit Application
Invoices and Statement of Account: this should include copies of returned / NSF checks
Purchase Orders
Proof of Deliveries
Personal Guarantee
Trade References
Correspondence & Notes: this could include emails, letters (demand letters, payment requests & notices) and documented phone conversations
Corporate Certificate: this should include your debtor’s legal identity, including whether it is a corporation, partnership or proprietorship
Credit Report

Unfortunately, there’s no sure way of determining the collectability of a past-due account. Therefore, it’s best to weigh the costs against the potential debt recovery and be proactive in your efforts – start taking steps to secure future receivables today.

Are you caught up in past-due payments and need some collection expertise? Let our national network of attorneys, specializing in secured and unsecured commercial collections, help get you paid!

Iowa Lien Attached to Building, Not Lessor’s Property

Posted on July 12, 2019 by wpengine - In Other Commercial Credit News

Who Is Responsible for The Costs Associated with The Construction of The Facility, The Lessor, Lessee or Both?

In Iowa, the Lien Attached to the Building, Not the Lessor’s Property

A lessor owns the real property, signs a 50-year lease with the lessee and the lessee builds a facility on the leased property. Who is responsible for the costs associated with the construction of the facility, the lessor, lessee or both? According to the Iowa Supreme Court, the costs are the responsibility of the lessee, which means the liens can only attach to the lessee’s building and not the real property.

The Case Before the Iowa Supreme Court

Cargill, Incorporated (Cargill) signed a 50-year lease with HF Chlor-Alkali, LLC (HF). Cargill owned the land and the lease was established to permit HF to build a manufacturing facility on the property. HF hired general contractors, who in turn hired multiple subcontractors and suppliers to build the facility. All construction contracts were made with HF – no one contracted with Cargill – and HF owned the building.

What happens next is no surprise: parties in the ladder of supply weren’t paid for the construction of the facility. Mechanic’s liens were filed, and the lien claimants pursued foreclosure actions.

Cargill objected to the foreclosure of the liens against its property and argued the liens could only attach to the building owned by HF and not the property owned by Cargill. Cargill’s argument relied on the 2007 and 2012 statute changes.

The Iowa Supreme Court agreed with Cargill.

Iowa’s 2007 & 2012 Statute Changes Made the Difference

Iowa modified its mechanic’s lien laws in 2007 & again in 2012. These legislative updates included a refined definition of “owner.” Here’s a quick recap from R. Zachary Torres-Fowler in his recent article, The Lessor of Two Evils: Iowa Supreme Court Holds That Mechanic’s Liens Will Not Attach to the Property of a Lessor for Work Authorized by a Lessee.

“…in 2007, the Iowa legislature removed contracts with ‘the owner’s agent’ as a basis for permitting a mechanic’s lien to attach to the owner’s property. In 2012, the Iowa legislature further revised the mechanic’s lien statute to narrow the definition of ‘owner’ to exclude persons ‘for whose use or benefit any . . . improvement is made.’”

Iowa statute dictates a lien is available “Every person who furnishes…by virtue of any contract with the owner, owner-builder, general contractor, or subcontractor shall have a lien upon such building or improvement…” So, what does that mean for Cargill? The contracts weren’t with Cargill; thus, Cargill’s property is not subject to the lien. Because HF contracted for and owns the building, the lien can only attach to the building.

What Does this Mean for You?

This should be a warning to those furnishing to potential lessor/lessee situations. Don’t assume mechanic’s lien rights will extend to the property; rights may only be available on the leasehold interest, or as in this case, the building on the property.

Each state handles these situations differently and sometimes statute defers to the language within the contract between the lessor/lessee. You may recall a New York case we reviewed in April, in which the property owner was liable for the construction costs, because the lease specifically required the tenant to make the electrical improvements.

Review your contracts, review property ownership, review the lease whenever possible, and always seek a legal opinion.

Is Mediation or Arbitration Best for Your Business?

