Service Area: Notice and Mechanic’s Lien Services

Top 5 Rookie Mistakes with Your UCC Security Agreement

Posted on June 28, 2023 by wpengine - UCC Financing Statements

Don’t Make These Top 5 Rookie Mistakes with Your UCC Security Agreement

The accuracy of your Security Agreement can make or break your properly perfected security interest. Compliance with Article 9 of the Uniform Commercial Code must be precise. Don’t fall victim to these rookie Security Agreement mistakes.

Note, today’s post focuses on the Security Agreement, but typically the information within the Security Agreement is the information that appears on the Financing Statement – at least it should be. It’s imperative for both the Security Agreement and the Financing Statement to be compliant.

Rookie Mistake #1: Getting the Debtor’s Name Wrong

I’m going to spend a bit more time on this mistake because it is, without question, the number one mistake made by secured parties: incorrectly identifying the debtor. UCC Article 9-503 specifically states if the debtor is a registered organization, the debtor’s name must be identified as it appears on the public organic record.

“…[i]f the debtor is a registered organization… the financing statement provides the name that is stated to be the registered organization’s name on the public organic record of most recently filed with or issued or enacted by the registered organization’s jurisdiction of organization…”

This means, list your customer’s name EXACTLY as it appears on the public organic record. If you pull Articles of Incorporation, and your customer’s name ends in “Incorporated” instead of “Inc.” then spell out Incorporated. Technically, Inc. is a noise word, but in one current case, the security interest was unperfected because of errors in the noise word. Be wary of spaces, punctuation and noise words – these seemingly small nuances are causing big problems for secured parties.

If the debtor is an individual, creditors must first look to the state’s legislation to determine whether to follow “Alternative A” or “Alternative B.” Most states enacted Alternative A, which states the debtor’s name should be listed exactly as it appears on the unexpired driver’s license.

Alternative A: if the debtor holds an unexpired driver’s license, the Financing Statement must list the debtor’s name as it appears on the unexpired driver’s license. (If the debtor does not have a driver’s license, the Financing Statement should list the “individual name” of the debtor or the debtor’s surname and first personal name.)

Alternative B: the debtor’s driver’s license name, the debtor’s actual name or the debtor’s surname and first personal name may be used on the Financing Statement.

Most recently we have reviewed several cases in which a seemingly tiny mistake has left a creditor’s security interest unperfected. Don’t get caught in the complacency trap!

Popular question “What should I do if my customer’s name changes?” Article 9 – 507(c) provides a 4-month window to amend a filing for a debtor name change that may be considered “seriously misleading.” If the change in your customer’s name makes the filed Financing Statement “seriously misleading,” UCC Section 9-507(c) states the Financing Statement will only be effective for collateral acquired prior to the name change or within four months following the change.

As a best practice, we recommend amending your UCC filing if your customer’s name changes. There may be situations where an amendment is not “required,” but it’s a risk to not amend. If you are unsure whether you want to amend your filing, I would recommend you determine whether the name change renders your filing as seriously misleading.

Rookie Mistake #2: Failing to Include the Granting Clause

Security interests under Article 9 are consensual. This means your customer must agree to grant you rights to the collateral. If your Security Agreement does not include a granting clause, it isn’t a Security Agreement. The granting clause does not need to be fancy, embellished with extraneous words or phrases.

Here’s an example of a granting clause “In consideration for the extension of credit, Debtor hereby grants a security interest in and assigns to the Secured Party the Collateral described in paragraph II below to secure payment and performance of all debts, liabilities and obligations of Debtor of any kind whenever and however incurred to Secured Party.”

Rookie Mistake #3: Not Clearly Identifying Collateral

Crafting a clear collateral description that isn’t too specific or too vague can be challenging. Article 9 clearly states a “supergeneric” description is insufficient. In other words, to simply identify the collateral as “all the debtor’s assets” or “all the debtor’s personal property” is unreasonable. OK, so what is reasonable? Article 9-108(b) provides the following “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.

You can review some of our posts on collateral here.

Rookie Mistake #4: Missing Dates & Authorized Signatures

I list these two together because generally, when we sign documents (any documents), we sign and date. The same should apply for the Security Agreement: sign and date. Like peanut butter & jelly: sign and date. Have I repeated enough? Sign and date.

