Service Area: Collection Services

Arbitration, Mediation, Lawsuit – What’s the Difference?

Posted on January 18, 2019 by - Credit Risk Management, In Other Commercial Credit News

Arbitration, Mediation, Lawsuit – What’s the Difference?

Over the holiday break, I spent some time reading articles I’ve (shamefully) had bookmarked for way too long. One of these articles reviewed the pros & cons of arbitration in construction disputes, although for me, it better explained the similarities and differences of arbitration and a lawsuit.

Construction Arbitration: The Pros and Cons by Jason Strickland of Ward and Smith, P.A.

Arbitration vs. Mediation vs. Lawsuit

I don’t think I have ever confused a lawsuit with arbitration or mediation, but I have certainly confused arbitration with mediation. Here are key features explained by Strickland:

“Mediation is a settlement conference in which the parties meet (typically in person) and use a third-party neutral to act as a settlement facilitator.  The third-party neutral is called the mediator.”

It’s important to note, the mediator can’t force a settlement – which I didn’t know. I assumed the mediator has the same powers that an arbitrator has.

“A lawsuit is conducted in a court of law and usually is initiated by a plaintiff filing a complaint, in which the plaintiff will ask for some form of relief from the defendant.”

In the NCS world, a lawsuit is often referred to as “suit to enforce…” a lien or bond claim.

Now, this explanation of arbitration is new to me, in part:

“Arbitration is essentially a lawsuit but without court involvement.”

Wow. “Arbitration is essentially a lawsuit but without court involvement.” Yes! That’s a great explanation. Why? Because arbitration is binding, just like a legal decision.

Mind. Blown.

“The parties agree… to submit their dispute to arbitration rather than to pursue a lawsuit in court.  The parties’ agreement gives the arbitrator the power to issue a decision as to the parties’ rights and obligations, and such decision will be legally binding on all parties. Thus, arbitration is very different from mediation because the third-party neutral provides a legally binding decision.  However, arbitration is not mutually exclusive with mediation.  In many cases, parties will have a dispute resolution provision in their contract that will allow, or require, the parties to mediate first, and if the mediation is unsuccessful, to then submit their dispute to arbitration.” – Jason Strickland

The Differences (Pros & Cons) Between Arbitration and Lawsuits

Strickland reviews several differences between arbitration and a lawsuit. Here’s a quick table to break down Strickland’s points.

So, who wins? Arbitration or Lawsuit?

Obviously, it will depend on your circumstances and contractual language, but both options have their pros & cons. A key benefit in arbitration is the efficiency; with a less formal environment and the rarity of appeal, it can prevent a case from dragging on. On the flip side, construction disputes typically involve a myriad of parties, which can be easier to accommodate within a court/lawsuit setting.

Mechanic’s Liens and Discharge Bonds

Posted on January 11, 2019 by - In Other Commercial Credit News, Mechanic's Liens & Bond Claims

Mechanic’s Liens and Discharge Bonds

We know mechanic’s liens can be bonded off, we’ve discussed it before. But it’s a topic that can be quite confusing, especially when each state treats the bonds a bit differently. I recently read an article from Surety Bond Quarterly, that I found not only entertaining, but quite educational on the perks and perils of a lien discharge bond – let’s dig in!

“Mechanics’ Lien Discharge Bonds — The Substitutes of the Surety World”

In this article, written by attorneys Mike F. Pipkin and Jacob L. McBride (collectively “authors”), authors compare a lien discharge bond to a substitute teacher.

First, let’s take a moment to relive “substitute days.” Most, if not all, of us know what it was like to have a substitute teacher in school.

Walking into class to see your regular teacher has been replaced by a new face often triggered a mini-party in your head, because it meant a break from the routine, a decreased likelihood of a test, an increased likelihood of the AV club wheeling in a projector (I may be showing my age), and if you were a procrastinator, it may have given you a little extra time to finish the homework from the night before.

