Service Area: Notice and Mechanic’s Lien Services

Lien Waiver Language: Unconditional

Posted on September 1, 2015 by wpengine - Mechanic's Liens & Bond Claims

Lien Waiver Language Part 2: Unconditional Lien Waivers

Every lien waiver should clearly identify the property name & project location, the debtor’s name (your customer), the invoice or purchase order number, the payment amount and the disputed claim amount. You can learn more about lien waivers in our earlier post 4 primary types of lien waivers.

In part 1 of this series, we covered the language within a conditional lien waiver, which means part 2 is dedicated to the language within unconditional lien waivers.

Unconditional Lien Waivers

Unconditional lien waivers can be dangerous if blindly signed, as the signor is waiving all rights to further remedy regardless of whether or not payment has cleared. As you will see, the language in an unconditional waiver is absolute:

The undersigned has been paid and has received a progress payment in the above referenced Payment Amount for all work, materials and equipment the undersigned furnished to his Customer for all above described Property and does hereby waive and release any notice of lien, any private bond right, any claim for payment and any rights under any similar ordinance, rule or statute related to payment rights that the undersigned has on the above described Property to the following extent:

An unconditional partial waiver will also include wording similar to the conditional partial waiver, with respect to the monies received: “…covers a progress payment for all work, materials and equipment furnished by…”

The unconditional final lien waiver is generally the “end,” meaning there is no turning back from an executed unconditional lien waiver – even if your debtor fails to pay or payment does not clear:

The undersigned has been paid in full for all work, materials and equipment the undersigned furnished to his Customer for the above described Property and does hereby waive and release any notice of lien, any private bond right, any claim for payment and any rights under any similar ordinance, rule or statute related to payment rights that the undersigned has on the above described Property, except for the payment of the Disputed Claims, if any, noted above.

Be extremely cautious when signing an unconditional final waiver!

When in doubt, seek a legal opinion – signing the “wrong” document could eliminate your mechanic’s lien and bond claim rights.

Lien Waiver Language: Conditional

Posted on August 4, 2015 by wpengine - Mechanic's Liens & Bond Claims

Lien Waiver Language Part 1: Conditional Lien Waivers

We’ve previously discussed the 4 primary types of lien waivers; today we’d like to discuss language specific to conditional lien waivers. Let’s take a look!

Conditional Lien Waivers

For conditional lien waivers, the “conditional” language typically appears prominently at the beginning of the document.

Upon receipt by the undersigned of a check in the above referenced Payment Amount payable to the undersigned, and when the check has been properly endorsed and has been paid by the bank on which it is drawn, without any bankruptcy filing by <<Name of Debtor>> within ninety days thereafter, this document becomes effective to release and the undersigned shall be deemed to waive any notice of lien, any private bond right, any claim for payment and any rights under any similar ordinance, rule or statute related to payment rights that the undersigned has on the above described Property to the following extent…

This waiver has clear conditions: it is only effective once the creditor receives payment, payment has cleared and if the debtor files bankruptcy within 90 days after remitted payment, the waiver becomes null & void.

In this example, the waiver happens to be a partial conditional waiver, based on the following language:

This release covers a progress payment for all work, materials or equipment furnished by the undersigned to the Property or to the Undersigned’s Customer, for only the Payment Amount or such portion of the Payment Amount as the undersigned is actually paid, and does not cover any retention withheld, any items, modifications or changes pending approval, disputed items and claims, or items furnished or invoiced after the Payment Period. Before any recipient of this document relies on it, he should verify evidence of payment to the undersigned.

If the waiver was a final conditional waiver, instead of calling out that the waiver covers “…a progress payment for all work…” it may state “…covers the final payment to the undersigned for all work…”

This release covers the final payment to the undersigned for all work, materials or equipment furnished by the undersigned to the Property or the Undersigned’s Customer and does not cover payment for Disputed Claims, if any. Before any recipient of this document relies on it, he should verify evidence of payment to the undersigned.

