Service Area: Collection Services

Perfecting UCC Collateral Descriptions

Posted on November 16, 2018 by - In Other Commercial Credit News, UCC Financing Statements

Perfectly Imperfect Collateral Descriptions within Your UCC Financing Statement: It’s a Delicate Balance.

A properly perfected security interest is nothing without a collateral description. In fact, it’s not properly perfected at all – it’s unperfected. A properly perfected security interest requires compliance with Article 9, which includes a Security Agreement and the subsequent filing of the UCC-1 Financing Statement.

Contents of a Security Agreement

What information should the Security Agreement contain? A Security Agreement should include the following:

  • The name & address of the debtor
    • The name for an organization must be the name as it appears in the public organic record
    • The name for an individual, depending on the state, should be the name as it appears on the unexpired driver’s license
  • A granting clause
  • A collateral description
  • Reference to governing law
  • The date of the agreement
  • Signatures from authorized individuals

Contents of the UCC Financing Statement

Article 9-502 clearly identifies the information that is to appear in the Financing Statement: the name of the debtor, the name of the secured party and the collateral description.

(a) [Sufficiency of financing statement.] Subject to subsection (b), a financing statement is sufficient only if it:

(1) provides the name of the debtor;

(2) provides the name of the secured party or a representative of the secured party; and

(3) indicates the collateral covered by the financing statement.

What Constitutes a Sufficient Collateral Description?

Article 9-108 provides the following:

(a) Except as otherwise provided… a description of personal or real property is sufficient, whether or not it is specific, if it reasonably identifies what is described.”

(b) [Examples of reasonable identification.]

Except as otherwise provided in subsection (d), a description of collateral reasonably identifies the collateral if it identifies the collateral by:

(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.

Be careful, there’s a fine line between being too specific and too generic.

Can I Attach My Collateral Description as an Exhibit to the UCC Filing?

Yes, you could attach an exhibit to your filing. But… just because you can, doesn’t mean you should. Authors from Troutman Sanders LLP explained in their recent article UCC Incorporation by Reference: An Imperfect Way to Perfect: “Generally, a UCC-1 financing statement’s collateral description is sufficiently descriptive when it refers to details provided in an attachment.” And, they further stated “a collateral description that refers to an unattached, lapsed financing statement may be sufficient when the UCC-1 includes the financing statement’s filing number.”

However, a bankruptcy court recently deemed a security interest unperfected, because the document which identified the collateral was not available at the local clerk’s office (interestingly, it was available on other websites – just not the local clerk’s). According to the authors, the court “held that a UCC-1 financing statement is ineffective to perfect a security interest if the public document to which its collateral description referred is not available at the local clerk’s office where UCC records are maintained.”

A Bit of Background

The debtor issued bonds pursuant to a “pension funding bond resolution.” The debtor & secured parties executed Security Agreements accordingly. The resolution was posted publicly online and provided the pledged property in detail, but did not provide a description of the collateral.

The bond holders filed UCC-1s to properly perfect their security interest, and within the UCC-1 they described the collateral as the “pledged property described in the Security Agreement attached as Exhibit A hereto and by this reference made part hereof.” The UCC was then filed with a copy of the Security Agreement, although, it did not include the separate resolution that identified the collateral.

So, what’s the problem? Without the resolution document, “an interested third party reading the financing statement and the attached security agreement would know to look for the resolution to find a detailed description of the collateral but would not be able to find the resolution at… the applicable financing statement filing office.” The court further noted it would be out of scope to have an interested third party tracking down a document — even if it is just a matter of going to a different website.

Be Careful, Because Perfect Can Quickly Be Imperfect

UCC filings can be quite precarious. Again, there is a fine line between a collateral description that is too specific or one that is too generic.  Just as it is debatable whether a court will uphold a security interest as perfected if the collateral is identified within an exhibit. Be careful, be thorough, don’t take short cuts and always review.

Parting thoughts from Troutman Sanders LLP:

“Although this bright-line rule tightens court oversight of the incorporation by reference doctrine, it provides needed clarity moving forward for practitioners — particularly those looking to save a bit of work or time by not including a full collateral description on the financing statement itself. Lenders should refrain from drafting collateral descriptions that rely on extrinsic documents, especially when the referenced document is not attached as an exhibit to the financing statement. Lenders should take particular care when using collateral descriptions that contain terms that are defined in nonpublicly available documents, such as credit agreements and security agreements, if those documents are not attached to the financing statement, and this decision suggests that financing statements may be insufficient to perfect if not all applicable defined terms are specifically included on the financing statement itself or on an exhibit annexed to the financing statement. Lenders should ensure that interested third parties can sufficiently identify the covered collateral without having to take additional steps in the search process. If further sleuthing is needed, the UCC-1, and the drafting skills of its scribe, may be deemed imperfect.”