It’s vital the document be signed by a person authorized to grant the security interest. Make sure the individual signing the document has been authorized by the company to sign.

Rookie Mistake #5: Neglecting to Reference Governing Law

This is easy to overlook, especially when it can amount to a brief sentence buried within the pages of a document.

“This security agreement will be governed by the laws of _________ (state).”

Mistakes Eliminate Security

Mistakes happen, and they come at a cost. Article 9 leaves virtually no room for error and one slight misstep can leave you with an unperfected security interest and sitting in a sea of unsecured creditors. Carefully draft, review & re-review your documents to ensure you avoid these rookie mistakes.

*Editor’s Note: This content was originally published in November 2018. It has since been updated and revised for statute changes effective 2023.

Bankruptcy Proof of Claim: Don’t Forget!

Posted on June 15, 2023 by wpengine - Credit Risk Management, Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit, UCC Financing Statements

Bankruptcies Are on the Rise; Remember Your Bankruptcy Proof of Claim

It’s “officially” unofficial, we may be heading into another recession. Think back to 2008 and you’re sure to remember the painful increase in debtor defaults and bankruptcies; virtually no creditor’s AR escaped unscathed. With bankruptcies on the rise, it is increasingly likely you will need to complete a bankruptcy proof of claim either as a secured or unsecured creditor.

The Secured Creditor Ideal

In the event of a debtor’s bankruptcy, you will ideally be a secured creditor who properly filed a mechanic’s lien, bond claim or UCC. Secured transactions are proven to put creditors in the best possible position to get paid, though there are additional securities available such as a Corporate Guarantee or Personal Guarantee.

What is a Bankruptcy Proof of Claim?

A proof of claim is a document filed within the bankruptcy court that alerts the court, debtor, Trustee, and other interested parties that a creditor wishes to register a claim against the assets of the bankruptcy estate. This document is important because it provides proof that the claim is valid and owed, and notifies the Trustee of the creditor’s claim as well as to what class the claim should be associated.

What Information is Included in the Bankruptcy Proof of Claim?

The U.S. Bankruptcy Court’s official form includes fields for various pieces of information such as creditor name and location, the amount of the claim, the basis of the claim, whether the claim is secured, if the claim is based on a lease, and whether the claim is subject to right of setoff.

A Class to Associate the Claim?

Yes, in bankruptcy proceedings, creditors are put into various classes. The bankruptcy code is specific, detailed and, well…it’s long – but here is the basic payout priority:

Payout Priority in Chapter 11 Bankruptcy

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

Here’s an example of the class breakdown in the recent bankruptcy plan for Fred’s, Inc.

And here’s the Summary of Estimated Recoveries for Claims and Interests:

I’ll take this opportunity to point out that secured creditors often fair far better than unsecured creditors. In this bankruptcy, it is estimated that secured creditors will recover 100% of their claims, while unsecured creditors will receive between 4%-8.8% of their claims.

A Bar Date? Like a Date at a Bar?

Bar date and date at a bar are most definitely two different things, though it’s possible they have the same level of fun & excitement. Depending on the bankruptcy, a Bar Date may be set by the court. This date is a deadline by which all creditors must file their proof of claims within the bankruptcy court. It is critical that the proof of claim is filed correctly and timely, whether it’s secured or unsecured, to ensure creditors’ rights are preserved and to maximize any possible distribution.

What You Should Do

When a creditor receives notice that their debtor has filed bankruptcy, the notice should be reviewed to determine if a proof of claim needs to be filed.

Be on Time: Too often, creditors miss the bar date to file.
Know your Claim: Include all amounts owed for all accounts and affiliates.
Secured or Unsecured: Know whether you are a secured creditor and file properly.

Note, a creditor can have a secured & unsecured claim in the same bankruptcy.

Need Help?

Let us prepare, file, and monitor for a recorded proof of claim! For more information on how NCS Credit can assist in filing your bankruptcy proof of claim, contact us today.

