Service Area: Notice and Mechanic’s Lien Services

2016 Changes for Securing Pennsylvania Lien Rights

Posted on January 11, 2016 by - Mechanic's Liens & Bond Claims

Changes for Securing Lien Rights in Pennsylvania Coming 2016

New Notice procedures in Pennsylvania become effective for qualifying projects commenced on or after the date the online Construction Notices Directory become operational (scheduled for December 31, 2016).

What are the changes and how does it affect those contracting for work in Pennsylvania?

There are several changes that are taking place.  Under current law, there is only one notice requirement – the Formal Notice.

In October, 2014, Act No. 142 was enacted amending the Pennsylvania Mechanic’s Lien Law to create a more structured notice procedure for owners and subcontractors to abide by, on commercial contracts which are $1.5 MIL or greater.

The act provides for:

  • the filing of a Notice of Commencement,
  • a Notice of Furnishing,
  • a Notice of Completion and
  • a Notice of Non-Payment.

The new law is modeled after Utah’s State Construction Registry which was implemented in 2005. The purpose of the law is to protect commercial property owners from double paying and to avoid subcontractor liens. By registering the project through the construction registry, the owner can identify the subcontractors working on the project, to ensure that all subcontractors have been paid before making final payment to the general contractor.

Who must file the Notice of Commencement on the construction registry and what is the deadline?

A Notice of Commencement must be filed by the owner prior to the start of the construction project and must contain

  • the full name, address and email address of the contractor;
  • the full name and location of where the work is being performed;
  • the county in which the project is located;
  • a legal description of the property, including the tax identification number of each parcel and,
  • the full name, address and email address of the project owner
  • if applicable, the full name, address and email address of the surety for the performance and payment bond along with the bond numbers

In addition to posting the Notice of Commencement on the construction registry, it must also be posted on the jobsite until the project is complete.  If the Notice of Commencement is not timely filed, subcontractors are relieved from an obligation to file a timely Notice of Furnishing.

What is the requirement for the Notice of Furnishing?

A Notice of Furnishing must be filed in the construction registry by all first- or second-tier subcontractors or suppliers within 45 days from first furnishing labor or materials. The notice must contain

  • a general description of the labor and/or materials to be furnished
  • the full name and address of the person supplying the labor and/or material
  • the full name and address of the person contracting for the labor and/or material; and
  • a description sufficient to identify the project, based on the description in the Notice of Commencement

What is the Notice of Completion and how does it affect me?

The owner may file a Notice of Completion, for informational purposes, to inform all parties that the project has been completed and accepted by the owner.  The notice will be submitted by the construction registry to all subcontractors who have filed a Notice of Furnishing.

Are there any other notices of which we should be aware?

Subcontractors who have not received full payment for their materials or services, may file a Notice of Nonpayment in the directory for informational purposes.

What actions should we be taking now to prepare us for the new changes in the law?

Members of the construction industry should begin now to familiarize themselves with the changes to the lien law to determine how to change their business practices to meet the new requirements. Utah’s state law and precedent can be a useful tool to help owners and subcontractors begin to understand the process.

Do you have any questions about Pennsylvania’s statute? Contact NCS today!

California 20 Day Notice

Posted on December 7, 2015 by - Mechanic's Liens & Bond Claims

20 Facts About California’s 20 Day Preliminary Notice

Need to serve a preliminary notice in California? (aka CA 20 Day Prelim) The general rule, when supplying materials or services to a construction project in California, is to serve the preliminary notice within 20 days from first furnishing. However, there are nuances based on who you sold to within the ladder of supply and whether you are supplying to private project or public project.

Are you supplying to a California Private Project?

If you are supplying to a private project and want to secure mechanic’s lien or stop notice rights, you should:

1. When contracting directly with the owner, serve the notice upon the lender within 20 days from first furnishing materials or services.

2. When contracting with all others, serve the notice upon the owner, prime contractor and lender within 20 days from first furnishing materials or services.

“What if My Notice Is Late?”

3. You may serve a late notice, but the lien will only be effective for materials and services provided 20 days prior to serving the notice and thereafter.

Are you supplying to a California Public Project?