Miller Act May Not Cover Unused Labor

Posted on November 12, 2018 by - Mechanic's Liens & Bond Claims

Furnishing to a Federal Construction Project? Beware, the Miller Act May Not Cover Unused Labor

The Miller Act is federal statute that requires payment bonds on projects contracted by the United States. We’ve previously discussed the Miller Act, but this post is going to take a look at something that isn’t covered under the Miller Act: unused labor.

Goose Creek Nuclear Power Facility

The United States Department of the Navy hired general contractor, Caddell Construction Co. (DE), LLC (Caddell), to construct the Goose Creek Nuclear Power Facility near Charleston, South Carolina. In accordance with statute, Caddell obtained the appropriate payment bond.

Caddell hired Allan Spear Construction, LLC (ASC) to provide “supplemental concrete” to the project. Within the contract, there is a provision that “[ASC] will have a minimum of 12 consecutive weeks to provide a minimum of 20 workers over the 12 weeks period.”

ASC interpreted this provision as a minimum – as in, “for a minimum of 12 weeks, the GC will pay for at least 20 workers, even if the GC doesn’t use the 20 workers.” Of course, this is not the same provision interpretation that Caddell had – but we’ll come back to that.

According to the court opinion, Caddell initially used at least 20 workers. But as time went on the number of needed workers dropped. Caddell continued to pay ASC as though it were using the 20 workers, but eventually Caddell stopped paying for the 20 workers & began paying for only the workers used.

When payments dropped, ASC made a demand upon Caddell for payment and then filed suit against the payment bond, seeking claims just under $600,000.

May Be Valid Breach of Contract Claim, But Not Under Miller Act

ASC filed suit (and additional breach of contract claims) to recover the funds ASC believed it was owed by Caddell, based on ASC’s interpretation of the contractual provision: ASC will be paid for 20 workers per week for 12 weeks.

Caddell contested this claim, arguing ASC’s claim does not fall within the parameters of the Miller Act, because the claim is not based on labor/materials provided, rather it’s based on labor not used.

3133. Rights of persons furnishing labor or material

(b) Right To Bring a Civil Action –

(1) In general.-Every person that has furnished labor or material in carrying out work provided for in a contract for which a payment bond is furnished under section 3131 of this title and that has not been paid in full within 90 days after the day on which the person did or performed the last of the labor or furnished or supplied the material for which the claim is made may bring a civil action on the payment bond for the amount unpaid at the time the civil action is brought and may prosecute the action to final execution and judgment for the amount due.

The court observed “the surety of a bond furnished by the Miller Act may not be held liable for claims which a subcontractor may have against the prime contractor not based on labor or materials furnished.” To be within the scope of the Miller Act, the claim must be for labor or materials that were actually furnished.

The court decided ASC’s claims may be appropriate for a breach of contract claim, but not a Miller Act claim.

“Here, by ASC’s own allegations, Caddell paid for the laborers actually used but breached their contract by refusing to meet the twenty-laborer-minimum provision. Because ASC seeks damages arising out of an agreement to pay for twenty laborers not actually used—rather than “labor performed” or “materials furnished”—the Miller Act does not provide the remedy. Accordingly, the Court finds that ASC’s only cause of action against the Moving Defendants fails as a matter of law. Therefore, the Court grants the Moving Defendants’ Motion for Summary Judgment.”

Securing Rights Under the Miller Act

For those who have furnished labor or materials to a federal project, and have not been paid, the bond claim should be served after your last furnishing, but within 90 days from your last furnishing. If serving the bond claim does not prompt payment, file suit to enforce the Miller Act Bond Claim in U.S. District Court after 90 days from last furnishing materials or services, but within 1 year from last furnishing materials or services.

Questions about securing rights under the Miller Act? Contact us today!

Backup Documentation & Mechanics Lien Filing

Posted on November 5, 2018 by - Mechanic's Liens & Bond Claims

The Critical Role of Backup Documentation in Your Mechanic’s Lien Filing

Never underestimate the value and necessity of documentation supporting your mechanic’s lien claim. When assisting our clients with mechanic’s lien filings, we always review backup documentation. Backup documentation may include invoices, statement of accounts, a copy of the contract, bills of lading etc. Backup documentation provides a bigger picture.