Posted on June 21, 2019 by wpengine - In Other Commercial Credit News

How to Know Which Is Best for Your Business

Have you found yourself in a construction dispute, trying to decide whether the dispute warrants trips to court for lawsuit litigation? Have you also wondered whether arbitration or mediation will quell tempers and resolve payment issues, while avoiding costly litigation? Then you may be interested in an article we shared via social media this week: Finding the Right Tool for the Job – Resolving Construction Disputes with Mediation or Arbitration, by Patricia L. Morrison and Theron Davis.

Mediation & Arbitration, We’ve Discussed Before

Mediation and arbitration have appeared in our blog before. In fact, in January we discussed the differences between arbitration, mediation, and lawsuits.

As a quick refresher, mediation and arbitration are two forms of alternative dispute resolution, where a neutral third party is present to facilitate resolutions. What is the primary difference between mediation and arbitration? One allows the third party to issue an enforceable (and appealable) decision regarding the dispute.

In mediation, the third party is there to facilitate discussions, not issue a decision to resolve the dispute; whereas, in arbitration, the third party can issue an enforceable decision to resolve the dispute. It’s important to note, in arbitration the arbitrator’s decision can be appealed, though it’s not commonly done.

While each dispute resolution process has its pros and cons, here are a few more items to consider, as outlined by Morrison & Davis in their article.

1 – Time.

According to Morrison & Davis, mediation tends to be easier and quicker than arbitration. Here’s why arbitration typically takes longer: “…arbitration hearings usually last much longer than mediations, require a considerable amount of planning and preparation, and often include some litigation-type steps such as the exchange of documents, possible examinations for discovery, and the preparation and exchange of expert reports.”

2 – Money.

Based on the amount of time and work that goes into arbitration, it’s not surprising to hear that mediation is often less expensive.

3 – Business Relationship.

This is an excellent point to consider: do you want to preserve the business relationship? “The biggest advantage of mediation over arbitration is that it avoids the adversarial process and, therefore, may preserve the business relationship. If the parties choose to do so, mediation can focus more on the business interests of the parties than on their legal positions. The parties are able to meet in a neutral environment, with an objective mediator, and concentrate on creating a solution to their dispute. The mediator will assist the parties in identifying the strengths and weaknesses of their positions while discovering the underlying interests at the heart of the dispute.”

4 – Control.

Morrison & Davis state that mediation allows for more control over how the dispute is resolved. In mediation, because the third party can’t issue a decision, the two parties must work together to come to resolution – they need to agree upon the resolution. As opposed to arbitration; when the arbitrator issues its decision, it’s quite possible that one or both parties are unhappy with, but bound to, the result.

As you may have noticed, Morrison & Davis seem to prefer mediation over arbitration. I can certainly see why. Mediation appears to be more relaxed/less formal. If I need to resolve a payment issue with my customer, and I don’t want to kill our relationship, I would be inclined to select mediation. I picture arbitration as the solution when my customer is refusing to communicate, making threats to pull business, in other words, kind of being a bully.

Best Practices for Success in Mediation & Life in General

Morrison & Davis provide a solid list of best practices on how to increase the likelihood of successful mediation; here are a few of the highlights:

Make an effort to understand the other side’s position
Ensure there is sufficient information and be prepared to discuss technical issues
Maintain a flexible attitude and open mind about your settlement options

Turns out, these may be excellent best practices for everyday business interactions – even life in general. Catch you next week!

Lien Dissolution Bond and Suit-To-Enforce Action

Posted on June 14, 2019 by wpengine - In Other Commercial Credit News

A Quick Story about a Lien Dissolution Bond and Its Trusty Suit-To-Enforce Action

A “lien dissolution bond,” which can be filed to remove mechanic’s liens from a property, is one of many names or phrases given to bonds of this type. Some other names or phrases you may recognize include: bonded off lien, discharge bond, bonding around/over lien, lien prevention bond, transfer bond, and a new one to me, a target lien bond. (Much to my dismay, “target lien bond” has nothing to do with shopping at the infamous Target.)

