Service Area: Notice and Mechanic’s Lien Services

Utah’s State Construction Registry (aka SCR)

Preliminary Notices: Understanding Utah’s State Construction Registry (aka SCR)

Securing mechanic’s lien and bond claim rights, in the state of Utah, begins with the preliminary notice.

“A person who desires to claim a construction lien on real property shall file a preliminary notice with the registry no later than 20 days after the day on which the person commences providing construction work on the real property.” (UT Title 38, Chapter 1a, Part 5, Section 501)

Since 2005, Utah has managed preliminary notices, notices of commencement and notices of completion differently than the majority of states. In Utah, these notices are housed, online, in the State Construction Registry (SCR).

What is the Utah SCR?

SCR” stands for State Construction Registry. It is an online database for required notices for commercial, public & residential construction projects. Filing notices with the SCR increases visibility of all parties within a contractual chain.

The National Association of State Chief Information Officers (NASCIO) may have said it best, when they referred to the SCR as a bulletin board:

“…an online project “bulletin board,” providing full disclosure to property owners, contractors and other interested parties, of people providing goods and services to a construction project… to implement an efficient and standardized system for protecting lien rights…”

Who Benefits from the Utah SCR?

Quite frankly, the simple question is who does not benefit from the SCR – and the answer to that is no one. All parties benefit from the SCR:

  • Owners – the SCR provides information on all parties furnishing materials/labor to their real property.
  • Contractors/Banks/Title Companies/ Architects – the SCR provides information on all parties that are furnishing materials/labor to a project.
  • Subcontractors & Suppliers – the SCR provides information on all parties that are furnishing materials/labor to a project.

Hmm, noticing a trend? As well you should! The SCR provides a clear picture of when a project begins, who will be participating in the project and when the project ends. The SCR can provide transparency – the lack of which is one of the most frustrating obstacles in protecting mechanic’s lien rights.

Not Just for Preliminary Notices

The SCR website also provides email alerts to participating parties, notifying them of changes to the preliminary notice and when a notice of completion has been filed.

Technology + SCR for the Win

In the age of smart phones, Utah capitalized on the opportunity to put those smart phones to work. A QR Code is generated for each notice filed with the SCR. Notices are often posted at the jobsite, which can make connecting to the SCR as simple as a click on your phone.

From the SCR website:

“SCR QR Codes will save you time because you won’t have to find and write down all of the job information: Owner, Original Contractor, Job Address, County and Parcel Numbers…If the SCR filing is posted on the job site, everyone working on the job would be able to scan the QR code and use the correct job information in their Preliminary Notice without having to type it in again.”

Is It Really that Easy to Post a Notice to the SCR?

If, through due diligence, you obtain the Tax ID# (private project) or the SCR# (public project) from the building permit, or from the person with whom you contracted, posting the notice on the SCR is a simple process.  If the Tax ID# (or SCR#) is not obtained prior to posting your notice, the process becomes more complicated.  Research may be required in order to determine the correct Tax ID#/SCR#.  The SCR provides an excellent search engine by which this information may be found, but without the exact Tax ID#/SCR#, it can sometimes be challenging to link to the correct project when multiple listings are posted.

Need help? We’re here for you!

Collectability of an Unsecured Collection

Have you ever wondered “Is my unsecured collection collectable?”

“Is this past due, unsecured account even collectable?” It’s a common question in the minds of credit professionals. I wish I had a Magic 8 Ball that would always say “YES! Yes, it IS collectable!” with every anxious shake, unfortunately the responses in my Magic 8 Ball are varied and there is no guarantee it will land on “YES!” every time. When determining the collectability of an account, there are several factors that should be taken into consideration.

I mean, as fun & entertaining as the Magic 8 Ball can be, I feel I should remind you that it’s not the best way to determine the collectability of a past due account.

Yes, unsecured collections can be more difficult to collect than secured collections (i.e. past due accounts secured by a UCC filing, mechanic’s lien or bond claim), though you shouldn’t abandon all hope when an unsecured past due receivable hits your desk. When you are evaluating the collectability of account, specifically one that is unsecured, we recommend you use the following questions as a guide to help you determine the likelihood of a successful collection.

How Old Is the Receivable?

How many days past due is this account? 30? 90? 180? It’s no secret: the longer an account remains unpaid the harder it becomes to collect. In fact, studies indicate, after six months, the collectability of a past due account may be reduced to 52%.

Do You Have Documentation?

Do you have thorough, accurate and up-to-date documentation? This could include a contract or purchase order, current credit application, statement of account, open invoices, communications between you and your customer, bounced checks, the dates of received payments etc. The more documentation you have to support your claim, the more leverage it can provide to a collector, and more leverage may mean a more likely collection.