Backup documentation isn’t just used for preparing a document, there are states that require copies of open invoices and/or a copy of the preliminary notice to be attached to the lien. And, as one subcontractor has learned, backup documentation can play a vital statutory role in supporting a claim.

We will address recent case law, where a subcontractor filed a mechanic’s lien in the amount of $287,212.28 and included an itemized statement in accordance with statute; however, the itemized statement was for $6,574.69. First, we’ll review the statutory requirements for Kansas, and then the fate of the subcontractor’s lien.

Mechanic’s Lien Rights & Requirements for Kansas

Commercial and residential projects have separate statutory requirements in Kansas. For commercial projects, claimants do not need to serve a preliminary notice. Residential projects, however, have a notice requirement.

New Construction: file a Notice of Intent to Perform no earlier than 18 months prior to filing a lien, but prior to title passing to the buyer.

Improvement: serve warning statement upon the owner or obtain and retain a statement signed by the owner that states they were given warning statement.

The lien deadline, for commercial & residential projects, is different for general contractors versus subcontractors and material suppliers.

General Contractors: file the lien within 4 months from last furnishing materials or services.

Subcontractors/Material Suppliers: file the lien within 3 months from last furnishing materials or services.

For parties proceeding with suit to enforce the lien, file suit within 1 year from filing the lien or if a promissory note was attached to the lien in lieu of a statement, file suit within 1 year from the maturity date of the promissory note.

The Contents of a Kansas Mechanic’s Lien

Key to the case at hand is that Kansas mechanic’s lien statute dictates a mechanic’s lien must include the following:

(1) The name of the owner,

(2) the name and address sufficient for service of process of the claimant,

(3) a description of the real property,

(4) a reasonably itemized statement and the amount of the claim, but if the amount of the claim is evidenced by a written instrument, or if a promissory note has been given for the same, a copy thereof may be attached to the claim in lieu of the itemized statement.

It’s also important to note, mechanic’s liens can be amended, if within the time allotted and/or by judge’s approval. But, statute specifically states a mechanic’s lien cannot be amended for an increased claim amount.

60-1105. Limitations and amendment. (b) Amendment. Where action is brought to enforce a lien the lien statement may be amended by leave of the judge in furtherance of justice, except to increase the amount claimed.

OK, On to The Case!

In Madison, Inc. v. Western Plains Regional Hospital, LLC, Dist. Court, D. Kansas 2018, there are a lot of issues up for debate, but the focus for this post is on the validity of the subcontractor’s lien.

The subcontractor, Madison, Inc. (Madison), contracted with general contractor, Sanderling Healthcare, LLC (Sanderling). Sanderling was hired by project owner, Western Plains Regional Hospital (Western). The project was an improvement to a medical complex in Dodge City, Kansas.

Madison claimed its last furnishing was August 3, 2016. Based on Kansas’ statute, Madison’s lien (or an extension to file lien) should have been filed by November 3, 2016. Madison did file its lien timely on October 18, 2016. Madison’s lien for $287,212.28 was accompanied by an itemized statement showing $6,574.69.

Based on a lien filing date of October 18, 2016, Madison needed to file suit by October 17, 2017. Again, Madison was timely with its action, filing suit to enforce its lien on May 1, 2017. Then, on May 18, 2017, Madison filed a motion to amend its mechanic’s lien. Specifically, to “add additional itemization left out of the initial lien.”

As I mentioned earlier in the post, Kansas statute does permit liens to be amended within the statutory period, however, not if it is to increase a claim amount. In the court opinion, the judge mentions cases where an amended lien was permissible to correct the name of the owner, correct the incorrect use of the term “subcontractor,” and to correct the project description. Adding, the difference between Madison’s request to amend, and the cases cited in support of amendments, is that the other liens provided “sufficient information to give the property owners notice of the claims.”

In other words, how could the general contractor or owner review Madison’s itemized statement for accuracy when Madison failed to include the itemization for over 90% of its claim?

The court deemed Madison’s lien invalid based on its failure to include a “reasonably itemized statement.” Madison tried a last-ditch effort to save its lien, arguing that even if Madison can’t have a lien for $287,212.28, Madison should have a valid lien for the itemized statement amount of $6,574.69.

Well? According to the legal opinion, neither the Judge nor parties could find case law which addressed reducing the claim as Madison proposed. However, the judge did refer to a recent Court of Appeals decision, which essentially said “secure the lien according to statute, or don’t bother.”

“It is a settled rule in this state that equitable considerations do not ordinarily give rise to a mechanic’s lien. Being created by statute, a mechanic’s lien can only arise under the circumstances and in the manner prescribed by the statute. A lien claimant must secure a lien under the statute or not at all.”

