Service Area: Collection Services

Credit Survival Guide: Proof of Claim

Posted on September 27, 2016 by - Credit Risk Management

Credit Survival Guide: Proof of Claim

Maybe you heard it from a colleague, maybe you were notified by your customer’s bank, maybe you saw it online or received an alert from NCS via Bankruptcy Monitoring… It’s official. Your customer has filed for bankruptcy protection and their outstanding balance could have a significant impact on your accounts receivable.

What now?

Tip #36: Filing a Bankruptcy Proof of Claim as a Secured Creditor

Whenever possible, creditors should file a Proof of Claim as a secured creditor. In the event of a debtor’s bankruptcy, secured creditors are paid before unsecured creditors. Properly executing a Mechanic’s Lien, Bond Claim or UCC grants the creditor a secured interest, which increases the likelihood of payment in the event of a bankruptcy.

Mechanic’s Liens, Bond Claims & UCCs are credit tools, proven to put creditors in the best possible position to get paid, but they aren’t the only tools available. A creditor may also be considered secured if there is a Corporate Guarantee or Personal Guarantee in place.

It is important to remember, a creditor can have a secured & unsecured claim in the same bankruptcy.

Simple enough, right? Wrong.

Tip #53: Avoid Common Missteps with the Bankruptcy Proof of Claim Form

Beware! Although the Bankruptcy Proof of Claim form may seem straightforward, here are a few common missteps:

  1. Be on Time! Too often, creditors miss the bar date to file.
  2. Know Your Claim! Including all amounts owed for all accounts and affiliates is a must.
  3. Secured or Unsecured? That Is the Question! Know whether or not you are a secured creditor and file properly.

This takes us to our next tip…

Tip #55: Have NCS Determine If You Have Lien or Bond Claim Rights

Did you provide materials and/or labor to a construction project? If so, request NCS to determine whether lien or bond rights are available!

A review of your claim is easy & complimentary! All you need to do is check the box that reads “Request NCS to determine whether lien or bond rights are available” on your placement form.

After it’s all said and done, don’t let your customer’s debt slip through the cracks.

Tip #58: Keep Track of Unpaid Judgments and Liens

Don’t lose track of those unpaid judgments and liens, and consider renewing an old judgment before it expires.

Title companies may demand pay-offs on old judgments, liens and other encumbrances that remain of record on property being sold or refinanced.

Takeaway

The Proof of Claim can be critical in recovering your accounts receivable. Contact the experts at NCS to evaluate and file the Proof of Claim for you, help you avoid common mistakes, and make sure you are in the best position to get paid.

Is the Subcontractor’s Foreclosure Action Out

Posted on September 19, 2016 by - Mechanic's Liens & Bond Claims

Is the Subcontractor’s Foreclosure Action Out? Here’s a Look at a Case in Utah.

In Garlett Construction, Inc. v. Leonard, Dist. Court, D. Utah 2016, the owners tried their darnedest to contest the validity of the subcontractor’s foreclosure action, but ultimately struck out.

The Players

  • Project:  Residence in Moab, Utah
  • Owners: Curtis & Genevieve Leonard
  • General Contractor: White Horse
  • Claimant/Subcontractor: Garlett Construction, Inc.

The 3 Pitches

The Leonard’s were contesting Garlett’s foreclosure action for 3 reasons.

  1. Garlett is an unlicensed contractor
  2. Garlett’s preliminary notice is defective
  3. Garlett signed lien waivers, waiving their right to enforce a mechanic’s lien

First, here’s a quick overview of the necessary steps for securing mechanic’s lien rights in Utah.
Three green icons are shown: an envelope, a municipal building, and a judge's gavel. Beneath the envelope are the words: Notice - within 20 days from first furnishing. Beneath the municipal building are the words: Lien - within 90 days from notice of completion or within 180 days from final completion if no notice of completion. Release - satisfied lien promptly and within 10 days from demand. Beneath the judge's gavel are the words: Suit - within 180 days from filing lien. Release - satisfied lien promptly within 10 days from demand.