OK, so how is a discharge bond like a substitute teacher? According to authors, “Mechanics’ lien discharge bonds… substitute for a previously filed mechanics’ or materialman’s lien, providing relief to owners and contractors alike from the onerous procedures, rules, and remedies that such liens carry with them. They may provide added time to negotiate a settlement by substituting their own statutes of limitations. While mechanics’ lien discharge bonds are not without their risks, they offer a satisfying alternative in that owners and other stakeholders can insulate their property interests from foreclosure, while contractors have a simpler alternative to recovery than foreclosure.”

Two substitute teacher & discharge bond commonalties that jump out? Both may provide relief/reduce pressure and they may provide additional time.

There’s Always a Risk of One Kid Spoiling It for the Group

You know the kid – the one who saw the line drawn in the sand and crushed it with rude comments, long trips to the bathroom and picking on other kids. The kid that put the whole class at risk of having “quiet time” or forcing the substitute to turn off the movie.

Just as there were risks in school, there are risks with discharge bonds. Specifically, according to authors, why a discharge bond was issued to begin with. It’s important to understand, a payment bond and a discharge bond are not the same.

“Unlike a typical payment bond, issued to protect against potential future circumstances, a lien discharge bond is born out of an existing dispute over nonpayment that resulted in a lien being filed on real property. In other words, a surety executing a lien discharge bond steps into a situation where the principal is already not paying the obligee(s).”

In other words, the discharge bond is issued because there is already a payment problem. Because they are issued based on a “known” issue, the scope of the discharge bond can be limited. Authors remind us the discharge bond is frequently issued for an amount that totals the value of filed mechanic’s liens, which means it is “[U]nlike a typical payment bond with its broad scope… the scope of a lien discharge bond is limited to specific, identified lien claimants with specific, limited lien values…”

The Savvy Substitute Reigns Supreme

As a kid, I remember the different feeling between seeing a new substitute versus a seasoned veteran. A seasoned veteran knew the rules, enforced the rules, and provided a bit of relief from schooling but we knew better than to push our luck. What’s the discharge bond equivalent? Rules still apply, deadlines must be met, and statute must be complied with — from authors:

“Like the wise substitute teacher who learns and enforces the class rules, the surety can assert the defenses of its principal. Because a lien discharge bond provides substitute security for the lien, most states require a claimant to have complied with the requirements of the lien statute to make a claim on the bond. The lien discharge surety can defend against a claim by identifying any defects in the lien claim, such as failure to meet standing requirements, failure to provide proper notice, and failure to perfect the lien claim, among others. The surety may also use any substantive defenses it has available to the validity of a claim as well as applicable affirmative defenses, such as statute of limitations and waiver.”

Be aware of & follow statute carefully. Earlier this year we reviewed a case in New York where the claimant failed to follow lien statute when its lien was discharged by a bond, and lost its rights.

As a best practice in liens & in school: assume the substitute has the same authority and follow the rules, otherwise, there will be consequences.

Louisiana Private Projects and Your Lien Rights

Posted on January 7, 2019 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Louisiana Private Projects and Your Mechanic’s Lien Rights

If you are furnishing to a private project in Louisiana, today’s post is just for you! In this post, we will review the statutory requirements for the preliminary notice, mechanic’s lien, suit and even a bond claim.

Notices for Louisiana Projects | Commercial

In Louisiana, commercial and residential projects have separate notice requirements. First let’s review commercial projects.

If you are a prime contractor (contracted directly with the owner), you should file a Notice of Contract or the general contract, prior to commencing work. If neither the Notice of Contract nor the general contract is timely filed, you (the prime contractor) will not have lien rights on contracts exceeding $25,000.00.

Louisiana RS 9:4811 dictates the following should appear within the written notice of contract:

The notice:

(1)  Shall be signed by the owner and contractor.

(2)  Shall contain the legal property description of the immovable upon which the work is to be performed and the name of the project.

(3)  Shall identify the parties and give their mailing addresses.

(4)  Shall state the price of the work or, if no price is fixed, describe the method by which the price is to be calculated and give an estimate of it.