Unfortunately, Madison’s lien did not comply with statute, thus failing the “all or nothing” comment from the Court of Appeals.

What did the judge say? “Because Madison’s lien was vitally defective as filed, it cannot be found to be partially valid. Severing defective portions of liens would not give defendants proper notice of the claim against them and would circumvent the strict requirements of the statute by creating liens without statutory compliance. For these reasons, Western’s Motion to Dismiss the claim for enforcement and foreclosure of the lien is granted.”

Never Underestimate the Power of Paper

When assisting with lien filings, sometimes clients push back when NCS requests backup documentation, e.g. “You don’t need to review my statement of account, I know what I’m owed.” We certainly don’t want to invade your privacy or second guess the information you provided. We request the documentation because we want to assist in ensuring your lien meets the statutory requirements.

Maintaining comprehensive and complete records can be a challenge. But, losing lien rights and potential payment security can put a burden on your cash flow.

An Excessive Mechanic’s Lien in Nevada

Posted on October 29, 2018 by - Mechanic's Liens & Bond Claims

How Much Money Does it Take to Make a Mechanic’s Lien Excessive in Nevada?

How much money makes a mechanic’s lien claim excessive or frivolous? According to one Nevada court, $1,371,187.44. In this case, the subcontractor filed a lien for $2,117,602.78, which was contested by the general contractor. The court deemed the subcontractor’s mechanic’s lien excessive and ordered the claim to be reduced to $746,415.34. Let’s review mechanic’s lien rights in Nevada and the case at hand.

Securing a Mechanic’s Lien in Nevada

For private commercial projects in Nevada, would-be lien claimants should serve a preliminary notice upon the owner and prime contractor after first furnishing materials or services, but within 31 days from first furnishing materials or services. In the event of non-payment, the lien should be filed within 90 days from last furnishing or 90 days from project completion, whichever is later. Suit to enforce the mechanic’s lien should be filed after 30 days from filing the lien, but within 6 months from filing the lien.

SMC Construction Co., v. Rex Moore Group, Inc., Dist. Court, D. Nevada 2017

In 2015, Edgewood Companies (Edgewood) hired SMC Construction Co. (SMC) to build a hotel in Lake Tahoe. SMC then hired subcontractor, Rex Moore Group, Inc. (Rex), to provide “the electrical system and electrical fixtures for the project.” The original subcontract was for $5,464,364, included terms for 10% retainage and stated only written change orders would be accepted. The subcontract also included verbiage that Rex “…would not be entitled to any monetary damages or other compensation or damages resulting from delays to the project.”

The court makes mention of the damage clause because, as you’d imagine, the story takes a turn.  In the winter of 2016/2017, significant project delays prompted SMC to tell Rex to put in the time & resources to speed up the project. The delays and subsequent “hurry up!” resulted in 20 change orders. These change orders increased the subcontract from $5.4M to a little over $6.1M.

In early spring 2017, Rex submitted a claim for damages due to, among several items, delays on the project. The additional claim was for $927,000, and, based on the subcontract, SMC denied Rex’s claim. In turn, Rex filed a lien for $2,117,602.78. Here’s how Rex arrived at that claim amount:

“Rex Moore calculated its lien as follows: $5,464,364 under the original contract plus $1,941,710.74 in additional work (including approved change orders up to that time) and damages for breach of contract minus $5,288,471.93 for payments received for a lien of $2,117,602.78.”

Here’s the court’s review of Rex’s math:

“Here, it is undisputed that there is a subcontract and twenty written change orders between the parties which sets forth an agreed upon price of $6,184,183.00 for Rex Moore’s work on the project. SMC contends that Rex Moore has been paid $5,470,580.63 on the project leaving an amount due of $713,602.37.”

Now, there is apparently an extraneous change order floating about, and the parties further agree that Rex’s claim amount is no more than $746,415.34.

Continuing our math lesson, Rex’s lien was filed for nearly 3 times the amount of its actual claim. SMC argued Rex’s claim is “frivolous and made in bad faith.” Rex, of course, argues its lien is not frivolous and Rex has email communication to back up its claim.

In the email, Rex asks SMC if it should track its costs (during the delays and “hurry ups”): “[SMC] responded to [Rex]’s e-mail about tracking costs and possible delay issues by telling [Rex] that “tracking [Rex] costs is a good idea” and to have “[SMC’s construction supervisors] sign off tickets as the work is happening so we know they are valid if/when we need to talk about money.” Id.”

Rex considers this email exchange a waiver of the damage’s clause in the subcontract.