The above is for commercial or residential projects, however, there is one additional note for those furnishing to residential projects:

“If the owner can prove compliance with the requirements of the Residential Lien Recovery Fund, the lien will have to be released. The claimant can apply to the fund for payment of the claim provided a judgment has been obtained against the debtor and the claimant is registered with the fund. Suit to enforce a claim under the Lien Recovery Fund must be filed within the earlier of 180 days from filing the lien or 270 days from completion of the original contract.” – The National Lien Digest

A Swing & A Miss

The first issue is whether or not Garlett could proceed with their foreclosure action based on the validity (or lack thereof) of their contractor’s license. Although there were minor discrepancies with their licensure, the court determined that Garlett is a licensed contractor.

Strike Two…

The second issue is whether or not Garlett’s preliminary notice was valid. The Leonards argued that Garlett’s preliminary notice was invalid because it did not comply with requirements set forth by the Residence Lien Restriction and Lien Recovery Fund Act.

Unfortunately for the Leonards, these provisions apply to the general contractor and/or real estate developer and Garlett’s contract was with the general contractor, making them exempt from these requirements.

That didn’t satisfy the Leonards and they took it one step further, stating Garlett’s notice didn’t comply with statute, because the notice filed with the State Construction Registry “indicated” that Garlett’s contract was with the owner. Again, the court sided with Garlett. It turns out, statute and the State Construction Registry aren’t 100% in sync.

“the Leonards’ ‘Unconditional Lien Waivers’ are unenforceable. ‘[T]he sole criteria for the execution of an effective lien waiver are … the execution of a “waiver and release signed by the lien claimant or the lien claimant’s authorized agent,” and the receipt of “payment of the amount identified in the waiver and release”’… The Leonards’ ‘Unconditional Lien Waivers’ do not identify any amount for which those waivers purportedly apply, nor is there any evidence of record that GCI was paid any amounts in connection with those waivers.”

Strike 3, You’re Out!

On to the third issue. In its final issue, the Leonards argued that Garlett gave up their right to foreclose their mechanic’s lien, because Garlett signed unconditional lien waivers.

Although Garlett signed these waivers, which were supplied by the Leonards, the waivers didn’t comply with statute, making them null & void.

“… the Leonards “Unconditional Lien Waivers” are unenforceable. “[T]he sole criteria for the execution of an effective lien waiver are … the execution of a `waiver and release signed by the lien claimant or the lien claimant’s authorized agent,’ and the receipt of `payment of the amount identified in the waiver and release… The Leonards’ Unconditional Lien Waivers” do not identify any amount for which those waivers purportedly apply, nor is there any evidence of record that GCI was paid any amounts in connection with those waivers.”

Garlett Pulls Ahead

At this point, Garlett is in the lead. They filed their preliminary notice, filed their mechanic’s lien & commenced a foreclosure action; all of which have been deemed valid by the courts. However, this decision is recent and will likely see more litigation.

Takeaways

  • Check state requirements for contractors’ licenses to insure you are in compliance.
  • Although the SCR has a particular format for preliminary notices, it’s important to list all parties within your contractual chain.
  • Watch the Waiver! Be cautious when signing lien waivers. The Garlett’s lucked out, because the Leonards’ waivers didn’t contain required information. But if it had contained the necessary info, Garlett could have lost all rights.

Florida: Serving a Notice to Owner

Posted on August 9, 2016 by - Mechanic's Liens & Bond Claims

Furnishing to a Construction Project in Florida? Make Sure You Serve the Florida Notice to Owner

If you are furnishing to a construction project in Florida, you should bookmark this post! This post is dedicated to serving preliminary notices in Florida and includes pertinent deadlines and requirements.

You’ve Got 45 Days

In Florida, the private preliminary notice is also referred to as the Notice to Owner (“NTO”). Those furnishing to a private project in Florida should serve notice upon the owner, and upon all parties in the contractual chain between their customer and the owner, prior to or within 45 days from first furnishing materials or services.