(5)  Shall state when payment of the price is to be made.

(6)  Shall describe in general terms the work to be done.

There is an optional notice that may be served upon the owner, prior to termination of the contract or substantial completion of the project, obligating the owner to notify the claimant of the termination of the contract or substantial completion of the project.

Louisiana is what I call “a notice of non-payment state.” Essentially, for each month you furnish and aren’t paid, you should serve the 75-Day Notice of Non-Payment.

“Claimants should serve a 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 lien must be filed.” – The National Lien Digest

The date calculations for this can be a bit confusing, so here’s an example:

Furnishing Date Deadline Begins Calculating 75-Day Notice of Non-Payment Due
December 17, 2018 December 31, 2018 March 15, 2019
January 4, 2019 January 31, 2019 April 16, 2019
February 24, 2019 February 28, 2019 May 14, 2019
March 3, 2019 March 31, 2019 June 14, 2019
April 9, 2019 April 30, 2019 July 12, 2019

I added the middle column “Deadline Begins Calculating” because the actual furnishing date is not used to calculate the notice deadline. Statute states the notice should be served within 75 days from the last day of the month for EACH month in which materials were furnished.  Remember also, when serving your notice of non-payment for your last furnishings, be certain the notice is served prior to the lien deadline.

There may be situations when this notice won’t be required, with the most obvious being if you have been paid. A few additional times a notice may not be required: if the Notice of Contract or the general contract is not recorded, when contracting directly with the owner or prime contractor, or when providing labor and materials or only labor.

Pro-Tip: if you haven’t been paid, serve the 75-Day Notice of Non-Payment! It is much better to serve the notice and find out it wasn’t required, than it is to not serve the notice and discover it was required.

Notices for Louisiana Projects | Residential

In Louisiana, a project is deemed residential if it is an owner-occupied single-family dwelling. In addition to the requirements for commercial projects, those furnishing to residential projects should take note of the following.

If you are a prime contractor, you must require the owner to execute a Notice of Lien Rights prior to or at the time of entering into a contract.

Any would-be claimant should serve a Final Notice of Non-Payment upon the owner at least 10 days prior to filing the lien, stating the total amount to be claimed under the lien. This notice may not be required if you are providing labor and materials or only labor.

Bonus: Are you leasing equipment? At the time of entering the contract, obtain the lessee’s signature on the notice to be served upon the owner and the prime contractor within 10 days after the equipment is first placed on the project site.

Mechanic’s Liens in Louisiana

The mechanic’s lien deadlines are not nearly as complex as the notice of non-payment deadlines, but they do differ depending on where you fall within the ladder of supply.

If you are a prime contractor, you should file your lien within 60 days after a notice of termination or substantial completion of the project.

For subcontractors, materialmen, lessors & laborers, if a Notice of Contract was recorded, you should file the lien within 30 days after a notice of termination is filed. You should serve a copy of the lien upon the owner, at the address specified on the Notice of Contract, within 30 days after the filing of a notice of termination.

In the event the Notice of Contract was not recorded, the lien deadlines for residential & commercial projects are:

  • On residential projects, file the lien within 70 days after a notice of termination or substantial completion or abandonment of the project if no notice of termination is filed.
  • On commercial projects, file the lien within 60 days after a notice of termination or substantial completion or abandonment of the project, if no notice of termination is filed.

Louisiana is a full balance lien state (for commercial projects), so the lien is enforceable for the full amount owed, regardless of payments made by the owner.

Payment Bond Issued for Private Project?

A properly filed payment bond will prevent mechanic’s liens from attaching to the property. Although you would pursue payment from the bond, as opposed to a lien, you will need to follow the same notice requirements as noted above.

In addition to following steps under mechanic’s lien statute, you will serve a bond claim notice upon the prime contractor within 30 days after notice of termination.

The suit deadline is a bit different than it is under mechanic’s liens. Suit cannot be filed against the surety before the expiration of the lien filing period, unless the claimant has served the surety with a copy of the lien at least 30 days prior to filing suit. If the contract and the payment bond have been properly recorded, file suit to enforce the lien/bond claim within 30 days after a notice of termination; otherwise, file suit within 1 year from the expiration of the lien filing period.