Conditional lien waivers are preferred over unconditional lien waivers, because the “conditions” provide the creditor with leverage, in the event payment is not received or does not clear.

Key Features of a Lien Waiver

Every lien waiver should clearly identify the property name & project location, the debtor’s name (your customer), the invoice or purchase order number, the payment amount and the disputed claim amount. If the lien waiver is for partial payment, you should also include the payment period or a through date.

Complying with the Michigan Notice of Commencement

Posted on July 13, 2015 by wpengine - Mechanic's Liens & Bond Claims

Did I Comply with the Michigan Notice of Commencement?

We have previously discussed “substantial compliance” with regard to mechanic’s lien and bond claim statutes. In states with Notices of Commencement, complying with the preliminary notice requirements can (not always, but can) be a bit easier. Typically, the Notice of Commencement contains the vital information necessary for inclusion into the preliminary notice.

The Contents of a Typical Notice of Commencement

Generally, you’ll find the following information within the Notice of Commencement:

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

Now, please don’t take this to the bank – because, although there are statutory guidelines to Notices of Commencement, they are not all the same. Some folks don’t complete them, others may include more or less information and others may have incorrect information.

That said; let’s take a look at an unpublished case brought before a court of appeals in Michigan.

Serve the Notice upon Required Parties

In Rogers Excavating, Inc. v. Mana Properties, L.L.C., the appeals court was tasked with determining whether or not Rogers Excavating substantially complied with Michigan statute with regard to the Notice of Furnishing.

Rogers Excavating was hired by a construction manager for excavation work on a property owned by Mana Properties, LLC. Rogers Excavating’s contract was direct with the owner, Mana Properties, and the construction manager (McQuillan) signed the contract as a witness. Rogers Excavating served their notice of furnishing upon the owner (Mana Properties) and the construction manager (McQuillan).

Later, after Rogers Excavating had already begun work, Mana Properties, LLC filed a Notice of Commencement and listed a title company (Fidelity) as their designee, not the construction manager.

When Rogers Excavating remained unpaid, they filed a lien and suit to enforce their lien. Mana Properties, LLC argued that the lien was unenforceable because Rogers Excavating did not serve the notice upon the designee, as listed on the Notice of Commencement.

The appeals court determined that Rogers Excavating, Inc. did, in fact, substantially comply with the statutory guidelines for the notice of furnishing, and permitted enforcement of the lien. (Not only was it determined that Rogers Excavating substantially complied with statute, but Rogers Excavating’s contract was direct with the owner – Mana Properties – and no notice was required.)

What the Court Says

“MCL 570.1109(1) provides, in part, that “[a] contractor is not required to provide a notice of furnishing to preserve lien rights arising from his or her contract directly with an owner or lessee.” Given our ruling that a valid and enforceable contract existed between Rogers and Mana, a notice of furnishing did not have to be served by Rogers…

… MCL 570.1109(1) requires delivery of a notice of furnishing to a designee and a general contractor. And a designee is simply a “person named by an owner or lessee to receive, on behalf of the owner or lessee, all notices or other instruments required to be furnished under” the CLA. MCL 570.1104(2). Considering the evidence that Carroll Rogers delivered the notice of furnishing to McQuillan and the owner itself, Mana, there was substantial compliance with MCL 570.1109’s notice-of-furnishing requirement. The trial court’s ruling to the contrary was error.”

Shew!

Fortunately in this case, the notice of furnishing was not required based on the contractual relationship, and the court upheld that the notice served was substantially compliant with Michigan statute. But this should still serve as a reminder that it’s important to follow statute and comply as indicated – doing it right the first time around could save you significant time & money.

Sometimes Substantial Compliance is Enough

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

Turns Out, Sometimes Substantial Compliance with Mechanic’s Lien Law is Enough

At NCS, we constantly stress the importance of complying with each state’s mechanic’s lien and bond claim laws. In fact, we recommend conservative adherence to the statutes, as it is generally better to be early as opposed to late (generally – there are ALWAYS exceptions).

“Wait, what?”