Statute Changes for New Mexico Mechanic’s Liens

Posted on April 21, 2023 by Kristin Alford - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Filing a Mechanic’s Lien in New Mexico? Under the New Statute Changes, Make Sure You Serve the Project Owner with a Recorded Copy

New Mexico House Bill 179, related to mechanic’s liens, was signed by the Governor March 30, 2023, and goes into effect June 16, 2023. What changed? In order to recover costs and attorney fees, you will need to serve a copy of the recorded mechanic’s lien upon the owner. Let’s take a look.

New Mexico – HB 179 (Final Version)

Under HB 179, Section 48-2-6 Time for Filing Lien Claim–Contents–Notice of Lien, has been amended to include the following (emphasis added):

B. A person filing a claim for a lien with a county clerk pursuant to Subsection A of this section shall mail, email, send by certified mail with return receipt requested or hand deliver a copy of the filed claim for a lien to the owner or reputed owner, if known, stated in the claim within fifteen days of filing the claim with the county clerk. The copy of the filed claim for a lien shall be sent or delivered to the owner or reputed owner at the owner or reputed owner’s last known address. If the owner or reputed owner’s address is not known, the copy of the filed claim for a lien shall be sent to the address of the owner of the property as listed in the county assessor’s files. The failure of the claimant to serve the notice may preclude the recovery of interest, attorney’s fees or costs.

Essentially, if you are filing a mechanic’s lien, you should serve a copy of the recorded lien upon the owner within 15 days of filing the lien. Serving a recorded copy of the lien upon the owner will allow you to recover costs and fees (e.g., court costs, attorney’s fees, interest, etc.).

Now, what happens if you don’t serve a copy of the recorded lien upon the owner? Based on the last sentence within the amendment, if you don’t serve the owner, your mechanic’s lien won’t be invalidated, but you won’t be entitled to recover costs.

Serving the owner is a small task to help you recover fees, especially fees that are often hefty.

New Mexico Mechanic’s Lien Rights

If you are furnishing to a private project in New Mexico, you should serve the preliminary notice upon the owner or prime contractor (aka GC) within 60 days from your first furnishing. Although the statute says it’s OK if either party is served, we recommend serving both parties.

Miss your notice deadline? It’s OK, all hope is not lost. A late notice may be served, but your mechanic’s lien will only be effective for materials or services provided 30 days prior to serving the notice and going forward.

There are instances where a preliminary notice may not be required (e.g., if you are contracted directly with the owner or prime contractor, if the lien amount is for $5000 or less, or the property is residential with 4 units or less), however, we recommend you always serve a preliminary notice. Frequently, serving the notice, even when it’s not required, is enough to prompt payment.

Need to file a lien? If you contracted with the prime contractor or subcontractor, you should file your mechanic’s lien within 90 days from project completion. If you contracted with the owner, you should file the lien within 120 days from project completion. Note: completion means completion of the entire project, not just the completion of your portion of the project.

OH! And don’t forget to serve the owner with a copy of the recorded mechanic’s lien within 15 days from filing the lien – then you can recover costs and fees.

Questions about lien rights in New Mexico? Not sure if you can file a mechanic’s lien? Contact NCS Credit today!

New Mexico Lien and Bond Claim Rights

Posted on April 20, 2023 by wpengine - In Other Commercial Credit News, Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

New Mexico Mechanic’s Lien and Bond Claim Rights

Curious about mechanic’s lien & bond claim rights in New Mexico? Today’s post is for you because we’re in a New Mexico state of mind!

Mechanic’s Lien Rights in New Mexico

If you are furnishing to a private project in New Mexico, statute requires that you serve a preliminary notice upon the owner or the prime contractor within 60 days from first furnishing materials or services.

As a best practice, serve both the owner and the prime contractor with the notice.

If you missed the notice deadline, you can serve a late notice. However, the lien, when later filed, will only be effective for materials and services provided 30 days prior to serving the notice and thereafter.

The preliminary notice may not be required if: contracting directly with the owner, contracting directly with the prime contractor, the lien amount is for $5,000.00 or less, or the property is residential, with 4 units or less.

The notice may not be required, but you should always serve a preliminary notice. Serving preliminary notices reduces the need for a lien by 97%!