In Florida, the preliminary notice must be received within the 45-day period, which means that simply mailing it on the 45th day is insufficient. If you supply specially fabricated materials, your clock begins sooner, and the notice must be served prior to or within 45 days from the date fabrication begins.

Florida NTO Tidbits

  • It’s recommended you also serve a copy of the notice upon the lender when they are listed on the Notice of Commencement.
  • If you provide materials or services to a leasehold property, serve demand upon the lessor for a copy of the provisions in the lease that prohibit a lien against the property. If a copy is not provided to the claimant, the lessor’s property may be subject to a lien, rather than the claimant being limited to liening the leasehold interest.
  • On residential (single- or multiple-family dwellings of up to and including four units) improvements, a prime contractor must include a statutory notice provision in their contract.

Little known fact: When contracting directly with the owner on a private project, no notice is required. Keep in mind, just because it isn’t required doesn’t mean that serving a notice won’t help to get you paid. NCS Best Practice is to serve a notice on every project.

How Should I Serve My Notice?

With a side of rice and fresh veggies! Kidding, only kidding. I recommend serving the Notice to Owner via certified mail but Florida statute dedicates an entire section of their statute to the “Manner of serving notices and other instruments.”

Here’s a small snippet

713.18 Manner of serving notices and other instruments. —

(1) Service of notices, claims of lien, affidavits, assignments, and other instruments permitted or required under this part, or copies thereof when so permitted or required, unless otherwise specifically provided in this part, must be made by one of the following methods:

(a) By actual delivery to the person to be served; if a partnership, to one of the partners; if a corporation, to an officer, director, managing agent, or business agent; or, if a limited liability company, to a member or manager.

(b) By common carrier delivery service or by registered, Global Express Guaranteed, or certified mail, with postage or shipping paid by the sender and with evidence of delivery, which may be in an electronic format.

(c)  By posting on the site of the improvement if service as provided by paragraph (a) or paragraph (b) cannot be accomplished.

Florida Notice to Contractor – Public Projects

If you are furnishing to a public project, there are only a few differences than when furnishing to a private project. Of course, for public projects, you are securing your right to make a claim against the bond, as mechanic’s lien rights are not available on public projects. The public notice is referred to as a Notice to Contractor instead of a Notice to Owner. Plus:

  • If you are contracting with the owner on a public project, bond claim rights are unavailable.
  • If you are contracting with the general contractor on a public project, no notice is required.
  • If you are furnishing to a Department of Transportation project, you should serve the notice upon the prime contractor prior to or within 90 days from first furnishing.

Love a Quick Comparison

I’m visual and love charts and graphs explaining information, so here’s a comparison we provide to subscribers of The National Lien Digest.

As always, please remember that this information is not an exhaustive list of all things Florida; rather, it’s an outline of the steps necessary to secure your rights.

What Should I Know About Attorney Collection Expenses?

Posted on August 1, 2016 by - Credit Risk Management

Today’s 3-in-3 Topic is: What Costs Should I Expect with Attorney Collection Efforts?

Today we sat down with Danielle Moon to discuss attorney collections and the fees you can expect regarding court costs and suit fees and whether or not you can recover these fees from your customer.

“Could you please explain the process of court costs and suit fees and how they differ?”

Danielle: The attorney will exhaust all amicable efforts to collect the balance prior to recommending suit. They will require the creditor to advance court costs and possibly suit fees, to proceed.

The court costs are used to establish and maintain the suit, including filing the complaint, service on all parties, and any necessary motions. The costs are set by the state, vary by jurisdiction, and are non-negotiable.

The suit fees, by industry standards, are an overall contingent suit fee taken only if funds are collected after suit is filed. Some attorneys will combine a contingent suit fee with a non-contingent suit fee which is a non-refundable fee to initiate the suit.