“Rex contends that this e-mail establishes that SMC agreed to pay Rex for delay related costs and damages and waived the subcontract requirement of written change orders for all changes in compensation… Rex argues that once SMC agreed to allow Rex track its additional expenses, this additional compensation became part of the agreed upon contract price even if it was not specifically identified by any change order and thus, the additional compensation is lienable under Nevada’s mechanic’s lien statute.”

Except… in its original lien filing, Rex claimed some amounts were owed due to breach of contract. And, as the court points out, damages resulting from breach of contract are not lienable under Nevada statute. “Thus, Rex’s own lien statement establishes that the lien requests compensation for aspects of the project outside the scope of the subcontract and which are not lienable under the mechanic’s lien statute. As such, Rex’s recorded lien is excessive as a matter of law.”

OK, but what about the email? Well, the court didn’t agree with this single email being a waiver of the damage clause, because the email didn’t actually say it was a waiver. The court furthered that if this email did constitute as a valid waiver, it still wouldn’t matter, because Rex’s claim was outside the strict limitations of Nevada’s mechanic’s lien statute.

Lucky? Maybe.

On the upside, Rex’s lien was not entirely expunged. The court kindly reduced Rex’s lien claim amount to the $746,415.34 owed, because the court did not believe or have enough evidence to prove that Rex filed its excessive claim in bad faith.

Documentation, yet once again, proves to be vital in supporting a lien claim. Review contracts carefully, execute change orders properly and never ever assume anything!

Notice of Non-Payment May Not Be Required in Louisiana

Posted on October 26, 2018 by - In Other Commercial Credit News

Notice Non-Payment May Not Be Required for Louisiana Public Projects

For material suppliers furnishing to public projects in Louisiana, one court recently handed down a decision that notices of non-payment aren’t required. Even though the court has deemed a notice of non-payment optional, should you still serve the notice of non-payment? Yes!

Securing Bond Claim Rights in Louisiana

In Louisiana, on public projects, a payment bond is generally required for general contracts exceeding $25,000. As a best practice, you should attempt to obtain a copy of the payment bond at the beginning of the project. Louisiana is one of the handful of states that has a recurring notice, based on months furnished.

You 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 sworn statement must be filed. It’s a bit confusing – here’s an example:

Let’s say I furnished in October. If I have not been paid, I need to serve my notice of non-payment within 75 days from October 31st, which makes my notice deadline January 14, 2019. If I also furnish in November, and am unpaid for November, an additional notice of non-payment would be due February 13, 2019 (75 days from November 30th).

Generally, a notice of non-payment is not required when contracting directly with the prime contractor, when providing labor and materials or only labor, when the general contract has not been recorded, or to protect your rights under the payment bond.

The Court Says…

Jacob E. Roussel reviewed the recent case in his blog post, Court Rules That Supplier Notices of Non-Payment Are Not Required.

A material supplier contracted with a subcontractor who contracted with the GC, hired by the owner. The material supplier did not serve notices of non-payment, yet, when it remained unpaid, the material supplier filed a timely sworn statement of amounts due (aka bond claim).  The claim made it to trial court, where the judge determined the subcontractor did owe money to the material supplier. However, the material supplier’s claim against the GC/owner was void, because the material supplier hadn’t served the notices of non-payment.

Then came the appeal…

The appellate court reversed the trial court’s decision, by clarifying “…a supplier’s failure to furnish the 75 day notice of non-payment only results in the supplier losing its right to a privilege against any unexpended funds in the possession of the owner.” According to Roussel, “The court stated that its interpretation of the statutes was consistent with the purpose of the Public Works Act, which is to protect those performing labor and furnishing materials for public works.”

While this decision has proven beneficial to the material supplier, it may not be in the best interest of all parties going forward. Roussel’s take for the GC:

“From a practical standpoint, this decision could result in suppliers no longer providing notices of non-payment to general contractors on public projects. Suppliers may conclude that the hassle of timely providing the notices is not worth of the benefit of preserving a privilege against any funds in the possession of the owner since the supplier can maintain a claim against the general contractor and surety regardless of whether it sends the notice of non-payment. As such, a general contractor may receive no notice throughout a project that a subcontractor has failed to pay a supplier, yet the general contractor can ultimately be liable to the supplier despite only learning of the unpaid amounts following substantial completion of the project.”

My take for the subcontractor/material supplier? It’s an avoidable risk. If a notice isn’t served, how will the owner and/or GC know you are on the job & expecting payment? Sure, you could just wait and serve up the bond claim, but does that make good business sense? Maintain open lines of communication with all parties: serve the notice.