If you do need to proceed with a mechanic’s lien and you have contracted directly with the owner, the lien deadline is 120 days from completion of the project. If you contracted with the prime contractor or subcontractor, your lien deadline is shortened to 90 days from completion of the project. Regardless of who you contracted with, you should serve a copy of the recorded lien upon the owner within 15 days of filing the lien.*

Bond Claim Rights in New Mexico

Furnishing to public projects in New Mexico is a bit different than private projects. Public projects don’t have a required notice.

“But, wait, you JUST said to serve a notice even if it’s not required!”

You’re right, and there is a notice that could be served: a non-statutory notice.

Unlike private projects, there is no statute requiring a notice on public projects. A non-statutory notice is not required by law, but serving the notice alerts all parties to your involvement on the project & that may be key to getting paid!

New Mexico is one of the few states that has payment bond requirements for both general contracts and subcontracts. Generally, payment bonds are required:

for general contracts exceeding $25,000.00.
for subcontracts of $125,000.00 or more.

Do Contractors Have to be Licensed in New Mexico?

Yes, according to a post written by Sonya R. Burke of Modrall Sperling. And if you don’t have a license, you don’t have lien rights.

“New Mexico requires contractors to maintain proper licensure through the state and to furnish and maintain evidence of financial responsibility. NMSA 1978, § 60-13-1, et seq… Contractors that are not licensed in New Mexico may not file a claim of lien or maintain suit for payment for unlicensed work. See NMSA 1978, § 60-13-30; Reule Sun Corp. v. Valles, et al., 226 P.3d 611 (N.M. 2009).”

To learn more about building codes, permitting, insurance, and construction contracts, take a look at Burke’s article: “Construction Law in New Mexico.”

Questions about lien & bond claim rights? Contact NCS Credit today!

*Editor’s Note: This content was originally published in February 2019. It has since been updated and revised for statute changes effective 2023.

What Happens to Bond Claim Rights When a Notice is Served but Not Received

Posted on April 3, 2023 by wpengine - Preliminary Notices & Construction Credit

What Happens to Bond Claim Rights When a Notice is Served but Not Received?

What happens to payment bond rights when the required preliminary notice is served but never received? In Wyandotte Electric Supply Company V. Electric Technology Systems, Inc., the claimant was able to retain their rights to a claim against the payment bond, even though the general contractor never received the preliminary notice.

The Ladder of Supply

General contractor, KEO & Associates, Inc. (KEO), hired subcontractor, Electrical Technology Systems, Inc. (ETS) and ETS hired sub-subcontractor, Wyandotte Electric Supply Company (Wyandotte), for the improvement to the Detroit Public Library, a public project in Michigan.

Because of the contract amount, KEO was required to obtain a payment bond and satisfied that requirement through Westfield Insurance Company.

Statute: Few Facts for Public Projects in Michigan

Generally, a payment bond is required when a general contract exceeds $50,000.
A preliminary notice should be served within 30 days from first furnishing materials or services.
A bond claim should be served within 90 days from last furnishing materials or services.
Suit should be filed after 90 days from last furnishing materials or services, but within one year from the date on which final payment was made to the prime contractor.

What Happened?

ETS failed to pay Wyandotte in full, so Wyandotte sought recovery from the surety via a bond claim. Unfortunately, Westfield denied Wyandotte’s claim based on “lack of liability”, which led Wyandotte to file suit against ETS, KEO & Westfield. During the suit phase, KEO contested the validity of Wyandotte’s bond claim.

But They Served the Notice

According to the supreme court review, Wyandotte served the required preliminary notice upon all parties, via certified mail. However, KEO did not receive a copy of that notice.

“…Wyandotte sent KEO a 30-day “Notice of Furnishing” in accordance with MCL 129.207, explaining that it was one of ETS’s suppliers. Wyandotte also sent copies of the letter to Westfield, the library, and ETS. As specified by MCL 129.207, Wyandotte sent these notices by certified mail. Additionally, Wyandotte sent the notices with return receipts requested. The notices to Westfield, ETS, and the library were all received. It is unclear what happened to the notice sent to KEO—United States Postal Service tracking indicated that it was at the Detroit Post Office on March 13, 2010, but it apparently never reached its destination. KEO states that it never received the 30-day notice.”