When in Doubt – Ask!

Please know, this is not an exhaustive list of the statutory requirements for protecting rights on private projects in Louisiana. If you have additional questions, please do not hesitate to contact us!

UCCs Have Priority Over 503(b)(9) Claims

Posted on December 17, 2018 by - Credit Risk Management, UCC Financing Statements

503(b)(9) Claims & Consignment Agreements are No Match for Properly Perfected UCCs

Businesses file for bankruptcy protection; it is an unfortunate and uncontrollable reality. Considering the likelihood of debtor default, some creditors take unnecessary and avoidable risks relying on reactive recovery. Secured creditors, however, wisely mitigate these risks through the proactive protection afforded to creditors under Article 9 of the Uniform Commercial Code (UCC).

Proactive Takes Priority

It’s true. In bankruptcy, a properly perfected security interest, in compliance with UCC Article 9, has priority over unsecured creditors, creditors with administrative claims, 503(b)(9) claims, and even consignment agreements. If you attended CRF’s Fall Forum, the Bankruptcy Judge Panel – Three Judges/One Verdict reinforced the priority UCC filings have over 503(b)(9) claims and consignment agreements.

The proof is in Sections 506 & 507 of the bankruptcy code. Section 506 defines what is considered a secured claim and Section 507 dictates the payout priority of claims.

Ultimately, the payout priority in a Chapter 11 filing is:

  1. Secured Creditors (e. creditors who have a perfected security interest)
  2. Administrative Expenses (e. costs associated with filing & processing the bankruptcy)
  3. Unsecured Creditors (e. creditors without a security interest)

Secured creditors are paid before all other claims, to the extent of the pledged collateral. After secured creditors have been paid, payments are made to creditors with administrative claims. The administrative claims may include costs associated with the management of the bankruptcy (i.e. attorneys), post-petition claims and 503(b)(9) claims. Among those paid last in a bankruptcy, if paid at all, are general unsecured creditors.

“Who Needs UCCs? We File 503(b)(9) Claims”

Yes, 503(b)(9) claims can be advantageous for an unsecured creditor. The bankruptcy code was amended in 2005 to include a new administrative claim: 503(b)(9). With the addition of 503(b)(9) claims, some creditors became complacent. The availability of a 503(b)(9) claim seemed to misleadingly allay creditor concerns, “Nah, I don’t need UCC filings. We just file a 503(b)(9) to get paid.” This somewhat false sense of security can easily cost creditors millions of dollars.

Under 503(b)(9), creditors may file a claim for “the value of any goods received by the debtor within the 20 days before the date of commencement of a case under this title in which the goods have been sold to the debtor in the ordinary course of such debtor’s business.”

As you can imagine, there are challenges with 503(b)(9) claims. High-profile cases are in heated debate over the definition of “received by” for the 20 day rule. And, of course, there is the question of what constitutes a “good” because services are not covered under these claims, and whether those goods have been sold in the ordinary course of business.

As an aside, a member of the panel at CRF’s Fall Forum, Judge Christopher S. Sontchi, Chief Judge of The United States Bankruptcy Court for the District of Delaware, has presided over several cases determining “goods” and “receipt.” Notably, in one case, Judge Sontchi looked to the UCC definition of goods and subsequently held that electricity is not a “good” under 503(b)(9).

To be clear, a UCC filing is not without potential obstacles. Your UCC must be properly perfected and there is a narrow margin for error. But, ensuring a UCC has been properly perfected is less cumbersome than proving goods are goods, defining date of receipt and verifying goods are sold during ordinary course of business.

We Sell on Consignment, No UCC Necessary

“Why would I file a UCC if I’m selling on consignment?” Because the law allows you to establish priority as a secured creditor! A simple consignment agreement is often viewed by the courts as a “secret lien” and may not be enough to protect you if your debtor defaults or files for bankruptcy protection, as there is no legal/recorded document identifying your title to the goods provided to the debtor.