It is above and beyond the court costs and the contingent fees, and the attorney is entitled to this fee as an officer of the court.

“What factors do attorneys typically look at to determine if they’re going to charge a non-contingent suit fee?”

Danielle:  There are simple factors that may cause the attorney to ask for the fee.

  • If a dispute exists
  • If the attorney believes the suit will lead to an uncollectible judgment
  • If the debtor is in an area with limited legal resources or
  • Some attorneys have that “we’ve always done it this way” mentality, and will always ask for the fee.

The non-contingent suit fee is usually calculated as a percentage of the claim amount, or a flat fee. For example, with a $10,000 claim, you might be asked for a $500 non-contingent suit fee plus court costs.

“Can some of these fees be passed on to the debtor like interest charges and collection fees?”

Danielle:  Absolutely. That is the most common question we get from our clients. When the attorneys file suit, they always ask for interest, costs, and fees based on the client’s credit application, contract, or the statute.

Once a judgment is entered, the debtor is responsible for those fees. Though it’s not likely they will be paid, they are very useful in settlement negotiations. It often comes down to the time value of money.

Do you want to get paid your full judgment over time or take a lesser lump sum now? We’ve had clients who settle at a discount, such as $320,000 paid on a $335,000 claim, rather than go through lengthy, costly litigation…and clients who settle at a $10,000 lump sum now rather than taking the chance a debtor is going to pay a $15,000 judgment over time when they are struggling to keep their doors open.

3-in-3 Takeaways

  • When looking to file suit, the costs vary by jurisdiction and state.
  • Attorneys may charge a non-contingent suit fee, which will vary by the attorney and the specific case. It’s typically charged as a flat fee or a percentage of the full amount.
  • Fees can be passed on to the debtor, but look at the time value of money. Does it make sense to continue to chase a balance if you can settle for slightly less, as opposed to going through a lengthy litigation?

Please remember, every situation is different. If you have any questions, please do not hesitate to contact NCS!

Bond Claim Rights on Louisiana Public Projects

Posted on July 25, 2016 by - Mechanic's Liens & Bond Claims

Bond Claim Rights on Louisiana Public Projects

Are you furnishing to a public project in Louisiana? Let this case be a lesson of the importance of strictly adhering to deadlines set forth by statute!

The Case

Non-Flood Protection Authority (“Owner”) is the owner of the public improvement, commonly known as James Wedell Hangar Project, at the New Orleans Lakefront Airport.

Owner hired general contractor, GM&R Construction Company (“GM&R”), who hired two subcontractors: M&M Concrete (“M&M”) and Tom Branighan (“Tom”).

The first date of importance is the date Owner filed the Certificate of Substantial Completion: May 28, 2014.

Why Does Substantial Completion Matter?

In Louisiana, unpaid parties must serve a sworn statement of amounts due upon the public entity and record it in the office of the recorder of mortgages for the parish in which the work is done. It must be recorded within 45 days after acceptance of the project or within 45 days  after a notice of default (whichever first occurs).

Back to the Case

Neither M&M nor Tom were paid in full with claim amounts of $56,572.00 and $49,729.20 respectively.

On August 18, 2014, M&M filed its statement of claim – 82 days after the filing of the Certificate of Substantial Completion. GM&R notified M&M that its claim was untimely and, subsequently, M&M sent a notification to Owner and GM&R advising that the claim would be cancelled, even though M&M hadn’t been paid in full.

On September 24, 2014 – 119 days after the filing of the Certificate of Substantial Completion – Tom served its statement of claim, but did not file it.

General Contractor Makes Bank

In early October 2014, GM&R went to the Orleans Parish Clerk of Court and obtained a “Lien and Privilege Certificate” to provide to Owner. This certificate confirmed there were no existing or prior liens. Upon receipt of this document, Owner promptly remitted final payment to GM&R.

GM&R is now paid in full.

If All Else Fails, Claim, Claim Again?