For example, if a mechanic’s lien deadline is determined by the date of completion, NCS would recommend you calculate your lien deadline based on your last furnishing date, because you may not know the completion date – and if you are relying on a date you don’t know… well, hopefully I don’t have to complete that thought.

While it is imperative to follow a state’s laws, I was recently reminded that sometimes, “substantial compliance” is enough to protect your rights.

“I’m sorry, what? Substantial compliance?”

Yes, as I have previously mentioned, in the land of mechanic’s liens, the gray area is a minimum of 51 shades (get it, 51, like the states + DC? No, no, not the book).

Mistakes happen – best efforts are made, and an Indiana appeals court recently decided that best efforts were enough to recover through the mechanic’s lien process.

Indiana: Creditor’s Name on the Prelien Notice didn’t Match the Creditor’s Name on the Lien

In Von Tobel Corp. v. Chi-Tec Construction & Remodeling, Von Tobel Corp. supplied materials to Chi-Tec Construction & Remodeling. Von Tobel Corp. served a prelien notice and identified themselves as “Von Tobel Home Center, Inc.” then, when Von Tobel Corp remained unpaid, they filed a lien and identified themselves as “Von Tobel Corporation”

Chi-Tec Construction claimed that Von Tobel Corp.’s lien was invalid, because “Von Tobel Corp.” did not serve a prelien notice – “Von Tobel Home Center, Inc.” served a prelien notice. The appeals court sided with Von Tobel Corp. and granted the validity of their lien, because Chi-Tec was arguing based on a “hypertechnicality”.

From the Appeals Decision

“(We) reject[ed] the idea that our entire mechanics’ lien statute must be strictly construed with such hypertechnicality so as to frustrate the remedial purpose of the legislation…

The perfection and enforcement provisions of the statute should be fairly and reasonably construed and applied so as to afford materialmen and laborers the security intended upon substantial compliance with statutory requirements, keeping in mind the need to afford reasonable protection to the rights of other parties who may have acquired an interest in the party…

Here, the degree of non-compliance with the letter of the statute is minimal…

The variance between the name set out in the Pre-lien notice and that contained in the Lien Notice was minimal, did not undermine the statutory policy concerns regarding notice, and did not cause prejudice to the property owner or any third party.”

Ultimately, the owner knew that “Von Tobel Home Center, Inc.” and “Von Tobel Corporation” was the one and the same, and that “Von Tobel et al” provided materials for the improvement to their property, which means, Von Tobel et al should have been paid for their services.

Now, I must say, even though the appeals court sided with the creditor, the creditor could have eliminated the extra time & money of the appeal if they had correctly identified themselves in the notice from the start. Nonetheless, identifying themselves incorrectly was not a deal breaker – kudos!

NCS recommends conservative adherence to the statutes – what one judge in Indiana rules may be entirely different than a judge in another state!

Include a Proper Estimate in Preliminary Notice

Posted on June 30, 2015 by wpengine - Mechanic's Liens & Bond Claims

California Case Highlights the Importance of Including a Proper Estimate in Your Preliminary Notice

It’s likely you have read this (or heard this) more than once from NCS: “Statutory requirements for preliminary notices differ for each state and serving a preliminary notice may be the first step in securing mechanic’s lien rights.”

We’ve previously discussed common mistakes with preliminary notices, and one of those common mistakes is leaving vital information off of the notice (i.e. neglecting to list the claim or contract amount, forgetting to include the material description, etc.).

Make Sure the Contact Amount Is a “Proper Estimate”

In Rental Equipment, Inc. v. McDaniel Builders, Inc., 91 Cal. App. 4^th 445, 109 Cal. Rptr. 2d 922 (2001), the creditor remembered to include the contract amount, however, the amount listed was not a “proper estimate.”

In Rental Equipment, Inc. v. McDaniel Builders, Inc., the Second District Court of Appeal, Division 5, examined the requirement that a preliminary notice (in California) must include an estimate of the value of the materials or services provided. The court looked to the meaning of the word “estimate.”