If the debtor files for bankruptcy protection, the inventory the debtor has on hand is gathered up and sold off to pay creditors (secured creditors first and then the unsecured creditors). Without the UCC filing identifying you as a secured creditor and specifically identifying your goods, the inventory you supplied automatically becomes property of the estate.

Is a UCC required for consignment sales? No. Creditors are not required to file a UCC. In default or bankruptcy situations, when a creditor is selling on consignment, there is a chance the creditor could argue it is “commonly understood” the debtor engages in consignment sales. But making that argument seems shaky at best, not to mention inefficient – how much time would it take to successfully make that argument vs. filing the UCC and granting a security interest at the beginning of the relationship?

UCCs are Payment Priority

Please understand, UCCs are not a guarantee; there are no recovery guarantees in bankruptcy; after all, 100% of nothing is nothing. However, without a properly perfected UCC, you are just another unsecured creditor, wading in an overcrowded shallow pool for payment. With a properly perfected UCC, you are a payment priority.

Article was originally published in the Credit Research Foundation 4Q 2018 CRF News

What To Do When You Can’t Get Change Orders in Writing

Posted on December 14, 2018 by - In Other Commercial Credit News, Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

What To Do When You Can’t Get Change Orders in Writing

Change orders can be tough to track. Nearly every construction project has change orders and with the number of parties on a given project and the number of projects any one party is involved in, it is no surprise that change orders are often overlooked or simply given a verbal approval to proceed.

But like all documentation, it can be vital in supporting your claim. So, what can you do when a formal change order isn’t issued?

What You Can Do When You Can’t Get a Change Order in Writing

A change order, which is a change to the original contract, should be formally issued and approved. Should. There are a lot of things that we should do: make the bed, exercise daily, avoid sugary drinks, etc. Unfortunately, we don’t always do what we should.

It’s so easy to simply send additional materials and invoice your customer when he calls in search of more scaffolding. It’s a pain to go through the proper channels to get a formal document, especially when your customer needs materials now, not a week or two from now when the formal request is issued.

If your contract requires change orders to be in writing, and a request for formal documentation falls on deaf ears, don’t just assume it’ll be OK, find a way to document, document, document. Those are the words of Todd Heffner of Smith Currie in his article Can’t Get a Written Change Order? Document, Document, Document.

Heffner mentions that if a dispute arises over an undocumented change order, “The general trend is for courts to allow a contractor to recover for the extra work that was performed.” But why risk it? If you can’t get a formal document, Heffner recommends utilizing email as a way of informal documentation.

“For example, the contractor can send an email to whoever is directing the work requesting clarification of what is to be done. The email chain will provide written evidence that the contractor did not proceed as a volunteer or consider the changed work to be in the original scope.”

What happens if the email recipient won’t acknowledge the email or refuses to respond? Is it still worth documenting? Yes, Heffner notes you can still send an email regarding the change, but follow it up with a letter sent via certified mail:

“This can be done initially by sending a long email documenting exactly what was directed and why it constitutes a change to the work. Any such email should be followed by a letter sent via certified mail. Both email and letter should give the owner, architect, or engineer a limited time to disagree, e.g., ‘We will proceed with this work in x days unless you direct otherwise.’”

The Pencil Remembers What the Mind Forgets

I’ve probably spouted this proverb before, with many thanks to my 7th grade history teacher, but it is worth repeating. “The pencil remembers what the mind forgets” – in other words, write down events and occurrences.

Document change requests, keep track of waivers, carefully itemize statements, match bills of lading/proofs of delivery to outstanding invoices. The paper trail can be annoying, with random bits of extraneous information slid in an offhanded email or quick text, but it’s critical in supporting any potential claim you may have.

Montana Lien & Bond Claim Rights: What You Should Know

Posted on December 10, 2018 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Montana Lien & Bond Claim Rights: What You Should Know

Furnishing to a construction project in Montana? Then you’ll certainly want to review today’s post! Let’s take a look at the notice, lien, bond claim and suit requirements in Montana.