Also, obtaining personal guarantees provides additional leverage because it holds the principal(s) of the debtor corporation personally responsible for the debt.

Is Your Customer Still in Business?

Though it may seem fairly obvious, it’s worth noting. If your customer is no longer in operation, it does make the collection more difficult – not necessarily impossible. Take the time to confirm their corporate registration with the Secretary of State is active and in good standing or even drive by their place of business to see if it is vacant.

Does Your Customer Have Assets?

Knowing what, if any, assets your customer has may provide you additional leverage – for example, you may discover additional assets which could give more power to a settlement offer. If you want to know what assets are available, you may find some of these tools helpful:

Is Your Customer in other Collection Litigation, Judgments or Bankruptcy?

Understand that if your customer has several past due accounts with multiple creditors, it could reduce the likelihood of you recouping payment. Of course, if your customer has filed for bankruptcy protection, collection efforts must cease, though you can file a proof of claim with the courts.

C’Mon Magic 8 Ball!

There is no winning formula for determining the collectability of a past due receivable. Make sure you weigh the costs against the potential recovery – and make sure you take steps to secure future receivables!

If or When, Contingent Payment Clauses

Payment Clauses: Pay-IF-Paid or Pay-WHEN-Paid

It’s hard to believe that two small words, with seemingly “useless, yet endless” functionality, can cause such a flurry of confusion and chaos. Though it’s true – “if” and “when” are two words that, if and when they are incorporated into a contract, could determine whether or not a subcontractor is paid, regardless of services provided.

Both pay-if-paid and pay-when-paid are considered contingent payment clauses. According to the American Subcontractors Association, Inc. a contingent payment clause is

“…a contractual provision that makes payment contingent upon the happening of some event. In construction subcontracts, the typical contingent payment clause makes the subcontractor’s payment contingent upon the payment of the contractor by the owner.”

Before we get too far, let me clarify one thing: when it comes to contingent payment clauses, no two states are alike in their interpretation of these clauses – attorneys and courts throughout the U.S. provide differing opinions, decisions and enforcements.

What is Pay-If-Paid?

Pay-if-paid is generally interpreted to mean that the subcontractor will receive payment from the GC if the GC is paid by the owner. The Public Contracting Institute states that pay-if-paid makes the “owner’s payment to the prime a “condition precedent” for the prime’s payment to its subs.”

Note: Many states will not honor pay-if-paid unless the language in the agreement clearly states that payment by the owner is a condition precedent to you being paid.

So, for example, if the owner files for bankruptcy protection and does not pay the GC, then the GC is not obligated to pay the Sub.

What is Pay-When-Paid?

Pay-when-paid is generally interpreted to mean that the subcontractor will receive payment from the GC when (or after/once) the GC receives payment from the owner. Typically this clause includes a timeframe in which the sub will be paid:

“Once the owner remits payment to Mr. GC, Mr. GC will wait 10 days and on the 11th day, Mr. GC will pay Mr. Sub”

The Public Contracting Institute advises that pay-when-paid is viewed more as a “timing provision” – i.e. the GC has to pay the Sub within a reasonable amount of time from when the sub invoices.

Which Clause is Better?

A pay-when-paid clause is much better than a pay-if-paid clause, as the general contractor is not relieved of the responsibility to pay his subcontractors if he is not paid.  However, payment clauses can be tricky and you should seek a legal opinion if your contract has a clause you are uncomfortable with.

“IF” and “WHEN”

Regardless of “if” and “when” clauses, make sure you review your contract carefully to ensure you are able to secure your mechanic’s lien or bond claim rights.

The 4 Primary Types of Lien Waivers

The 4 Primary Types of Lien Waivers

Lien Waivers are common in construction credit. Project owners will often require lien waivers from contractors, subcontractors & suppliers to alleviate the possibility of mechanic’s lien filings.

There Are 4 Primary Types of Lien Waivers

  • Partial Conditional: A signed document agreeing to waive rights to a claim for a dollar amount or through a specified date, conditioned upon receipt and clearance of the partial payment.
  • Partial Unconditional: A signed document agreeing to waive rights to a claim for a dollar amount or through a specified date. The waiver is not conditioned upon clearance of a payment.  If the check is not received, or does not clear, the client will have waived their rights to that partial payment.
  • Final Conditional: A signed document agreeing to waive rights to a claim given conditioned upon receipt and clearance of a final payment. If the client does not get the final payment, the waiver does not waive their rights.
  • Final Unconditional: A signed document agreeing to waive rights to a claim. The waiver is not conditioned upon clearance of a final payment.  The client’s rights will be waived whether or not payment is actually received or cleared.