If you are supplying to a public project and want to secure bond claim or stop notice rights, you should:

4. When contracting directly with the prime contractor, no notice is required

5. When contracting with all others, serve notice upon the prime contractor and the public entity within 20 days from first furnishing materials or services.

“What if My Notice is Late?”

6. A late notice may be served, but the bond claim, when later served, will only be effective for materials and services provided 20 days prior to serving the notice and thereafter.

“Wait, the Notice isn’t Required?!”

7. Correct, there may be circumstances when the preliminary notice may not be required. But, just because you don’t have to do something, doesn’t mean you shouldn’t. A great best practice is to serve a notice, regardless of your position in the ladder of supply (well, except… see #8) – it’s better for everyone to know you are supplying to the project.

8. Serving the notice upon all parties is a good idea, but if you are contracting with the owner on a public project, you do not have bond claim or stop notice rights.

What Information Should Appear within the California 20 Day Notice?

According to California Civil Code (Title 1, Chapter 2 Notice 8100-8118), the following information should be included in the notice:

9. The name and address of the owner (or reputed owner)

10. The name and address of the direct contractor

11. The name and address of the construction lender

12. The name and address of the claimant (the entity serving the notice)

13. Identify where the claimant falls within the ladder of supply

14. Identify the claimant’s customer

15. The project address:

“A description of the site sufficient for identification, including the street address of the site, if any. If a sufficient legal description of the site is given, the effectiveness of the notice is not affected by the fact that the street address is erroneous or is omitted.” – (8102.4)

16. A general description of the materials or services being provided

17. The contract amount

18. The claim amount

Serve the 20 Day Notice

Don’t just throw a stamp on the envelope & drop it in the mail!

19. In California, the notice should be served via “…registered or certified mail, express mail, or overnight delivery by an express service carrier.” – (8110)

Completion BONUS!

Conservatively, NCS recommends you calculate your mechanic’s lien/stop notice deadlines based on your last furnishing date. In California, statute dictates these deadlines are calculated based on the date of Completion or the date a Notice of Completion is filed, unfortunately, not all project owners file this notice when the project is completed.

The owner must notify the prime contractor and any claimant who has served a 20-day notice that a notice of completion or cessation has been filed within 10 days of its filing (commercial projects). The mechanic’s lien/ private stop notice period will not be shortened by the filing of the notice of completion or cessation if the owner fails to notify you.

Are you supplying to a California Federal Project?

Then these rules don’t apply to you!

20. When supplying materials or services to a federal project, regardless of the state in which the project is located, there is no required preliminary notice.

This is not an exhaustive list of the “do’s & don’ts” or the “should’s & shouldn’ts”, it’s just a simple overview of the preliminary notice in California.

If you have questions about the mechanic’s lien/bond claim process in California, or anywhere in the U.S. & Canada, contact us today!

NTO-Phobia: the Fear of the Preliminary Notice

Posted on December 1, 2015 by - Preliminary Notices & Construction Credit

NTO-Phobia: the Fear of the Preliminary Notice

The Fear: A common fear expressed by contractors, subcontractors and material suppliers everywhere is “My customer will get upset if I send a preliminary notice”. A preliminary notice (sometimes referred to as a Notice to Owner (NTO) or Notice to Customer), shouldn’t upset anyone, especially if the intent of the document is properly explained.

What is a Preliminary Notice?

A preliminary notice is a document, written to comply with statute, sent to the owner and/or prime contractor as a precondition to filing a mechanic’s lien or serving a bond claim. This document notifies the owner that their property is being improved by the goods and/or services your company is providing.

All too frequently, the owner of the property is unaware that a supplier has provided goods and/or services, until the preliminary notice is served.  A preliminary notice does not indicate there is any current payment problem; in fact, the preliminary notice is an aid in retaining rights in the event a payment problem arises.

Yes, the service of a preliminary notice is the first step in the mechanic’s lien filing process, but it is not a mechanic’s lien.

Common Courtesy

A preliminary notice can be considered a courtesy, advising the owner of the supplier’s involvement in providing quality products and services. The purpose of the notice is to benefit the owner so that they may obtain lien waivers from all subcontractors and suppliers as the project progresses, so that the owner’s interests are also protected.