Because KEO claimed it did not receive the preliminary notice, it argued that Wyandotte did not comply with statutory requirements, making Wyandotte’s bond claim invalid. Fortunately, the court’s decision was in Wyandotte’s favor, stating the law does not specify the notice has to be “received” by the party, only “served” by the claimant.

“…MCL 129.207 specifies that “notice shall be served by mailing the same by certified mail, postage prepaid…” To accept defendants’ argument would render that phrase nugatory. In order to give effect to this phrase, we must conclude that service is accomplished when a complainant mails the required information to the proper destination by certified mail within the required time frame.”

It’s a Fine Line

Actually, the line isn’t that fine. Courts often interpret statute for just the words as they appear on the page. In this case, the words on the page said the notice had to be served, not received. Be aware, if this had happened in another state, the outcome could have been different, as some statutes require actual receipt of the notice.

This has gone in Wyandotte’s favor, though Wyandotte could have taken an extra precaution to eliminate KEO’s argument. Had Wyandotte monitored the USPS tracking, it would have noticed that KEO’s document was not delivered and Wyandotte could have resent the document. Lucky for Wyandotte, serving the notice was enough!

Editor’s Note: This content was originally published in 2016. It has since been updated and revised for 2023.

Reduce the Need for Collections with UCC Filings

Posted on April 3, 2023 by wpengine - UCC Financing Statements

Filing UCCs Will Reduce the Need to Place Accounts for Collections

Article 9 of the Uniform Commercial Code provides an opportunity for trade creditors to secure their goods and/or accounts receivable using the personal property assets of their customer as collateral. In the event your customer defaults or files for bankruptcy, a properly perfected UCC makes you a secured creditor, putting you in the best possible position to get paid.

Instant History

In 1952, the Uniform Commercial Code (UCC) was created in an effort to promote commerce between states. Prior to the creation of the UCC, selling between states was similar to how we sell between countries today – there was a great deal of risk involved and little financial security available. Once the UCC was in place, it afforded creditors additional security, therefore enabling the extension of more credit (see: more sales).

Why Should I File UCCs?

When implementing a UCC filing program, it’s important to understand the widespread benefits: minimize financial risk, reduce DSO, improve cash flow and increase sales. Wait, “increase sales” – I know you are wondering if you read that correctly – yes, increase sales. UCC filing is more than reducing risk; it’s about the opportunity to expand your market, by providing you with the security needed to sell to marginal accounts and by providing the added security needed to increase existing clients’ credit lines.

One Part Financing Statement + One Part Security Agreement

When your customer signs a security agreement, the UCC perfects or records the security interest. A security interest collateralizes your company through equipment, inventory, the proceeds from the sale of your inventory, and your accounts receivable. Once the filing is completed, it protects all transactions for five years; protecting your bottom line as a secured creditor.

Types of UCC Filings

There are primarily two types of secured transactions under Article 9 of the Uniform Commercial Code: Blanket Filing and Purchase Money Security Interest (PMSI) Filing.

A Blanket filing is a security interest in all assets of your customer on a non-priority basis, eliminating potential conflict with your customer’s primary lender. The priority or payout in a bankruptcy is determined by the filing date (first in time, first in right). The UCC filing elevates the status of your accounts receivable to that of a secured creditor.

Blanket filings are applicable when providing financing, selling services, or in situations when your customer “consumes” or otherwise does not stock your goods.

A PMSI filing provides the same benefits as the blanket filing with the addition of the priority of repossession of specific identifiable goods, primarily inventory or equipment that your company would provide.

Purchase Money Security Interest in Equipment
- Securing collateral that is defined as equipment 9-102(33) – “Equipment” means goods other than inventory, farm products, or consumer goods. The “equipment” is used in the course of the debtor’s business – it is not stocked.
Purchase Money Security Interest in Inventory
- Securing collateral that is defined as inventory 9-102(48) – “Inventory” means goods, other than farm products, which: (A) are leased by a person as lessor; (B) are held by a person for sale or lease or to be furnished under a contract of service; (C) are furnished by a person under a contract of service; or (D) consist of raw materials, work in process, or materials used or consumed in a business.