Which leads me to an opportunity to repeat myself…

Why Serve a Notice if It’s Not Required?

Why not? I know – I shouldn’t answer a question with a question. Truthfully, serving a notice, even if it’s not required, increases the likelihood that you will be paid.

New York Residential Projects & Your Lien Rights

Posted on October 22, 2018 by - Mechanic's Liens & Bond Claims

Your Mechanic’s Lien Rights on Residential Projects in New York

The Supreme Court in New York County has vacated one claimant’s lien for failure to file the lien timely based on New York statute. This case provides additional insight into New York residential projects and lien rights.

Mechanic’s Lien Rights on New York Residential Projects

New York statute defines residential as a “single family dwelling.” For residential projects, the mechanic’s lien should be filed within 4 months from last furnishing. The lien should be served upon the owner, prime contractor & your customer, within 5 days before or 30 days after filing the lien. You should file proof of service with the County Clerk within 35 days after the lien is filed.

“§ 10. Filing of notice of lien. 1. Notice of lien may be filed… where the improvement is related to real property improved or to be improved with a single family dwelling, the notice of lien may be filed at any time during the progress of the work and the furnishing of the materials, or, within four 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”

According to § 9. Contents of notice of lien, you should include the following in your lien:

  • Your name & address (as lien claimant)
  • Property owner’s name
  • Your customer’s name
  • Description of materials/services provided
  • Contract & claim amounts
  • The date of last furnishing
  • The project address and/or description identifying the property

Premium Millwork, Inc. v Great American Insurance Company

In Premium Millwork, Inc. v Great American Insurance Company, Great American Insurance Company (GAI) filed a motion to have Premium Millwork, Inc.’s (Premium) lien vacated for failure to comply with statute.

But first, the back story –

Premium furnished to the improvement of Apartment 5S at 133 Greene Street. The property, according to the court record, is a “single residential coop unit.” Premium’s last furnishing date was June 15, 2014. When the property owner failed to pay Premium for its services, Premium filed a lien for $58,335. The lien was dated October 30, 2014; however, the lien was stamped by the New York County Clerk on November 25, 2014.

May 22, 2015, the property owner & GAI filed a discharge bond to have the lien released from the property. Premium filed a complaint to commence suit against the discharge bond on May 3, 2018. The story would be boring, except GAI filed a counter complaint arguing Premium’s lien is invalid because Premium’s lien was filed beyond the four month mark, as required by statute.

Based on a last furnishing date of 6/15/2014, the lien for a New York residential project should have been filed by 10/15/2014. Premium’s lien was dated 10/30/2014 and filed with the county 11/25/2014. The date of the lien was already beyond the four month window, not to mention the actual recording date of the lien.

Premium argued the lien needed to be filed within 8 months of last furnishing, claiming it believed the project to be commercial. GAI came prepared for that argument! “GAI has resolved that issue in reply by annexing the property data sheet indicating that the Premises are a single residential coop unit relating to property connected to Jean Chalopin, who signed the Bond on behalf of Greenhope, with GAI as surety.”

Much to Premium’s chagrin, the court agreed with GAI, the project is residential & the lien was late, thus invalid.

“Where a notice of lien encompasses a single condominium unit or cooperative apartment, such unit or apartment is a single-family dwelling under the Lien Law, regardless of whether the larger building or property constitutes a multiple dwelling, and the four-month limitations period applies.”

Take Heed

Tracking deadlines is critical. Missing a deadline, or filing a late document, could easily wipe out your mechanic’s lien rights. In this case, not only has Premium lost its rights to the debt of over $50,000, but it has also likely lost significant money in legal fees.

NCS is here to help, we track all deadlines throughout the overall mechanic’s lien & bond claim processes. Questions? Contact us today!

Guide to Managing Mechanic’s Liens Across Multiple Sites

Posted on October 19, 2018 by - In Other Commercial Credit News

Are You Furnishing to the Construction on More than One Building?

Multiple Mechanic’s Liens May Be Required.

We are often asked whether a single mechanic’s lien can be filed on multiple buildings or parcels. The answer is: maybe. We have previously discussed the complexity involved in wind & solar farm projects. In today’s post we’ll take a quick look at whether a lien can be filed on more than one building, highlighting a recent article by Michael Benson of Greensfelder.

Illinois & Missouri Mechanic’s Lien Rights

Before diving in to Benson’s article, Can You File a Single Mechanic’s Lien on Multiple Buildings in Illinois and Missouri, let’s review the steps for securing lien rights in IL & MO.