Did You Know

In the state of Florida the preliminary notice is titled “Notice to Owner;” in the states of Ohio, Georgia and Michigan, the preliminary notice is titled “Notice of Furnishing.” Combine these titles to define the notice: “THE NOTICE OF FURNISHING TO THE OWNER”.

At the End of the Day

The service of a preliminary notice is simply a legal tool for you to use to secure your receivables.  Your goal is to ensure payment from your customers in a timely fashion; the mechanic’s lien process was created to protect you and help you reach your goal.

By the Way

Remember, the time frames for serving your notice vary on a state-by-state basis. Be sure to have current information regarding timetables and information requirements. Serve your preliminary notice; it will serve you well.

What is a Notice of Termination of Notice of Commencement?

Posted on November 16, 2015 by - Preliminary Notices & Construction Credit

Aside from a mouthful when trying to say it three times fast, the Notice of Termination of Notice of Commencement is a recorded affidavit that terminates/extinguishes an existing Notice of Commencement. (For the sake of ease, in this article I will refer to the Notice of Termination as “NOT” and the Notice of Commencement as “NOC”.)

First Things First: What is a NOC?

What is a NOC? The NOC is an affidavit, generally recorded in the county where the project is located, containing project information and informing lien claimants of obligations necessary to preserve lien rights.

What Information is Included in a NOT?

The information in the NOT should be the same as the information in the NOC. This information should include the recording information for the NOC and the effective date of the termination plus:

  • Property description
  • Name & address of property owner
  • Name & address of the prime contractor
  • Name & address for the designee or contract manager
  • Name & address for surety, lender or other interested parties

This is a copy of a blank NOT from Miami Dade County in FL . In this case, Miami Dade County requests a copy of the NOC be included as an exhibit, so the actual info in the NOT is not as detailed as the list laid out above:

What Would Trigger the Filing of a NOT?

One of the more popular reasons to file a NOT would be upon completion of a project where all payments to claimants have been made. A few additional reasons a NOT may be filed:

  • If the owner has re-financed the project and lender has changed so a new NOC will be issued
  • If construction has ceased prior to completion
  • If the GC changes and a new NOC has to be filed

This isn’t an exhaustive list, but the commonality is either a. the project is complete & parties have been paid or b. something has changed on the project & the NOC needs to be amended to reflect that change.

If a NOT is Filed, Changing Information on the NOC, Should I Serve an Amended Preliminary Notice?

As a best practice, if information for the contractual chain or project changes, you should serve an amended notice, regardless of which state the project is located. There are states that require an amended notice be served, but even in states where statute doesn’t specifically tell you to serve an amended notice, you should, simply as a matter of due diligence. It’s important that all parties know you are furnishing to the project & that you expect to be paid in a timely fashion. Please note, this is simply a best practice and you should seek legal counsel for review of your specific situation.

Is the NOT Only Applicable in Florida?

Short answer: no. There are states like Nebraska, with statute specific to… get ready for it… The Notice of Termination of Notice of Commencement. (See Neb. Rev. Stat. Ann. § 52-146 – Termination of notice of commencement; procedure.)

Interested in learning more about The Notice of Termination of Notice of Commencement? Contact us today!

Can Supporting Documentation Make or Break Your Claim?

Posted on November 10, 2015 by - Credit Risk Management

Can Supporting Documentation Make or Break Your Claim? Short Answer: Yes!

The words rumbled like daunting thunder from the mouth of a tall, lanky and otherwise nondescript bank branch manager. Although he was referring to fraudulent charges on an account, the same adage applies to those who secure credit through UCCs, mechanic’s liens or pursue collections.

I can’t say it with quite the same Armageddon-like-bellow, but I’ll strain to be tip-toes-tall and use the lowest voice I can muster, to repeat “supporting documents can make or break a claim”. Because it’s worth repeating, if for nothing more than a bit of a giggle while I try not to lose my balance.

Which documents should be included?

Regardless of whether you are pursuing a UCC, mechanic’s lien or collection, these are documents you should always have handy:

  • A copy of the Contract or Agreement (including Security Agreement)
  • A copy of the Purchase Order(s)

Short list huh? Well, hang tight, we’re not done. Let’s delve a bit deeper, and uncover the important documentation based on service type.

Filing a Mechanic’s Lien?