Rental Equipment, Inc. rented equipment to a subcontractor on a private project. Rental Equipment, Inc. sent out two preliminary notices, known as Preliminary 20-day Lien Notices, which both estimated the value of the rental equipment in the amount of $10,000.

The project was never completed, and the subcontractor did not pay Rental Equipment, Inc. Rental Equipment recorded a mechanic’s lien in the amount of $160,000, and later filed to foreclose on the lien.

The district court held the preliminary notices were fatally defective because the value of the lien was significantly higher than the estimate listed on the notice.

Then the Appeal

On appeal, the court upheld this decision for the following reasons: the estimate provided in a preliminary notice does not have to be exact; however, it cannot be based on merely a guess and the estimate must be derived by rational analysis.

Since the $10,000 estimates were not derived by “rational analysis”, the notices were fatally defective and the judgment in favor of McDaniel Builders, Inc. was affirmed. Rental Equipment, Inc.’s failure to comply with California’s mechanic’s lien statutes caused its mechanic’s lien to be unenforceable.

Rental Equipment, Inc. should serve as an important learning lesson for all contractors, subcontractors, materialmen, and equipment providers: even a small mistake in a preliminary notice can greatly hinder your chances of recovery. If you are ever in doubt, seek a legal opinion.

Hip Hop and Credit Management

Posted on June 22, 2015 by wpengine - Credit Risk Management

Hip Hop & Credit Management: Advice to Credit Professionals in 30 Seconds

Several years ago, I was given the opportunity to view a documentary, hosted by its creator, The Hip Hop Project. The documentary centers on a formerly homeless teenager who wants to inspire and empower youth. There were many poignant and salient moments, but one question resonated throughout the film “If you had the whole world listening, what would you have to say?”

“That’s great Kristin – touching story, really – but what on earth does this have to do with credit management?!” I’m so glad you asked!

A friend of mine recently took a position in the credit department at a large manufacturer and she asked me:

“See, my boss wants me to come up with a plan on how they can improve the margins without taking too much risk. But they already have a process and I’m not really sure that there is anything else I can bring to the table. Got any advice?”

I sat across from her, silently – any time I’m problem solving, I tend to ask myself “If I had 30 seconds to convey my thoughts to a silent & listening world, what would I say?” (I have to impose a time limit on myself, otherwise I’d never snap back to reality.) She interrupted my 30 seconds to tell me that most of their customers have been customers forever, though if they have a new customer they pull a credit report, sometimes they ask for a letter of credit, sometimes they require payment up front and other times they simply invoice and hope the invoice is paid within the allotted 45 days.

My friend interrupted my 30 seconds, but between her question and the documentary question, I decided to ask a few of my NCS colleagues

“If you had 30 seconds to give a credit professional advice on reducing risk, what would you say?”

Here’s what they had to say – I hope you can take a few minutes to “listen.”

Know Your Customer

“Know your customer! Knowing their history before contracting with your customer, means you have the opportunity to mitigate loss. You have the opportunity to save valuable time and money; be proactive not reactive. Take advantage of project and party monitoring services. With services like LienFinder, Corporate Monitoring and credit reporting, you can set email alerts to advise you of any project or party activity. Wouldn’t you want to know of changes as soon as possible? I would think so!” – Mary Cowan, NCS President

Be Proactive

“If you would like to reduce your risk, secure your receivables. Being proactive in this regard can help to prevent major losses. Serve preliminary notices on all projects over a certain dollar limit so that if there are payment problems by anyone within the contractual chain, or if anyone files bankruptcy, you will have the right to make a claim against a payment bond or to file a mechanic’s lien. Preliminary notices, liens and bond claims provide great leverage when seeking payment. Follow the statutory requirements, and carefully track your deadlines to ensure that your rights are maintained. And, if payment is not forthcoming, take action (filing a lien or a bond claim) sooner rather than later. Often, collectability is dependent on the funds being held by the owner, or someone else within the contractual chain, so the best practice is to secure your rights as soon as possible.” – Nancy Kennerly, Executive Director