Illinois

Generally, a preliminary notice is not required for private commercial projects, however, there is a Notice of Lien (done in conjunction with the lien).  In the event you have been unpaid on a project, you should serve a copy of the notice of lien upon the owner and lender within 90 days after your last furnishing. Then, you should file a lien within 4 months after your last furnishing. In certain circumstances, a lien may be filed after 4 months from last furnishing, but it will have limited effectiveness.

Missouri

If you have contracted with the owner on a private commercial project in Missouri, you should serve a Notice to Owner upon the owner prior to receiving payment and: at the time of the execution of the contract, or when materials are delivered, or when work is commenced, or deliver with first invoice. If you are providing rental equipment, a notice should be served upon the owner within 15 business days from first use of the rental equipment.

In Missouri, a Notice of Intent must be served at least 10 days prior to filing the lien. The lien should be filed within 6 months after the indebtedness shall have accrued. For rental equipment, if you use rented equipment in performing work, you should file the lien within 6 months after the indebtedness shall have accrued. If you rent the equipment to others, file the lien within 60 days after the date the last rental equipment was removed from the project.

Single Lien on Multiple Buildings?

In his article, Benson provides a typical example of a single construction contract for the construction of multiple buildings. Warning: you may have momentary flashbacks of middle school math problems.

“[A] general contractor may be asked to construct under one contract two buildings kitty-corner to one another at an intersection. During construction, materials delivered to the project site are jointly used on the two buildings and workers work on both buildings interchangeably. The general contractor completes construction on the first building on Jan. 1, 2019 and completes construction on the second building on Jan. 1, 2020. Based on the completion date of the second building of Jan. 1, 2020, the general contractor provides notice to the owner that it intends to file a mechanic’s lien on the two buildings. The owner refuses to pay and the general contractor files a mechanic’s lien covering both buildings within the necessary statutory period based on the completion date of the second building.”

The ultimate question: does the contractor have lien rights on both buildings?

Much to the dismay of the contractor, lien rights do not exist on the first building, whether the construction is in IL or MO, but for different reasons.

In Illinois, one lien can be filed on multiple, non-contiguous lots, as long as “’[I]t is shown that such material was in good faith delivered at one of these buildings for the purpose of being used in the construction of any one or all of such buildings, or delivered to the owner or his or her agent for such buildings, to be used therein[.]” 770 Ill. Comp. Stat. Ann. 60/7.” However, as Benson tells us, the contractor’s lien is invalid on building one, because the contractor failed to file the lien timely.

“Illinois requires that one file a mechanic’s lien within the statutory period following the completion of the first building and each subsequent building…. Therefore, the general contractor’s lien on the first building fails because the lien was not timely filed… to have lien rights on both buildings, the general contractor needed to file its mechanic’s lien within four months of completion of the first building and then file an updated mechanic’s lien within four months of completion of the second building.”

What about Missouri? Benson advises the lien rights on building number 1 would be non-existent in Missouri because Missouri “…requires that those buildings be “united together and situated upon the same lot or contiguous lots, or separate buildings upon contiguous lots” and that they are erected under one general contract. Mo. Ann. Stat. § 429.040.”

So, the question in this case is whether a shared corner constitutes contiguous lots. The answer, unfortunately, is no. Benson states that Missouri courts have determined lots are contiguous if they share a common side, and a “side” is not a “corner.”

No Two States are Alike

Whether contiguous, like Illinois and Missouri, or not, like New York and California, lien rights and the validity of a lien will be different based on the state’s statutory requirements. As a best practice, review the statute up front, seek guidance at the onset of the project, and always allow enough time to determine and secure the rights available.

South Carolina Lien and Bond Claim Rights

Posted on October 15, 2018 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

South Carolina Mechanic’s Lien and Bond Claim Rights – Here’s What You Should Know

Furnishing to a construction project in South Carolina? Today’s post is for you! We will review the statutory requirements for securing mechanic’s lien and bond claim rights for projects in South Carolina.

I Love South Carolina!

Each fall I take a trip to North Myrtle Beach with a side trip to Charleston and it is, hands down, the greatest week. And I’m not the only one that has a fondness for S.C., after all, there is a great deal of construction happening there! Unfortunately, with a lot of construction, payment issues are bound to creep in. Make sure you take the proper steps to secure your right to recover payment.

South Carolina is a Notice of Commencement State

On private and public projects, the prime contractor (or payment bond principal) may file and post a Notice of Project Commencement within 15 days from the commencement of work. If the prime contractor doesn’t file a Notice of Project Commencement, a Notice of Furnishing isn’t required.