If you are securing rights through the mechanic’s lien process, the list of necessary documentation can fluctuate – meaning, you tend to need more supporting documentation and information for a mechanic’s lien than you would for a preliminary notice. In an ideal credit-management-world, you would want to have ALL of this documentation (remember, ideal, not required):

  • Proof(s) of Delivery
  • Itemized Statement
  • Invoices
  • Payment Bond
  • Notice of Commencement
  • Notice of Completion
  • Joint Check Agreement
  • Personal Guarantee
  • Lien Waivers

Generally, when serving a preliminary notice, you would want to include the information that will ensure the proper parties are served with a copy of the notice. This would include knowing who is in the contractual chain (owner, GC, debtor, surety, lender etc.) and can often be found on job information sheets, contracts and Notices of Commencement.

Once you are at the point where you are unpaid and disputes arise forcing you to pursue a mechanic’s lien or even collections, that’s when you will want to refer to open invoices, statement of account, joint check agreements, personal guarantees etc.  Which leads to a great segue...

Pursuing Collections?

We have covered this before, so I won’t rehash it too much. The best advice is to provide as much information as you can. When it comes to pursuing collections or suit, it’s almost always better to have more documentation than not enough documentation (kind of like cake, more cake is better than less cake).  Aside from the “usual suspects” spelled out above, be sure to include copies of correspondence, copies of returned/NSF checks and copies of credit reports.

Filing a UCC?

If you are filing a UCC, it’s a bit less about the backup documentation, and more about ensuring all necessary information is incorporated into your Security Agreement. In the event you are pursuing collections and intend to use your UCC filing as leverage, you will want to ensure you provide the collections agency with a recorded copy of the UCC filing, results from a recent UCC search, a description of the collateral and the amount you are owed.

Supporting Documentation

Maintaining documentation is important – not only for proceeding with secured transactions, but simply as a good business practice.

Carelessness is Worse Than a Lien Waiver Thief

Posted on September 28, 2015 by - Mechanic's Liens & Bond Claims

Carelessness is Worse than a Lien-Waiver-Gauntlet-Throwing-Thief

“Carelessness is worse than a thief.” And, in this case, “Carelessness means mindlessly signing a lien waiver and being unable to collect unpaid monies plus having to pay your debtor’s legal fees.” Not quite as catchy, I know – don’t worry, I will leave the proverbs to the poignant professionals.  Although less eloquent, a subcontractor in Washington discovered the high price of carelessness when the court of appeals honored executed unconditional lien waivers and vacated the sub’s mechanic’s lien.

The Case

Exterra, LLC (Exterra) was hired by Corstone Contractors LLC, (Corstone) to provide excavation and paving work in the amount of $48,704.

Exterra received three progress payments from Corstone, totaling $14,315.27 and Corstone required Exterra to sign lien waivers for each of these payments – the terms of their original contract dictated a waiver to be executed for every payment made by Corstone to Exterra.

Based on the progress payments received, Exterra signed the required waivers; unfortunately, Exterra “misinterpreted” the waiver. See, Exterra argued that they waived rights ONLY to the monies paid, when in fact, the waiver itself indicates rights waived through 12/31/2010 and includes an ACKNOWLEDGMENT that Exterra had received $14,315.27 thus far.

Let’s take a quick look at the waiver verbiage as it appeared in the court opinion:

The undersigned does hereby waive and release any and all claims, of any type, kind or character, for labor, services, equipment, rented or supplied, and materials furnished, including any mechanic's or materialman's lien, equitable lien, stop notice, equitable adjustment, or bond claim (public or private) that the undersigned has or may ever have in any manner arising out of work, labor, services, equipment, material or supplies furnished by or through the undersigned in connection with the Project or the Contract through the date of 12/31/2010. The undersigned further warrants and certifies that as of the date of this waiver it has previously been paid a total of $14,315.27 in connection with the project.

Actual Waiver

The first paragraph is the actual waiver “The undersigned does hereby waive and release any and all claims of any type…furnished by or through the undersigned in connection with the Project or the Contract through the date of 12/31/2010”

Acknowledgment

The second paragraph is simply an acknowledgment that Exterra received certain monies. “The undersigned further warrants and certifies that as of the date of this waiver it has previously been paid a total of $14,315.27 in connection with the project.”