Secure More, Sell More

“Reducing risk needs to be balanced with the impact to sales and cost. Secured transactions are an economical way to extend trade credit while at the same time improving your standing to that of a secured creditor. The benefits are numerous with the greatest benefit being an improvement to cash flow. They also will provide you the ability to say “yes” to a marginal account that perhaps would not have received credit or as much credit in the past. The sales team should welcome this new tool to help them sell more” – Jerry Bailey, Executive Education & Sales Manager

Security Creates Leverage

“USE PROTECTION! Seriously, it is important that creditors are proactive in protecting themselves. How do they protect themselves? Ask the right questions— know your debtor, who they are, their credit history and financial stability and what it means to YOU. Check this information frequently! Things change fast. Get yourself secured & create leverage. Take the time to know what you need to do—or partner with a credit professional who does. Missing a notice or incorrectly identifying a contractual chain member can make the difference between secured and unsecured. Know if UCC’s, liens/bonds, personal guarantees, promissory notes, joint check agreements are available and applicable—the more leverage, the better! The more entities on the hook to pay you, the better! Documents! Signed contracts and/or purchase orders are a must! Don’t get sloppy or lazy or blame it on your “Sales Reps”. Take the time to get the proper paperwork in order NOW. You never know when you will need it. And then, it will be too late! And you will lose.” – Amy Poje-Marsh, Director of Operations

Are you noticing a trend? Be proactive, know your customer, secure your receivables.

So, if you had 30 seconds to give a credit professional advice on reducing risk, what would you say?

Oh, one other thing… I couldn’t help but recognize a similarity with The Hip Hop Project’s philosophy “…we empower them [youth] with the knowledge, tools and opportunity…” and the NCS philosophy “…empowers credit professionals by providing exceptional education, resources and innovative services…”

9 Documents Every Collector Should Have

Posted on June 16, 2015 by wpengine - Credit Risk Management

The Top 9 Documents Every Collector Should Have

I once had a history teacher who constantly preached “The pencil remembers what the mind forgets…” It was his delicate way of reminding us to quit blankly staring at him and grab a pencil and paper for note taking. Although few of us use pencils and notebooks in the digital age, the phrase still rings true because it stresses the importance of having everything in writing.

For the purposes of today’s topic, let’s treat “writing” as “documentation.” If you find yourself faced with the task of sending an account to collections, it’s important to provide the collector with all pertinent backup documentation. Collecting a past due receivable can be difficult, but if your collector has the necessary documentation, debt recovery becomes easier.

Why Should I Have Documents?

Yes, it’s worth repeating: “Collecting a past due receivable can be difficult, but if your collector has the necessary documentation, debt recovery becomes easier.” Providing the documentation at the time the collection is placed facilitates communication with your debtor regarding the past due receivable and it also improves efficiency.

Efficiency? Why Would I Care about Efficiency?

Efficiency matters on many levels! For the sake of simplicity – if something is more efficient, it tends to be faster. If your collection agency has the necessary information, they are able to better prepare and preparation means communication with your debtor will be more effective, leading to a faster recovery.

For example, when I’m going to cook, I make sure I have my recipe, the ingredients and the necessary utensils in order before I start cooking. I don’t want to run back and forth between the refrigerator, cabinets & stove because I end up wasting time and inevitably making a mistake (or in my case, burn the food to the point that even the dog won’t come near it).

Come to the proverbial kitchen with everything in hand – make the most of your time & money.

What Documentation Should I Include with a Collection Placement?

Here are some documents our collectors find to be beneficial:

A copy of the Contract or Agreement
A copy of the Credit Application
Copies of Invoices and Statement of Account
Copies of the Proof of Delivery
A copy of the Personal Guarantee
Your customer’s Trade References, including bank name and account number, and copies of any Returned/NSF Check(s)
Copies of Correspondence & Notes. In this bundle, make sure you have emails, letters (demand letters, payment requests and notices), and documented phone conversations (i.e. “Spoke with Mr. Smith 5/5 @ 2:00 pm and he advised payment will be made 5/31″).
Corporate Certificate: this should include your debtor’s legal identity, including whether it is a corporation, partnership or proprietorship
Copies of a Credit Report(s)

Also make sure you provide your collector with contact information for your debtor. This should include the debtor’s full name and physical address as well as the names, addresses and phone numbers for the company owners.