Other Types of UCCs

Consignment: Goods sent to an agent for sale with title being held by consignor until a sale is made.
Bailment: Goods, which will be processed or improved in some manner, delivered in trust for a limited period.
Tooling: Tools provided to an outside manufacturing company in order for that company to provide a finished product for sale.
Warehousing: Stocked goods or inventory held at a third party location.
Installments/Promissory Notes: Payment for a debt, made in intervals.

My Customers Won’t Go for This

Why not? Your customer’s only involvement in the process is signing a security agreement. (This agreement or contract may be a stand-alone document or can be added to a standard credit application or other document.)

There is no cost to your customer. The core of a properly perfected UCC filing is the security agreement. Your customer doesn’t have to pay to sign a security agreement – it’s like signing any credit agreement. The costs associated with the UCC filing will be paid for by your company (and those costs are minimal).
There is no impact to your customer’s credit rating. UCC filings do not impair your debtor’s credit rating. The filings will appear on the credit report, but simply to provide confirmation that another creditor has a secured position or that you pledged collateral for trade credit.
Your company is not the only company securing its accounts receivable through the UCC process. Financial institutions and your competitors are filing UCCs as well.

Trust me – your company is not the only company mitigating risk through UCC filings. Hundreds of thousands of companies throughout the country (even in Canada, Mexico, Australia and New Zealand) are securing receivables through the UCC process. Did you know that mortgages, car loans and secured lines of credit often have security language written right into the document? And, when you sign that document, the security language allows those companies to file a UCC. UCCs are a simple part of everyday business.

How Do I Begin?

Determine when and where security is applicable in your business. For example, your company may deem filings are necessary for all customers with credit lines higher than $10,000.

Once you have set an account threshold, begin implementing the UCC filings by having your customer sign a security agreement. The best time to have your customer sign the agreement is at the time of contract and it’s a best practice to include the security agreement within the terms of your loan or credit application.

NCS Can Help

We are UCC filing experts! Let us take care of the UCC details. Contact us today to get started.

Editor’s Note: This content was originally published in September 2015. It has since been updated and revised for 2023.

Big Foot, a Unicorn, and a UCC Financing Statement

Posted on March 9, 2023 by wpengine - UCC Financing Statements

The 6 Myths of UCC Filings: Big Foot, a Unicorn, and a UCC Financing Statement All Walk into a Credit Conference

No, wait – not the right joke.

Let’s try again. Big Foot, Unicorns & UCC filings all have one thing in common: crazy myths surrounding their existence and, in the case of the UCC filing, crazy myths about their effectiveness.

While I’m not an expert on Big Foot and I think Unicorns are pretty, one thing I do know is the immense benefit UCC filings bring to your credit process. Today, I would like to dispel some of the age old myths about UCC filings.

Myth 1: “It’ll never work. I’ll always be behind the bank & never get paid.”

Fact: Bank relationships change – i.e. refinance. You may find you need to subordinate to a bank, but you will still remain ahead of other secured creditors.

Myth 2: “My customer’s bank won’t let them sign the security agreement.”

Fact: The bank should not have a problem with you being a secured creditor, however, the bank may request that you subordinate.

Myth 3: “The UCC filing will hurt my customer’s credit rating.”

Fact: UCC filings do not impair your debtor’s credit rating. The filings will appear on the credit report, but simply to provide confirmation that another creditor has a secured position or that you pledged collateral for trade credit.

Myth 4: “If I ask my customer to sign a security agreement, they are going to leave me & buy from a competitor that won’t ask them to sign a security agreement.”

Fact: Are you 100% positive your competitors are not filing UCCs or, at the very least, including security language in their agreements? The truth is, company’s everywhere file UCCs, and it’s a normal aspect of doing business. Reassure your concerned customer that the UCC filing simply allows you (the vendor) to be a secured creditor in the unlikely event they file bankruptcy.

Myth 5: “Eh, it’s not worth the money or the hassle!”

Fact: Hassles? You don’t need no stinkin’ hassles! This is why there are companies, like NCS, who will handle the “hassles” for you.

We can cultivate your collateral description, review your agreement to ensure it contains important aspects like the granting clause, pull the articles to confirm your debtor’s name & jurisdiction, process the actual filing, monitor the filing for expiration & monitor your customer for changes with the secretary of state.