The court of appeals stated that the “language did not depend on whether Corstone paid amounts owed under the contract. Rather, the release (see: waiver) operated against claims for work performed before an identified date, December 31, 2010”

In other words, by signing this waiver, Exterra waived any and all rights for any work performed through 12/31/2010 and they certified that they received total payments of $14,315.27. Unfortunately, the unpaid monies that Exterra filed a mechanic’s lien for were from furnishings prior to the through date on the waiver (December 31, 2010) – and they waived any right to claim for those unpaid amounts when they executed this unconditional lien waiver.

Exterra pleaded “ambiguity” based on the last line of the waiver, which read “This is a partial Waiver and Release, the total unpaid balance of the Subcontract Agreement will be paid upon final completion…” but the court said the use of the word “partial” directly correlated to everything provided prior to 12/31/2010, not monies already paid:

“… use of the word “partial” was intended to reserve claims for work after an identified date.  The partial waiver language reserved Exterra’s right to the money under the contract notwithstanding its waiver to any lien claim arising out of work performed after December 31, 2010.”

In reading the court opinion, the subsequent waiver also appears to waive Exterra’s rights for the monies owed through December 31, 2010, since Exterra did not list any items in dispute, even though payment had not been received for those items:

“In the conditional waivers, Exterra again agreed to fully waive and release any and all claims arising from the work it performed prior to December 31, 2010, “except for the following items which are in dispute ______.” In other words, the conditional waivers asked Exterra to identify any items it was not releasing. Exterra left both blanks empty.” – excerpt taken from court opinion.

But this is a moot point, since those monies had already been waived with the unconditional waiver previously signed.

Lien-Waiver-Gauntlet

Unfortunately for Exterra, the court of appeals threw down the proverbial lien-waiver-gauntlet.  In the end, not only did Exterra not recover their unpaid monies for the services provided, but they also had to pay over $25,000 in attorney’s fees to Corstone!

Don’t be careless! Review, review & review again, before signing a document that could impact your rights, obtain lien waivers from a reputable source & always seek a legal opinion.

Reduce the Need for Collections with Liens

Posted on September 14, 2015 by - Mechanic's Liens & Bond Claims

Filing Mechanic’s Liens Will Reduce the Need to Place Accounts for Collections

Every day, credit professionals across all industries review and assess risk. That’s what we do – we are “Risk Assessors” – like some kind of super hero, with special powers to mitigate risk, reduce DSO and improve cash flow!

OK, we don’t get a cape and we miss out on that whole “secret identity” thing, but we are super heroes. We are expected to do more with less, balance the demands of our sales people while protecting the financial assets of our companies, and at the end of the fiscal year, we need to demonstrate that we reduced company write-offs while improving sales.

But, How Do We Mitigate Risk?

We, credit professionals, are bombarded with statistics (you know, “Big Data”) and see balance sheets and credit aps in our sleep. We listen to industry experts and we take advantage of credit resources and tools.

We understand the true value of a write-off. The cost of write-offs to a company can be crippling. A write-off of $50,000 at a 30% margin means you would have to generate $166,666 in additional sales to recover that lost profit. If you operate at a 15% margin the additional sales mushrooms to $333,333.

We recognize that it may not be an issue when one customer is slow paying, but that it’s never just one customer; it is several customers and it can have a significant impact on our cash flow. If we have 10 accounts paying an average of 20 days late and each is invoicing at $50,000 we could have $500,000 + outstanding.

Uncertainty is always on our tail – even if we had a super hero cape, we wouldn’t be able to outfly uncertainty. 

We Take Advantage of Proactively Securing Our Receivables

Implementing a Mechanic’s Lien/Bond Claim Process is one of the greatest securities available to the construction credit professional. Leveraging your position as a secured creditor will have a positive impact by reducing DSO; in fact, NCS clients experience an average of 25% reduction in DSO, with some clients experiencing reductions as high as 50%.

Each state in the U.S., the U.S. Possessions and the Canadian provinces have laws in place to protect companies that supply materials/labor to the permanent improvement of a property. However, contractors and suppliers must strictly adhere to the rules set forth in the statute in order to perfect their security. Let’s think of the mechanic’s lien process as a three step process (albeit this is an over simplification): Notice > Mechanic’s Lien > Foreclosure.