While today’s post has little to do with my shopping obsessions, it does focus on what happened in one Massachusetts case when the lien claimant took steps to foreclose on the lien dissolution bond.

Massachusetts Statute Allows for Liens to be Dissolved by Filing a Bond

We’ll get the technical aspect out of the way first. Section 14 of G.L. c. 254 (i.e. Massachusetts mechanic’s lien statute) provides that a lien dissolution bond can be filed with the Registry of Deeds to remove a mechanic’s lien filed against a property.

“Any person in interest may dissolve a lien under this chapter by recording or causing to be recorded in the registry of deeds in the county or district where the land lies, a bond of a surety company authorized to do business in Massachusetts and in a penal sum equal to the amount of the lien sought to be dissolved conditioned for the payment of any sum which the claimant may recover on his claim for labor or labor and materials. Upon the recording of the bond, the lien shall be dissolved…”

Section 14 also explains that a notice of the recorded bond and copy of the bond should be provided to the lien claimant whose lien has been dissolved. And, statute states “The claimant may enforce the bond by a civil action commenced within ninety days after the later of the filing of the statement required by section 8 or receipt of notice of recording of the bond, but such bond shall not create any rights which the claimant would not have had, or impair any defense which the obligors would have had, in an action to enforce a lien.”

Section 14 is referring to the deadlines laid out under section 8 for mechanic’s liens. Here are the mechanic’s lien deadlines from The National Lien Digest –

File a Statement of Account no later than the earliest of:
- 90 days from the recording of a Notice of Substantial Completion,
- 120 days from the recording of a Notice of Termination, or
- 120 days from the last furnishing of materials or services by the prime contractor or the subcontractor.
File suit to enforce the lien within 90 days from filing the Statement of Account.

In other words, a claimant can proceed with suit to enforce the lien dissolution bond within the same deadlines as they would for a mechanic’s lien: 90 days from the date the lien was filed.

Yikes, That’s A Lot of Technical. What about the Case?

I know – the downside to some of these cases is the crazy technicalities that need to be explained prior to getting to the good stuff. So, on to the good stuff!

The question before the court was “if a claimant proceeds with suit against the bond, are they required to record an attested copy of their complaint?” Because the mechanic’s lien statute states an “attested copy” of the suit action must be recorded with the Registry of Deeds.

The short answer? Nope.

According to an article by Kevin Mortimer an d Samuel Tony Starr, the surety is the party that contested the court’s decision.

“…when the supplier/lienholder filed a timely enforcement action against the subcontractor and bond surety, the surety moved for summary judgment—arguing that the lienholder had failed to comply with the strict requirements of Section 14 by failing to record an attested to copy of its complaint with the Registry of Deeds.”

And the lower court sided with the surety. But, what good is a case that isn’t appealed?

Upon appeal, the Supreme Judicial Court overturned the earlier decision, because the language within statute does not state there is a requirement for recordation of an attested copy. In fact, the court compared the lack of language in section 14 to the inclusion of language in section 12.

Essentially: if the statute wanted an attested copy to be recorded, it would have said so.

But wait, there’s more. The surety argued that an attested copy should be recorded to notify other parties of the suit, even if they are non-parties to the action.

“…the Court acknowledged the surety’s valid concern that many entities, including the general contractor and other subcontractors, may have an interest in knowing about a lien dissolution bond’s enforcement action. The surety asserted that since such entities are not named as parties to the action, they would not receive service, and therefore would not have knowledge of it.”

Perhaps We Will See New Legislation?

Well, it’s certainly possible. When the court acknowledged the surety’s concern about notifying interested parties of the suit action, it made a footnote comment that may be fortuitous “Any resolution of this issue, however, is for the Legislature.” So, it’s possible that new legislation may develop from this case.

You can read the court opinion here: City Electric Supply Co. v. Arch Insurance Co.