December 2014 rolled around and M&M and Tom were still unpaid even though both parties filed claims with the parish mortgage recorder. For those doing the math, we are now over 200 days from the date of substantial completion.

Fast forward to April 2015. Having not been paid, M&M and Tom filed suit against Owner to recover their monies. Owner disputed the subcontractors’ rights to file suit, based on the untimely filing of their claims.

“You’re Late!” The Court Agreed

According to the Order:

“It is undisputed that M&M Concrete and Tom Branighan did not timely file their claims in accordance with subsection 2242(B). The Non-Flood Protection Authority recorded its acceptance of work, via its “Certificate of Substantial Completion,” in the mortgage records on May 28, 2014. At the earliest, M&M Concrete served the Non-Flood Protection Authority with a sworn statement of its claim on August, 18, 2104, nearly three months later. Tom Branighan did not serve the Authority with its claim until September 24. Because M&M Concrete and Tom Branighan failed to comply with the applicable deadline, the Court grants summary judgment on the cross-claim for their outstanding debts against the Non-Flood Protection Authority.”

The Lesson

Know the various statutory deadlines BEFORE you find yourself making late claims. Track deadlines diligently and don’t risk non-payment by delaying the filing of your claim. As always, seek legal guidance!

Bonus: Louisiana Public Projects (excluding DOT projects)

Here are the notice and claim requirements for public projects in Louisiana, courtesy of The National Lien Digest©.

Notices

Notice of Non-Payment: Serve notice of non-payment upon the owner and prime contractor within 75 days from the last day of the month for EACH month in which materials were furnished, but within the period in which a sworn statement must be filed. If the notice of non-payment is not given, the sworn statement will be limited to a claim under the payment bond and will not act as a lien on the funds being held by the public entity.

  • 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.

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

Bond Claim

Serve sworn statement of amounts due upon the public entity, and record it in the office of the recorder of mortgages for the parish in which the work is done, within 45 days after acceptance of the project or a notice of default (whichever first occurs). When contracting directly with a subcontractor, also serve a notice upon the prime contractor within 45 days after acceptance of the project or a notice of default. The sworn statement also acts as a lien against the funds being held by the public entity.

Need help serving your notice or bond claim? NCS can help!

Understanding Bankruptcy Claims and Periods

Posted on July 19, 2016 by - Credit Risk Management

Understanding Bankruptcy Claims and Periods, Plus the Difference between Chapter 7 vs. Chapter 11

What is the primary difference between Chapters 7 & 11? Chapter 7 is a liquidation and Chapter 11 is a reorganization. An entity that files for protection under Chapter 11 is typically an entity that wants to continue to do business.

According to The United States Bankruptcy Court, the debtor typically “proposes a plan of reorganization to keep its business alive and pay creditors over time.” Whereas, an entity that files for protection under Chapter 7 is likely to dissolve once their assets have been distributed – hence the term “liquidation.”

Debtor in Possession

Entities in bankruptcy need money. Seems obvious, right? Bob Eisenbach of Cooley LLP refers to this need for cash as a liquidity crisis.

“Companies in financial distress often find that their need for liquidity goes up just as the availability of traditional financing goes down. The borrowing base may shrink, the ability to get further advances may be cut off, and loans may go into default. Worse, new lenders may be unwilling to make loans given the distress. For many distressed businesses, revenues may also be declining and insufficient to cover expenses without additional financing. A liquidity crunch can quickly snowball into a liquidity crisis.”

You may hear the bankrupt entity referred to as Debtor in Possession (“DIP”). DIP means the business will remain in the possession of the debtor during the bankruptcy and it will continue its normal transactions, such as payments to creditors, under the bankruptcy guidelines.

DIP financing is exactly what you would think: it’s financing approved through the bankruptcy court that allows the debtor to continue to operate their business as usual. When the DIP has financing to pay bills, you, as a creditor, could benefit.

Are You a Secured Creditor?