“Are lien waiver requirements the same in all states?”

The majority of states do not require a particular lien waiver format; however, there are some states with statutory requirements: Arizona, California, Colorado, Florida, Georgia, Massachusetts, Michigan, Mississippi, Missouri (residential), Nevada, Texas, Utah, Wyoming.

lienwaivers map

“Is a Lien Waiver the same as a Release of Lien?”

No, and this is a common misconception. A lien waiver acknowledges receipt of payment whereas a release of lien releases a previously recorded document.

“Should I Sign This Waiver?”

The two main things to check when you are asked to sign a waiver: 1. Is it a partial or final waiver? and 2. Is it a conditional or unconditional waiver?

1. Is it a partial or a final waiver?

  • If it is a partial waiver, confirm that the dollar amount is correct.  If the waiver includes a “paid through” date, be sure the dollar amount stated is correct for that time period.
  • If it is a final waiver, confirm that payment of the amount stated includes everything billed or to be billed, that remains owed, on that project.

2. Is it a conditional or an unconditional waiver?

  • The preferred waiver is a conditional waiver, which will specify that the waiver is conditioned upon receipt and clearance of the payment amount.  If the payment is not received or does not clear, the waiver will not apply.
  • An unconditional waiver does not state the payment has to clear the bank.  If you do not receive the promised payment, or the check bounces, your rights remain waived.

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

Federal Construction Projects & The Miller Act

Federal Construction Projects & The Miller Act Bond Claim

The Miller Act is the federal payment bond statute that requires general contractors to furnish payment bonds, on projects over a certain threshold, contracted by the United States.

A Wee Bit of History

In 1894, Congress passed the Heard Act, which was the first attempt by Congress to provide some form of payment security to unpaid subcontractors. Unfortunately, the Heard Act was a bit of a mess and it took several years for Congress to clean it up. Then in 1935, Congress passed the Miller Act. Although there have been some changes to the Miller Act since its inception, fundamentally the core remains unchanged.

The Miller Act requires prime contractors on federal projects to submit a payment bond to ensure payment for materials and services provided by their suppliers and subcontractors. Instead of filing a mechanic’s lien against a project, your right of recovery would be against the surety on the payment bond. The surety must be listed on the Treasury List and approved by the U.S. Department of Treasury.

The payment bond must be obtained by the prime contractor prior to being awarded a federal construction contract exceeding $100,000. To ensure the project you are working on is protected by The Miller Act, a copy of the payment bond should be requested at the beginning of the project.

What if the total original contract is for $100,000 or less?

If the federal construction contract is less than $100,000 but more than $25,000, the contracting officer and prime contractor must agree to a payment protection of:

  • A payment bond
  • An irrevocable letter of credit
  • A tripartite escrow agreement (a federally insured financial institution distributes payments); or
  • A certificate of deposit

Who is covered under The Miller Act?

All those who provide labor and/or materials used in the prosecution of the work, to the prime contractor or first-tier subcontractor, are covered. Note: Those providing only materials to a material supplier are not protected by The Miller Act. Those furnishing to second-tier subcontractor are also too far removed to have rights under The Miller Act.

How is a claim made?

No preliminary notice is required at the start of the federal project. However, a non-statutory notice is recommended so the prime contractor knows you will be protecting your rights. Those furnishing to a subcontractor must serve their bond claim within 90 days from last furnishing materials or services.

In Pepper Burns Insulation, Inc. v. Artco Corp., it was upheld that the prime contractor must receive the claim by the deadline. If payment does not result from the notice of the bond claim, a suit to enforce the bond claim must be filed within one year from when materials or services were last furnished.

NOTE: There are some instances where a Miller Act payment bond may not be available. The bonding requirements on a federal project may be waived by the contracting officer in certain circumstances. The contract may be considered a supply contract rather than a construction contract. The federal government may also be funding a project where the fee owner is a private or public entity.

Prelien Notice Mistake Invalidates Mechanic’s Lien

Prelien Notice Mistake Invalidates Mechanic’s Lien in Minnesota

Today’s case is an unfortunate example of how one contractor lost its mechanic’s lien rights because its preliminary notice failed to meet the requirements outlined by Minnesota’s statute.

Here’s the Story

  • The Case: Niewind v. Carlson, 628 N.W.2d 649 (Minn. App., 2001)
  • The State: Minnesota
  • The Mistake: Preliminary notice did not meet statutory requirements
  • The Consequence: Loss of mechanic’s lien rights

In Niewind v. Carlson, 628 N.W.2d 649 (Minn. App., 2001), Chuck Niewind dba C & N Construction (Niewind), contracted with the Carlsons to build a home for the price of $291,725. Niewind provided extra work and claimed an additional $24,345.45 was due.