Montana Mechanic’s Lien Rights

For those furnishing to a private commercial project, there is no required preliminary notice. If you are furnishing to a private residential project, get ready to serve a notice of right to claim a lien within 20 days from first furnishing and then record the notice of right to claim a lien within 5 business days from serving the notice upon the owner.

A notice may not be required for residential projects if you are contracted directly with the owner, if you are only providing labor or if the contract is related to a dwelling of five or more families.

Whether the project is commercial or residential, the mechanic’s lien should be filed within 90 days from last furnishing and within 90 days from the recording of the notice of completion. According to Montana’s statute, the following information must be included in the lien:

(a) the name and address of the person claiming the lien;

(b) a description of the real property against which the lien is claimed sufficient to identify it;

(c) the name of the contracting owner;

(d) the name and address of the party with whom the person claiming the lien contracted to furnish services or materials;

(e) a description of the services or materials provided;

(f) the amount unpaid for services or materials or, if no amount is fixed by the contract, a good faith estimate of the amount unpaid, designated as an estimate;

(g) (i) the date on which the services or materials were first furnished; and

(ii) the date on which the services or materials were last furnished; and

(h) a declaration that a notice of a right to claim a lien was given to the contracting owner or an explanation of why the notice was not required.   71-3-535

Should you need to enforce the mechanic’s lien, you must file suit within 2 years from the filing of the lien.

Montana statute does allow for the substitution of a bond for the mechanic’s lien. The property owner can file a payment bond if the bond is 1 ½ times the amount of the mechanic’s lien and if the bond includes the following condition:

“The bond must be conditioned that if the construction lien claimant is finally adjudged to be entitled to recover upon the claim upon which the construction lien is based, the principal or the principal’s sureties shall pay to the claimant the amount of the claimant’s judgment, together with any interest, costs, attorney fees, and other sums that the claimant would be entitled to recover upon the foreclosure of a construction lien against the principal.” 71-3-551

If the lien has been bonded off, suit to enforce a claim against the bond would be the same as if it were a lien. “The action must be commenced within the time allowed for the commencement of an action upon foreclosure of a lien, and the statute of limitations applicable to a lien foreclosure applies to an action upon the bond, as it would had a bond not been filed.”  71-3-553

Montana Bond Claim Rights

As a best practice, when furnishing to a public project in Montana, always attempt to obtain a copy of the payment bond from the public entity which contracted the project. Generally, in Montana, payment bonds are required for state or governmental contracts of $50,000 or more, and are generally required for school district general contracts of $7,500 or more.

There is a preliminary notice, and the notice should be served upon the prime contractor after first furnishing, but within 30 days from first furnishing. You may not need to serve the notice if you are contracted with the general contractor.

If you need to proceed with the bond claim, you should serve the claim upon the public entity within 90 days from completion and acceptance of the contract. Unfortunately, there is no statutory provision regarding suit to enforce the bond claim, so we recommend you file suit in accordance with the terms of the payment bond. Often, suit to enforce a bond claim is required within 1 year from last furnishing.

Bonus: Prompt Pay

Montana statute does address prompt payment. Ultimately, on private projects, the general contractor is to remit payment to its subcontractor(s) within 7 days after the contractor receives payment from the owner. You can review the statutory specifics here: 28-2-2103 Payment to Contractor and Subcontractor

Need assistance with securing lien or bond claim rights in Montana? Contact us today!

Don’t Ignore Contractor Licensing Requirements

Posted on December 7, 2018 by - In Other Commercial Credit News, Mechanic's Liens & Bond Claims

Be Careful, Don’t Ignore Contractor Licensing Requirements – Your Lien Rights May Depend on It

Don’t ignore contractor licensing requirements; your mechanic’s lien rights may depend on it. Sounds a bit like a public service announcement, right? Well, it should. Don’t let the mistakes of other contractors be in vain — this week we shared two articles about neglecting licensing requirements and the consequences it brings.