If your customer files for bankruptcy protection and you have a security interest via a UCC filing or are securing mechanic’s lien rights, then you would be considered a secured creditor. In other words, you have secured your customer’s credit with some type of collateral.

If you have not secured your customer’s credit, then you are an unsecured creditor. (Always better to be a secured creditor!) Whether secured or unsecured, there are several bankruptcy claims and periods you should be aware of.

Bankruptcy Claims & Periods

  • 503(b)(9) Claim: the claim a creditor can make for the materials or services provided to the debtor within 20 days preceding the petition date, if “the goods have been sold to the debtor in the ordinary course of such debtor’s business.”
  • Reclamation Claim Period: the timeframe in which the creditor is permitted to take back certain goods sold to their insolvent customer. The reclamation notice needs to be sent within 20 days from the petition date and covers materials or services provided to the debtor within 45 days preceding the petition date.
  • Proof of Claim: defined by the United States Bankruptcy Court as “a written statement and verifying documentation filed by a creditor that describes the reason the debtor owes the creditor money.” – The due date for this document is determined by the court.
  • Preference Period: the 90-day period prior to the bankruptcy filing.  If the debtor makes any payments to the creditor within that preference period, the trustee can recall those payments.

Please bear in mind, this is not an exhaustive list. If you anticipate your customer filing for bankruptcy protection or if your customer has already filed for bankruptcy protection, quickly contact a legal professional for guidance.

Assessing and Reinforcing Litigation in Mexico Part 3

Posted on July 14, 2016 by - In Other Commercial Credit News

Assessing and Reinforcing Litigation in Mexico Part 3: Legal Strategy

Contribution by Mr. Romelio Hernández

Romelio Hernández is President at HMH Legal, a professional corporation specialized in credit and collection services in Mexico. He is based in Tijuana, Baja California, México, where he works extensively with foreign exporting companies and collection agencies assisting them with their out-of-court and legal collection efforts throughout Mexico. His litigation experience of sixteen years and exposure to international commercial law has allowed him to provide guidance to foreign companies in mitigating the various risks of selling international. Romelio graduated from Universidad Autónoma de Baja California, and was admitted to practice law in Mexico since 1997. Romelio holds a Masters’ Degree in Comparative Law (LL.M.) from the University of San Diego School of Law (2011).

This is the final in a 3 part series.

View Part 1: Costs & Rewards and Part 2: Risks

The last piece of the puzzle is all about reducing risks and raising your chances of success. This comes while confirming that you have a good quality case with moderate risks. The equation involves good legal counsel that is willing to share the risk, and a sound action plan that you can both come up with to control the costs and time of litigation. We should look into these factors in more detail.

A. Local Attorneys

The first thing I believe you need to know about attorneys in Mexico, is that ethical conduct is mostly unregulated. Attorneys in Mexico are not obligated to belong to a bar association to practice law, and thus, are not subject to penalties or disbarment for unethical behavior. This surely calls for caution when selecting a professional for legal representation. And while not all lawyers behave this way and there are many professionals who are worthy of trust, the key lies not only in finding a reliable source, but in finding one that is the right fit for your case. For instance, even when you come across a good transactional lawyer, you should question whether he would be the right fit to handle your litigation case. The same is true for a litigation attorney that deals only with tax or labor cases. Would he be the right fit for an international collection claim? Again, basic knowledge about these issues and common sense may help come up with the right answer.

The second thing I believe is important is knowing the current practices of the legal profession, and trying to come up with a good partnership. Because of the inefficiencies and problems of the Mexican legal system, few attorneys will be willing to handle a collection case based on contingency fees. In fact, most lawyers will offer services under hourly fees, or under fixed fees that may be contingent upon progress of your case but regardless of whether an actual recovery is made. The key is finding the right professional that is willing to share the risk by handling your case under contingency fees, or at least under a mix of fixed or hourly and contingency fees. For instance, you can negotiate a small advancement to prepare your complaint and handle the initial stages, but subject the main part of the fee on an actual recovery. I believe this to be a fair arrangement that any interested attorney would welcome. And if your attorney is just unwilling to handling the case under a contingency fee (but not opposed to hourly fees), you should seriously question whether your case is a worthy candidate for litigation.