Private Projects in South Carolina

Remedies available on private projects include mechanic’s liens and potentially a bond claim. Securing mechanic’s lien rights begins with serving a Notice of Furnishing upon the prime contractor as soon as possible. The lien, when later filed, will be limited to the amount owed by the prime contractor at the time the Notice of Furnishing was received.

As a best practice, you should always serve the Notice of Furnishing, even if it’s not required. When might a notice not be required? Your notice may not be required if you contracted directly with the owner or prime contractor, or, as stated above, if a notice of commencement was not recorded.

What information should be included in the Notice of Furnishing? Here’s the list, according to S.C. Code Ann. Sec. 29-5-20:

(1) the name of the sub-subcontractor or supplier who claims payment;
(2) the name of the person with whom the claimant contracted or by whom he was employed;
(3) a description of the labor, services, or materials furnished and the contract price or value thereof. Materials specially fabricated by a person other than the one giving notice and the contract price or value thereof shall be separately stated in the notice;
(4) a description of the project where labor, services, or materials were used sufficient for identification;
(5) the date when the first and the last item of labor or service or materials was actually furnished or scheduled to be furnished; and
(6) the amount claimed to be due, if any.

If necessary, you should file your lien and statement of account within 90 days from your last furnishing.  In the event you remain unpaid, you must file suit to enforce the lien within 6 months from your last furnishing date. Miss the suit date? Lose your lien.

(A) Unless a suit for enforcing the lien is commenced and notice of pendency of the action is filed within six months after the person desiring to avail himself of it ceases to labor on or furnish labor or material for the building or structure, the lien must be dissolved. (S.C. Code Ann. Sec. 29-5-120)

Is the private project bonded? You should serve a Notice of Furnishing upon the principal of the bond as soon as possible. Then, much like the lien, the bond claim, when later filed, will be limited to the amount owed by the principal of the bond at the time the Notice of Furnishing was received.

You should serve your bond claim upon the principal of the bond within 90 days from your last furnishing. If the bond claim does not prompt payment, you should proceed with suit to enforce your bond claim after 90 days from your last furnishing, but within 1 year from last furnishing.

You can view statute in greater detail here: Private Bond Claim (S.C. Code Ann. Sec. 29-5-440)

Public Projects in South Carolina

Payment bonds protect claimants on public S.C. projects. Generally, the prime contractor is required to obtain a payment bond for public highway construction projects exceeding $10,000, government contracts exceeding $50,000, and state procurement contracts exceeding $100,000.

As a best practice, always attempt to obtain a copy of the payment bond!

Like private projects, a Notice of Furnishing should be served for public projects 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.

For those who remain unpaid, a bond claim should be served within 90 days from last furnishing, and suit to enforce the bond claim should be filed after 90 days from last furnishing, but within 1 year from last furnishing.

If you are furnishing to a public highway construction project, you should file suit to enforce your bond claim within 1 year from the date of final settlement. “No suit under this section shall be commenced after the expiration of one year after the date of the final settlement of the contract.” (Sec. 57-5-1660)

Retainage, Prompt Payment, Pay If Paid & Discharge Bonds

3.5% is the magic number on S.C. public projects. In accordance with statute, the amount of retainage to be withheld “must be no more than three and one-half percent” of a contract or subcontract for construction.

South Carolina’s statute does provide for prompt payment. The owner should remit payment within 21 days and the contractor should then pay its subcontractors within 7 days of receipt of payment from the owner.

“When a contractor or a subcontractor has performed in accordance with the provisions of his contract, the owner shall pay the contractor…within twenty-one days of receipt by the owner of any pay request based upon work completed or service provided under the contract, and the contractor shall pay to his subcontractor and each subcontractor shall pay to his subcontractor, within seven days of receipt by the contractor or subcontractor of each periodic or final payment…”

Pay if Paid clauses are a no-go in South Carolina, according to Sec. 29-6-230:

“The payment by the owner to the contractor or the payment by the contractor to another subcontractor or supplier is not, in either case, a condition precedent for payment to the construction subcontractor. Any agreement to the contrary is not enforceable.”

Lastly, Sec. 29-5-110 addresses discharging liens with the posting of a payment bond or other security.

“At any time after service and filing of the statement required under Section 29-5-90 the owner or any other person having an interest in or lien upon the property involved may secure the discharge of such property from such lien by filing … by cash or by a surety bond executed by a surety company licensed to do business in this State, and upon the filing … lien shall be discharged and the cash, securities or surety bond deposited shall take the place of the property upon which the lien existed and shall be subject to the lien.”

Questions about lien or bond claim rights in South Carolina? Contact us today!