Do Not Pass “Go” You Out-of-State, Unlicensed Contractor

In this article, author Matthew Devries reviewed a North Dakota Court of Appeals case. The contractor, with a principal place of business in Washington, provided labor and materials to a project in North Dakota. The contractor began furnishing to the North Dakota project in December 2011, but didn’t obtain a license for the state of North Dakota until February 2012.

In 2012, the contractor was paid for furnishings provided through February 1st, then received a portion of its claim for furnishings between February 2nd and March 15th, and received no payment for furnishings from March 16th through November 30th. Because the contractor remained unpaid, it filed a mechanic’s lien. The owner argued the contractor’s lien was invalid because the contractor didn’t meet the proper licensing requirements at the time it entered into the contract.

Per Devries, “On appeal, the owner argued that North Dakota Code requires a contractor be licensed at the time of contract formation or commencement of work under the contract to maintain a claim or action related to the work performed under the contract. Because the contractor did not obtain a license until after it had entered into the contract with the owner and started working on the project, the owner claimed that the contractor (was) barred from bringing any claim.”

Ultimately, the contractor was able to recover its claim, with the exception of furnishings provided during the period when it was not properly licensed (it received its license February 6th). But, why risk it? Ensure you are meeting licensing requirements BEFORE furnishing!

Contractor Licensing Requirements: Ignore at Your Peril

Author, Amandeep Kahlon, reviewed a Georgia Court of Appeals case, Baja Properties, LLC v. Mattera. The property owner hired the contractor for the construction of the owner’s residence. The contractor began construction, but not long after, the owner terminated the contract. When the contractor filed a lien (among several other issues in this case), the owner argued the contractor’s lien was unenforceable because the contractor was not licensed.

It’s true, the contractor was not licensed at the time of the contract and did not obtain a license during the actual construction. Georgia is a no-nonsense state: no license, no lien rights. Per the court opinion “OCGA § 43-41-17 (a) provides, in pertinent part, that no person shall have the right to engage in the business of residential or general contracting without a current valid contractor license.”

Although this case is “unremarkable in its result,” it’s Kahlon’s recommendations that struck a chord with me:

“Securing contractor licenses can take time, and requirements vary across states. So, pay attention early on when determining whether to pursue work in a new state or with a subcontractor with which you don’t have prior experience. You may not be able to remedy any licensing deficiency post-contract execution or even post-submission of a bid, so you want to make sure any potential issues are known and dealt with well before then. Additionally, most states allow you to check a party’s licensing status online, so you can verify quickly whether a particular subcontractor is appropriately licensed before soliciting a proposal from them.”

Perhaps it’s my propensity for the proactive approach, but I think this is excellent parting advice from Kahlon: “A proactive and conscientious approach to licensing on the front end of any project will help you preserve your bargained-for contract rights and avoid substantial penalties or other damages later on.”

What Does It Mean to “File” a Lien?

Posted on December 3, 2018 by - Mechanic's Liens & Bond Claims

What Does It Mean to “File” a Lien? Is that Different than “Recording” a Lien? According to One Case in Ohio, They’re Different.

In legal decisions, the court relies on the “plain text” of statute when it issues a decision. Interpreting plain text can be a challenge when seemingly innocuous words force us to pull out a dictionary to determine the true meaning. Today’s innocuous, yet critical, word? File.

The Ohio Court of Appeals recently heard the case, Kirk Excavating & Constr., Inc. v. RKJ Ents., LLC, in which the lien claimant argued its mechanic’s lien was filed when the affidavit was delivered to the country recorder’s office, despite the document being returned to the lien claimant for not complying with statutory requirements.

First, Filing Deadlines in Ohio (private commercial projects)

In Ohio, you should serve a preliminary notice upon the owner, lessee, designee and prime contractor within 21 days from first furnishing. A late notice may be served, however, the lien will only be effective for furnishings provided 21 days prior to serving the preliminary notice and thereafter.