B. Action Plan

A way to control time and costs in all projects, is with project management. Although there are many variables in litigation, I believe that good planning and follow up can help tremendously in controlling things and raising your chances of success. You simply will not leave your case with your attorney and turn your back. A good practice requires that your attorney explains in detail the type of case that he will file, the evidence required, and the overall strategy pursued to win the case and collect. You can complement this effort by trying to gain a basic knowledge of the legal landscape in Mexico, including the different proceedings available and the stages to reach a verdict. While you are not expected to become an expert, the effort to gain just basic knowledge will pay dividends when teaming up with your lawyer in setting up the best strategy.

Finally, a good strategy to discuss with your lawyer to keep costs under control, is the exit strategy. Many times you will not be convinced about litigation, or you will not have the resources to go all the way through. If this is the case, but you still want to try a strong action to see if you can get a reaction from your debtor, all while keeping your costs down, discuss with your attorney an exit strategy. There might be a possibility of filing preliminary actions, or going through the preliminary stages of a criminal or civil action without the risk of having to pay court costs. There are different possibilities out there, all of which will depend on the creativity of your legal team, under your approval and supervision.

C. Who Makes the Decision?

In the movie The Rainmaker, attorney Deck Shifflet (Danny DeVito) is teaching the young lawyer Rudy Baylor (Matt Damon) the tricks of the trade. After Rudy complains of that day’s lesson being blatant ambulance chasing, Deck objects: “who cares? There’s a lot of lawyers out there, it’s a marketplace, it’s a competition.” This scene illustrates a reality out there: that some attorneys may try to sell their services hard, and will often make recommendations for legal action when all facts point into another direction. This is specially the case when the attorney is looking to work under hourly or fixed fees, and is not willing to share the risk by handling your case under contingency fees.

Don’t get confused. While you are not the legal expert, it only takes knowledge of the issues raised here and good common sense to make a sound decision on whether to litigate or not. You will of course seek guidance from your local attorney, but the decision lies with you, not with him. Have the attorney provide all the information required, ask a lot of questions, and then come up with a sound business decision of your own.

Conclusion

Not all claims are candidates for litigation in Mexico. Thus, you have to be diligent enough to avoid throwing good money after bad. Discard those small claims that have no collateral or other security (such as pagarés) and that will not pay for good legal representation while returning a profit. With all larger claims do your due diligence to make sure that there are no unreasonable risks that will seriously put in jeopardy your collection, or that will result in unreasonable delay or cost. Once you have found the good candidates, make sure that you find the right partner that will share at least some of the risk of litigation, and put a game plan in place to reduce the remaining risk to the extent possible. Finally, keep good communication with your attorney to make sure that your plan is on track, and adjust whenever necessary to avoid any surprises.

While it is sad to write off a debt and accept the loss, it is a lot better than pursuing a cause that is doom for failure and that adds additional loss in money, time, and energy, aside from stress. You should now direct your efforts at building a system that will prevent or reduce future write-offs as reasonably possible, and on reinforcing litigation for those good quality claims that have their chance of success in court.

DISCLAIMER: The information you obtain in this article is not, nor is intended to be legal advice. The law office of HMH Legal will only provide legal advice after having entered into an attorney-client relationship. It is imperative that any action you undertake be done on the advice of counsel, and not based solely upon this article.

This material has been provided as free educational message by HMH Legal. We invite you to send us your comments or to call us for a free consultation. If you have any questions please call us at +1 (619) 819-5107 or 819-8518. You can also email us at info@hmhlegal.com. If you would like further information about our firm or our educational handouts, please visit us at www.hmhlegal.com.

What is a Demand to Commence Suit?