You’re right, it may seem like a hassle to you, but to us it’s second nature. A minimal fee could save you hundreds of thousands of dollars in the event your debtor defaults.

To be a secured creditor or not to be, that is the question. Nah, there is no question because you should always be a secured creditor.

Myth 6: “A UCC filing will make me sprout a horn, grow fur & give me magical powers with glitter!”

Fact: OK, you got me there.

The Bottom Line

UCC filings are magical; UCCs grant you a security interest and put you in the best possible position to get paid, in the event your customer defaults.

Take the smart step and become a secured creditor, and don’t believe all the mythical malarkey surrounding their effectiveness.

NCS Credit Is Your UCC Filing Expert

We are UCC experts and we can help you implement a full service UCC Filing Program. Need help with a single filing? We do that too! Contact us today.

Editor’s Note: This content was originally published in May 2014. It has since been updated and revised for 2023.

Obtain a Copy of The Payment Bond

Posted on March 9, 2023 by wpengine - Preliminary Notices & Construction Credit

As a Best Practice, Always Obtain a Copy of the Payment Bond

How Important is it to Obtain a Copy of the Payment Bond?

The federal government, in 1935, created the Miller Act statute, requiring prime contractors to obtain a payment bond on any United States Government contract over a certain threshold. This law affords great protection to those who provide labor or materials to the prime contractor or its subcontractors on Federal projects. Mirroring the Miller Act, the individual states have implemented similar statutes, requiring the prime contractor to obtain payment bonds on state, county or municipal projects.

The recommended best practice is to obtain a copy of the payment bond when contracting for the project. Getting a copy of the bond up front is prudent; there are no problems on the project, everyone is happy and requesting a copy of the payment bond will be viewed as normal course of business. In many instances, the statute may specify that the public entity and/or the prime contractor must provide the information upon request to any claimants. The architect may also be able to provide a copy of the bond.

Why Do I Need to Obtain a Copy of the Payment Bond?

Not all projects are bonded! If the improvement is made under a supply contract, rather than a construction contract, a payment bond may not be required. Or, the general contract for the improvement may not meet the threshold for which a payment bond is required. For example, payment bonds on Federal projects are generally required for contracts exceeding $100,000. The threshold varies from state to state on public projects. Before granting credit, be certain the security of a payment bond is in place. Otherwise, another form of security may be negotiated, such as a personal guaranty, a joint check agreement or letter of credit.

The payment bond will confirm both the obligee (the owner of the project) and the principal of the bond (the prime contractor). This is critical information as the statute may provide protection only for certain tiers within the contractual chain. Confirming your place within the contractual chain may help to determine whether you will have a valid claim. Further, the laws in each state typically specify the parties who must be served with a preliminary notice or claim against the payment bond. Having a copy of the payment bond will ensure the proper parties are served, especially when the surety is a required party.

Some statutes look to the terms and conditions of the payment bond to define a claimant and the time requirements for perfecting their rights. Or, in some instances, the verbiage of the payment bond could possibly extend your rights over those provided by statute.

In some cases, usually on larger projects, the subcontractor may be bonded. Best practices would dictate that copies of both the prime contractor’s and subcontractor’s bonds be obtained at the start of the project. If payment is not received, claims could be made against both payment bonds, providing added security.

While generally not required by statute on private projects, an owner may require the prime contractor to obtain a payment bond. Again, the terms of the payment bond may specify what must be done to make a claim, or, in some states, statute may govern the requirements. In some instances, a properly recorded payment bond on a private project may prevent a lien from attaching to the property, or you may have rights under a lien and a payment bond.

Is it Necessary to Have a Copy of the Payment Bond to Make a Claim?

Not always. But when the realization hits that non-payment is an issue, having the payment bond in hand can only help to secure your rights.

Need Help Obtaining a Copy of the Payment Bond?

Did you know, we provide Payment Bond Investigation services? We have an 85% success rate in identifying and obtaining a copy of the payment bond. That’s tremendous! We’re here to help — contact us today and let us do the leg work.

Editor’s Note: This content was originally published in March 2015. It has since been updated and revised for 2023.