Need to free up your time? NCS can handle your collections – contact us today!

Failure to Name True Owner Invalidates Lien

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

Colorado Court Finds Failure to Name True Owner Invalidates Lien

The Colorado Court of Appeals, Division II, answered “When a party fails to name the true owner in the notice of intent to file a lien, what happens to the validity of the mechanic’s lien?”

The Case

In the case of Moore Electric Company v. Ambassador Builder Corporation, plaintiff-appellant Moore Electric Company provided electrical work pursuant to a contract with Ambassador Builder Corp., defendant-appellee, also known as Ambassador Homes, Inc. Moore was not paid for its work and subsequently filed two mechanic’s liens encumbering multiple properties.

In the first mechanic’s lien, Moore listed Ambassador as the prime contractor as well as owner of eight properties identified in the lien. The lien was mailed to Ambassador, as the owner or reputed owner of the properties.

In the second mechanic’s lien, Moore named Ambassador and Joe DeMarco, the sole shareholder of Ambassador, as the owner of the listed properties, which included DeMarco’s personal residence which Moore had performed work on. The lien was again served on Ambassador.

When filing the liens did not prompt payment, Moore filed suit to foreclose its mechanic’s liens on a total of 10 properties, naming Ambassador and the record owners of the liened properties as defendants. Several of the liens were dismissed before trial and once at trial, a judgment of dismissal was entered as to all defendants except Ambassador.

The court found that Moore’s notices of intent to file mechanic’s liens were defective because the true owners of the properties were not named in the notices.

The Appeal

On appeal, the court addressed the sole issue of whether Moore complied with Colorado’s statute governing the notice of intent. Colorado’s statute provides that in order to preserve any lien for work provided or materials furnished, there must be a notice of intent to file a lien statement served upon the owner or reputed owner of the property at least ten days before filing the lien statement.

C.R.S. 38-22-109. Lien statement (3) In order to preserve any lien for work performed or laborers or materials furnished, there must be a notice of intent to file a lien statement served upon the owner or reputed owner of the property or the owner’s agent and the principal or prime contractor or his or her agent at least ten days before the time of filing the lien statement with the county clerk and recorder.

“Reputed owner” is defined as one who has to all appearances the title to, and possession of, the property.

Moore argued that Ambassador was the reputed owner because it paid the bills, supervised construction, and performed every task an owner would. Therefore, according to Moore, notice of intent served upon Ambassador was proper.

The appellate court, however, disagreed.

The court found that Ambassador’s actions were consistent with that of a general contractor and did not, in and of itself, indicate ownership.

Further, Moore’s claims of Ambassador’s ownership are refuted by the record in which there are copies of recorded warranty deeds by which Ambassador transferred ownership to private owners prior to the filing of the notices of intent. Accordingly, by the time Moore filed the notices, the true owners were readily ascertainable.

Since Moore failed to comply with the statutory requirements set out in § 38-22-109(3), C.R.S.1973 (1981 Cum. Supp.), it failed to meet its burden of proving its right to a mechanic’s lien. Moore’s fatal mistake cost it a mechanic’s lien that would have encompassed several properties.

Although Moore believed it was in compliance with statute when it served notice upon the entity it believed to be the owner (and which up until shortly before the filing of the notices was the owner) the Colorado court was unforgiving.

This case is hardly an anomaly. Courts across the country generally impose stringent requirements on those seeking mechanic’s liens, holding liens unenforceable where even seemingly minor mistakes were made.

Takeaway

Carefully review statute, ensure proper parties are notified in the proper format and if all else fails, seek legal guidance!