Posted on July 12, 2016 by - Mechanic's Liens & Bond Claims

What Is a Demand to Commence Suit?

We often discuss the art of preliminary notices and mechanic’s liens, rather than the litigious land mine of suit. Today we will step carefully into that minefield to discuss a case in New York where the lien claimant’s mechanic’s lien was vacated because they failed to comply with a demand to commence suit.

What is a Demand to Commence Suit?

A demand to commence suit is a notice served upon the lien claimant that requires the claimant to proceed with enforcing their claim or the lien will be vacated. Many states, like New York and Illinois, have incorporated this action into the mechanic’s lien statute.

In its simplest form:

  • Demand = request
  • Commence = start
  • Suit = an action in a court of law to enforce a claim

In Avoiding Surprise and Prejudice to Lien Claimants, attorney James T. Rohlfing explains the demand in section 34 of Illinois statute as “…a demand [that] may be served on a party asserting a lien, who must then move to foreclose his lien within 30 days or lose his right to do so – ‘fish or cut bait.’ The purpose of this section is to permit an owner, or others with an interest in real property, to force the issue of validity of a lien claim already filed, and to clear any potential cloud created by a lien against the owner’s property…important protection for owners who are troubled by unenforceable or invalid liens, allowing them to quickly and easily dispose of them with a simple notice.”

In New York, statute dictates that the lien claimant has thirty days from the date of the notice to proceed with suit or the mechanic’s lien will be vacated.

“Such notice shall require the lienor to commence an action to enforce the lien, within a time specified in the notice, not less than thirty days from the time of service, or show cause at a special term of a court of record, or at a county court, in a county in which the property is situated, at a time and place specified therein, why the notice of lien filed or the bond given should not be vacated and cancelled, or the deposit returned, as the case may be.” – Section § 59 (LIE, Article 3, §59)

Case in Point: Matter of Chauve Enters. LLC, 2016 NY Slip Op 30553 – NY Supreme Court 2016

Chauve Enterprises LLC (“Chauve”) leased commercial property from Clinton Housing Development Company (“Clinton”).  Bannister Brothers Construction, Inc. (“Bannister”) furnished to the improvement of the property.

In January 2015, Bannister filed a mechanic’s lien in the amount of $22,821, and both Chauve & Clinton were named in the lien. By September, Bannister had not moved to foreclose on the lien, so Chauve took action.

“On September 25, 2015, petitioner [Chauve] served respondent [Bannister] with notice, pursuant to Lien Law § 59, to commence an action to enforce its lien within thirty days or show cause why an order should not be entered vacating the lien.”

What did Bannister do? Well, I can tell you what they did not do – they did not respond to the notice nor did they commence suit.

“Respondent [Bannister] did not respond to the notice. Petitioner [Chauve] commenced the instant proceeding by filing its verified petition on or about December 18, 2015 seeking to vacate the lien pursuant to Lien Law § 59.”

Statute is quite clear. If the claimant does not respond to the demand or fails to proceed with suit, then the mechanic’s lien is automatically extinguished. No action = no rights. According to the Supreme Court decision:

“Under the circumstances herein, this Court finds that the lien filed by respondent [Bannister] should be vacated. Respondent [Bannister] was served with the notice to commence an action… This allowed respondent thirty days to commence an action to enforce the lien… However, respondent [Bannister] not only failed to commence any such action within thirty days, but also failed to oppose the instant motion. Thus, respondent has failed to demonstrate any reason why the lien should not be vacated.”

Takeaway

It’s important to understand that, as a claimant, you have rights to recover monies through the mechanic’s lien process. However, parties impacted by the mechanic’s lien filing also have rights. Don’t try to navigate the mechanic’s lien and suit processes without the guidance of a legal professional.

Securing your lien rights does not stop when you file the lien. You must continue to monitor deadlines and next actions and be prepared for a “next action” to be dictated by the action of another (like the owner serving you with a demand to commence suit). Pay attention or pay the price.