Notice > Mechanic’s Lien > Foreclosure

Before sending a notice, you should gather project information – always. It is imperative for you, as a creditor, to know who lies between you and your money. Know the contractual chain (owner, general contractor, subcontractor, lender etc.), where the project is located and the project type. Make this a standard practice, much like securing credit references or running a credit report. It’s also important to become familiar with the mechanic’s lien statute for the state in which your project is located.

Pro Tip: Gather project information at the time of the contract; it is infinitely easier to gather project information at the onset of the project!

  • Serve a Preliminary Notice (aka Notice to Owner, Notice to Contractor, Pre-Lien Notice) on every project. It is a low cost way to ensure you are taking the proper steps to secure mechanic’s lien rights. If serving a notice on every project doesn’t fit within your model, then set a dollar threshold. Determine what you are willing to lose in the event of default and serve a notice on any order over that value – e.g. serve notices on all projects that have a contract of $10,000 or more.
    • If you intend to serve preliminary notices on your own (i.e. without the assistance of a preliminary notice expert), make sure the documents are aligned with the statute requirements. Too many companies have found themselves with an invalidated mechanic’s lien because of errors in their preliminary notice.
  • File a mechanic’s lien. If the preliminary notice and subsequent demand letter do not prompt payment, then it is time to proceed with a mechanic’s lien. It is recommended to have copies of invoices, bills of lading, the statement of account and copies of various communications, to support your claim. (Some states actually require the invoices be attached to a copy of the mechanic’s lien when sent for recording.)
  • Foreclose. In the event you remain unpaid, the final step is to proceed with suit to enforce the mechanic’s lien. Suit is typically a slow (and costly) process, due to the various facets of litigation.

Pro Tip: When enforcing a mechanic’s lien, it is best to utilize an attorney who is well versed in construction/mechanic’s lien laws and familiar with the project itself (including issues surrounding change orders, back charges, etc.).

Bear in mind, everyone has a specialty and that is what makes them great – would you ask your cardiologist to fix your car or ask your mechanic to fix your heart?

A preliminary notice is a low cost proactive alternative to the reactive high cost and high stress associated with collections. It pays to be proactive.

Navigating Preliminary Notices on Leased Property

Posted on September 8, 2015 by - Mechanic's Liens & Bond Claims

Furnishing to a Property that’s Leased? Serve the Owner & the Tenant

It sounds simple enough – serve the owner with a preliminary notice. If ABC Company owns property and they have contracted for an improvement to that property, ABC Company would have to be served with a preliminary notice. Easy.

What happens if ABC Company leases their property to XYZ Company, and XYZ Company contracts for an improvement to the property? That’s when the serving the owner becomes more complicated. Do you serve the fee owner (the entity that owns the property) or do you serve the owner of the leasehold interest (the entity that is leasing the property)?

Best practices dictate that if you are furnishing materials or services to a property that is being leased, both the fee owner and the owner of the leasehold interest (lessee/tenant) should be served with the notice.

While a lien on a leasehold interest can be a valuable collection tool, a lien on the property is always preferred.

By serving both owners with any notices, you provide yourself with the best opportunity for collection of your debt.  The hope is that you can proceed with a lien against the property, and if that is not possible, you will at least have a lien on the leasehold interest.

How do you know if the property is being leased?

The biggest flag is when the project is for a retail establishment: stores, restaurants, etc. Other projects where leases come into play are large office buildings, where a tenant may contract for an improvement to their leased space.

When reviewing the Job Information Sheets provided by your customer, if the name of the owner does not coincide with the name of the project, there may be a leasehold situation.

If you serve both the fee owner and the lessee, will you have a lien on the property and the leasehold interest?

It may depend on who contracted for the improvement. Typically, the fee owner will be responsible for the improvement only if they were aware of or they authorized the improvement.

In some states, a written agreement is required before you can hold the fee owner liable. In other states, a fee owner may record a Notice of Non-Responsibility, to prevent a lien for tenant improvements from attaching to their property.

Obtaining a copy of the lease is always helpful, as the lease may spell out who is responsible for specific improvements, or the length of the lease may determine whether a lien on a leasehold interest is available.