The mechanic’s lien should be filed within 75 days from last furnishing and claimants must file suit to enforce the mechanic’s lien within 6 years from the filing of the lien and within 60 days from being served with a notice to commence suit.

The mechanic’s lien deadline is a bit longer for projects on oil or gas well facilities, which is the project type in this case. When furnishing to an oil or gas well facility, the mechanic’s lien should be filed within 120 days from the date of last furnishing.

Case Synopsis

The lien claimant, Kirk Excavating & Construction, Inc. (Kirk), contracted with general contractor, RKJ Enterprises, LLC (RKJ) to perform oil and gas construction work. Kirk furnished between April 21, 2014 and May 12, 2014 and invoiced RKJ for $332,320.

When RKJ failed to pay Kirk, Kirk sent an affidavit of lien to the country recorder’s office. The affidavit was sent sometime between July 1st and July 23rd. Unfortunately, Kirk did not provide a proper legal description of the property within its lien, so the recorder’s office returned the affidavit to Kirk.

Based on its furnishing dates, Kirk’s lien needed to be filed by September 9, 2014 (120 days from May 12). It wasn’t until December 8, 2014, that Kirk’s second affidavit was recorded. Clearly, the deadline for filing the lien had passed and Kirk’s lien was untimely. Kirk proceeded with a suit action, at which time RKJ disputed the validity of Kirk’s lien.

The court stated, “the affidavit is required to be filed for record within 120 days from the date the last labor or work was performed.”

Kirk claims the initial affidavit, the one returned by the recorder’s office for insufficient property description, was delivered to the recorder’s office within 120 days of Kirk’s last furnishing.

Now to Define File

First Kirk stated the words “filing” and “recording” are two separate actions. Specifically calling out the statute text “shall make and file for record”:

“…shall make and file for record in the office of the county recorder in the counties in which the improved property is located, an affidavit showing the amount due over and above all legal setoffs, a description of the property to be charged with the lien, the name and address of the person to or for whom the labor or work was performed or material was furnished, the name of the owner, part owner, or lessee, if known, the name and address of the lien claimant, and the first and last dates that the lien claimant performed any labor or work or furnished any material to the improvement giving rise to the claimant’s lien.”

The court agreed; “to file” and “to record” are two different actions.

Next, Kirk contended that “filing” and “delivery” are the same action. Kirk “asserts all it was required to do was to have the affidavit delivered to the recorder’s office for the lien to be considered filed.”

Unfortunately for Kirk, the court disagreed with this argument for two reasons. The first reason gets a bit muddied, bear with me. In its decision, the court relied on two separate sections of the Ohio Revised Code, the one regarding the mechanic’s liens and chapter 317, which governs the county recorder’s offices.

In chapter 317 the four following words are used: filing, recording, presentation and received. The court states that presentation and received are “more akin” to delivery and “one might conclude filing is more than delivery and if the statute meant delivery was all that was required the word presented or received would have been used.”

OK: filing and delivery are not synonymous.

There is additional discussion in the case, of whether the recorder’s office could reject the affidavit based on missing/inaccurate information. Obviously, the recorder’s office can reject documents. You may recall, Kirk failed to properly identify the liened property, which caused the recorder’s office to return the document. While the affidavit was incorrect, the true issue is that despite having plenty of time to correct the affidavit and refile in a timely manner, Kirk waited until December.

“[Kirk] also did not attempt to correct the alleged deficiencies in the affidavit within the prescribed time, even though [Kirk] had ample time to do so. [Kirk] had close to two months to add the information the recorder requested to the affidavit and this matter would have been resolved. Instead, [Kirk] waited approximately three months after the expiration of the 120 day time limit to file a corrected affidavit.”

File Documents Timely

If a document must be filed by a specific date, ensure the document is filed. In this case, that means you ensure the statutorily correct document is in the hands of the county recorder by the deadline. Don’t assume that dropping something in the mail means it will make it to its destination timely. Carefully track deadlines; if you receive returned mail, review it immediately and act where appropriate.