The Carlsons admitted Niewind completed extra work and that they owed him an additional $21,942.66 for the surplus work, but the Carlsons refused to pay anything because they claimed there were construction defects in the amount of $100,000.

Preliminary Notice Statute & Securing Lien Rights

Due to lack of payment, Niewind proceeded to secure his mechanic’s lien rights by serving a preliminary notice, filing a mechanic’s lien and ultimately he filed an action to foreclose the mechanic’s lien (aka suit).  The Carlsons asserted the mechanic’s lien could not be enforced because Niewind’s preliminary notice didn’t comply with Minnesota’s lien statutes.

Under the mechanic’s lien statute for Minnesota, a prelien notice (aka preliminary notice) must be in at least 10-point bold type, if printed, or in capital letters, if typewritten.  Minn. Stat. § 514.011, subd. 1, states that anyone who fails to provide notice shall not have a valid lien.

514.011 NOTICE.
Subdivision 1. Contractors.

Every person who enters into a contract with the owner for the improvement of real property and who has contracted or will contract with any subcontractors or material suppliers to provide labor, skill or materials for the improvement shall include in any written contract with the owner the notice required in this subdivision and shall provide the owner with a copy of the written contract. If no written contract for the improvement is entered into, the notice must be prepared separately and delivered personally or by certified mail to the owner or the owner’s authorized agent within ten days after the work of improvement is agreed upon. The notice, whether included in a written contract or separately given, must be in at least 10-point bold type, if printed, or in capital letters, if typewritten and must state as follows:

“(a) Any person or company supplying labor or materials for this improvement to your property may file a lien against your property if that person or company is not paid for the contributions.

(b) Under Minnesota law, you have the right to pay persons who supplied labor or materials for this improvement directly and deduct this amount from our contract price, or withhold the amounts due them from us until 120 days after completion of the improvement unless we give you a lien waiver signed by persons who supplied any labor or material for the improvement and who gave you timely notice.”

A person who fails to provide the notice shall not have the lien and remedy provided by this chapter.

Niewind’s prelien notice was in 11-point font, complying with the first requirement, but it was not in bold or capital letters.

The Consequence? An Invalidated Mechanic’s Lien

The district court declined to invalidate Niewind’s mechanic’s lien based on this technicality; however, the appellate court reversed that decision. The appellate court stressed that the statute requires strict compliance; prelien notices must be in bold type or capital letters, and the statute is clear and unambiguous as to the consequences for failure to provide proper notice.

This left Niewind’s mechanic’s lien unenforceable due to lack of compliance with Minnesota’s mechanic’s lien laws.

It’s a Tough Lesson

Niewind’s invalidated mechanic’s lien can be an auspicious warning. Mechanic’s Lien laws vary state to state, and yes, one state may be more lenient than another, but it’s best to follow the statute to the letter.

Remember, mechanic’s lien laws are often complicated and are not always written in a straightforward manner; however, strict adherence to these laws is required. It’s unfortunate that something as simple as using the wrong font can invalidate the rights of a lien claimant, but the laws are in place to protect all parties.

How To Find a Construction Law Attorney

How to Find an Attorney that Understands the Intricacies of Construction Law

You sent your preliminary notice; your customer’s invoices became past due.

You sent a demand letter; your customer didn’t budge.

You filed a mechanic’s lien, miscommunication is running rampant between the parties within the contractual chain, and yet you still aren’t paid…

It’s Time to File Suit.

Suit” is an action in a court of law to enforce a claim.  (When enforcing a lien, suit is also referred to as “foreclosure”.)  Since suit is an action brought before the courts, it needs to be handled by an attorney – preferably an attorney that specializes in construction law. But how do you find an attorney that understands the intricacies of construction law, is able to take on your case, and do so at a moderated cost?

Many credit professionals turn to NCS and say “Help!”, because our network of attorneys provides extraordinary expertise.  Due to the valuable relationship cultivated with NCS, our attorneys provide their services at lower hourly rates.  But for those who would prefer to take the path less traveled, begin the search for the right attorney.

Hiring an attorney, a new vendor, should be very similar to the way you hire employees and qualify customers for credit. Before you commit, make sure you can create a comprehensive picture of the attorney’s qualifications, experience & costs.  NCS recommends asking the following questions & taking the following steps when looking for an attorney to take on your suit/foreclosure efforts.

First: the daunting task of actually searching for & locating an attorney.

  • Ask for a referral: ask your business circles for attorney recommendations. Often times, social networks, like LinkedIn, may assist in this effort.
  • Search the web: there are many websites available, but do your due diligence to ensure you are selecting reputable sites.

Second: the interview process.

Yes, you need to interview a perspective attorney. They are going to become an extension of your business – you are hiring them to assist you with your accounts receivable. Here are a few interview questions:

  • What are your core competencies? i.e. Are you familiar with mechanic’s lien/construction law and do you practice these areas of law regularly? If you are interviewing an attorney that typically handles divorce cases, but once in a blue moon handles construction litigation, then perhaps it would be better to move on to the next attorney in your list. Think of it this way: If you need to have a tumor removed from your brain, would you want to go to a general surgeon who dabbles in many types of surgeries or a neurosurgeon that specializes in tumor removal?
  • Have you handled cases like this in the past? You aren’t asking for specifics on a particular case (which is protected by attorney-client privilege), you are simply asking if the attorney has represented a lien claimant in a suit case similar to yours.
  • What is your hourly rate and what is included in that hourly rate? It’s important to know what is included in that hourly rate. Some attorney’s charge separately for research, phone calls and document drafting & mailing, while others are willing to bill on a contingency fee basis.
  • How frequently will you update me on the events of the case? Open communication is imperative, so set an expectation up front. If the attorney provides updates monthly, are you OK with that? Would you prefer an attorney update you weekly? If so, ask.

Finally: embark on the relationship, but do so with caution.

Once you have found, qualified & committed to an attorney, trust the attorney to complete the task at hand efficiently and effectively, but do not go into auto-pilot mode, be an active participant in your case. Of course, if the idea of qualifying an attorney to handle your suit has successfully made your head spin and your stomach knot up with anxiety, contact NCS.

North Carolina Notice to Lien Agent

North Carolina: the Lien Agent & the Notice

The mechanic’s lien law in North Carolina experienced a rather large change in April 2013: the introduction of the Lien Agent. I would like to believe that the Lien Agent is a super-secret spy infiltrating the construction credit industry on behalf of mechanic’s lien claimants everywhere! Alas, while the Lien Agent may have some super powers, like preventing hidden liens, it’s not quite the super spy I’d hoped for.

Why is there a Lien Agent in North Carolina?

North Carolina had a “hidden lien” problem with construction projects. The mechanic’s liens weren’t hiding under bushes or behind trees, but rather hiding from future property buyers and lending companies. So, the North Carolina legislature came up with a solution: designate a party, for each private construction project, who must receive notification from any contractor or subcontractor supplying materials or labor to said project.

Who is the Lien Agent?

The Lien Agent is designated by the property owner if the project is $30,000.00 or more at the time the original building permit is issued, or, if no building permit is required, at the time the contract is entered into by the owner. According to LiensNC “Only title insurance companies and title insurance agents licensed to do business in North Carolina can serve as Lien Agents”

When should I notify the Lien Agent?

Serve the Notice to Lien Agent within 15 days from first furnishing labor or materials OR before the property is conveyed to a bona fide purchaser.

Is the Notice to Lien Agent the same as the Notice of Subcontract?

NO! These are two separate documents and you should serve both notices in order to protect your mechanic’s lien rights.

  • Serve a Notice of Subcontract on the prime contractor if the owner or prime contractor has properly filed and posted a Notice of Contract.
  • Serve Notice to Lien Agent within 15 days from first furnishing labor or materials or before the property is conveyed to a bona fide purchaser.

Will I always need to serve the Notice to Lien Agent and the Notice of Subcontract?

No, there may be circumstances when one or both of these notices may not be required. However, it is a best practice to serve these notices on every project to avoid any surprises when it’s time to file a mechanic’s lien or proceed with suit to enforce the mechanic’s lien. It would be awful to find out that your mechanic’s lien is invalid because you didn’t serve a notice, serve the correct notice or serve the correct parties with a copy of the notice.

How do I find out who the Lien Agent is?

You could take advantage of a service provider, like NCS, or you could visit the LiensNC website.

“The LiensNC website is a collaborative effort of NIC Services, LLC (NIC) and LiensNC, LLC (LLC) to provide a web-based online system to facilitate the filing of notices to the mechanics lien agents (MLA). The singular goal of this massive effort is to make the filing and finding of MLA notices as simple and as fast as possible for all users. This has been a joint effort of the title insurance underwriter members of the LLC.”

Do you have additional questions about the Notice to Lien Agent or need assistance with serving the Notices? Contact us today!