Service Area: Notice and Mechanic’s Lien Services

No Preliminary Notice? No Mechanic’s Lien for You

Posted on October 28, 2014 by - Preliminary Notices & Construction Credit

No Preliminary Notice? No Mechanic’s Lien for You

About 40 states require a preliminary notice be served upon the owner of the property on which the contractor, subcontractor, or materialman is either performing work or furnishing materials.

Each state sets its own requirements for the preliminary or prelien notice, and state statutes are commonly highly specific as to the language required within the notice, the type of service allowed, and the timing provision of the notice.

A failure to provide the requisite prelien notice in a state where it is required can invalidate your mechanic’s lien.

Should Failure to Serve a Notice Invalidate a Mechanic’s Lien?

In a case arising out of the Court of Appeals in Minnesota, the court addressed the issue of whether a failure to serve a prelien notice on the property owner should invalidate a lien where the contractor claimed to be unaware of the true identity of the owner.

In the case of J. Roux Design & Associates, Inc. v. Backes, et al., Dennis Backes sold a property in Minnetonka, Minnesota to Superior Value Homes pursuant to an unrecorded deed, whereby Superior was to design and construct a residence on the property.  Superior entered into an oral agreement with Vogue Design & Realty, Inc. to design and construct the home.

The companies agreed Vogue would hire the subcontractors and Superior would pay them. Vogue contracted with Roux Design to do construction work on the home, and Roux used subcontractors and materialmen to complete the work.

A payment dispute arose between Roux and Vogue, and Roux filed a mechanic’s lien for approximately $26,000. Roux did not serve any prelien notices before filing the lien, nor did it serve the lien statement upon Superior at all. It served the lien statement only upon Backes and Vogue.

Superior sold the property shortly after the payment dispute between Roux Design and Vogue to Ulf and Anneli Henricksson.

Roux Design commenced lien foreclosure proceedings against all three defendants, Backes, Vogue, and the Henrickssons. The Henrickssons filed a third party complaint against Superior for indemnification, making Superior a party to the suit.

The defendants moved for summary judgment, claiming Roux’s lien must be discharged because it failed to file a prelien notice and failed to properly serve the lien statements. The district court granted the motion, finding Roux’s failure to serve the prelien notice on the owner of the property rendered the lien invalid.

“It held that a lack of knowledge as to the existence of an owner does not excuse the contractor from the prelien notice requirement”

Roux Appealed

On appeal, Roux asserted its lien should be found valid because at the time of contracting with Vogue it did not know Superior had an ownership interest in the property.  It contracted merely with Vogue and Vogue held itself out to be the owner.

The court, however, found this argument unpersuasive.  It held that a lack of knowledge as to the existence of an owner does not excuse the contractor from the prelien notice requirement. Roux had a duty to determine the identity of all owners and serve the requisite notice.

Further, Roux was paid by checks bearing Superior’s name. Therefore, a simple inquiry could have lead Roux to the knowledge of Superior’s ownership interests.

Roux’s ability to foreclose on its mechanic’s lien was invalidated due to its oversight concerning prelien notice.

Always review statute and serve the appropriate notice upon the appropriate parties via appropriate service.

Past Due Accounts and Commercial Collections

Posted on October 7, 2014 by - Credit Risk Management

Collections, Collections, Collections

It doesn’t matter how it’s said or how often it’s said, the word “collections” often elicits a negative reaction. In fact, a cringe followed by an eye roll and loud sigh is one of the most common reactions. This cringe-eye-roll-sigh we experience is typically due to an unfortunate & frustrating experience…

“I have hired collection agencies in the past. They were difficult to deal with, the fees were out of control and our money was rarely recovered.”

What can you do to make the collections process less painful for your credit teams? Why is it important to partner with the right agency? What can you do to reduce the need for collection services altogether?

Before we tackle these questions, let’s define the 3 common steps that lead to a need for collection services:

  1. Extend credit to your customer
  2. Your customer doesn’t pay within agreed upon billing terms
  3. You spend the next few months frustrated over endless phone calls and broken promises

Yes, this is an oversimplification and you don’t need me to tell you the steps, because we (you and I) know you have encountered this time and time again.

What Can You Do to Make the Collection Process Less Painful?

If you find yourself staring at your phone, loathing the idea of calling on past due accounts, make sure you have everything about your customer at the ready, before making the call. Review the history of the account, have copies of open invoices available. Make sure you know whether or not this is typically a slow-paying customer, have they made payment arrangements and failed to keep the arrangements, have you limited their credit because of their inability to pay timely.

It’s also important to not wait until the 11th hour to start contacting your customer, the longer an account remains unpaid, the harder it is to collect. I recommend you make a collection schedule and more importantly, stick to it.

Here is an example of a schedule:

30 Days Past Due

Call your customer and simply ask when you can expect payment for the open invoice

Asking a simple question like “Could you please tell me when invoice #4619661 will be paid?” is likely to be perceived as a “check-in” call and your customer may provide insight as to why the invoice is past due.

Based on the information your customer provides, you may find the invoice “got lost” or you may find you will need to be more straightforward.

*DON’T let your customer off the phone without getting a firm pay date; setting an expectation and then following through to ensure that expectation is met makes your customer accountable, but it also makes you accountable, which limits the number of accounts that slip through your fingers.

45 Days Past Due

Call your customer, if verbal negotiations are a struggle, send a demand letter

Demand letters can do wonders in prompting payment. Make sure your demand is clear: include the dollar amount outstanding, the date you expect payment and what the consequences will be if payment is not received. (i.e. “If we do not receive the payment within 10 days of receipt of this letter, we will have no choice but to proceed with the next legal action…”)

60 Days Past Due

Call your customer with a final warning; place account with a collections agency

Once the date set forth in the demand letter has come and gone, it’s time to provide one last opportunity to your customer and then place the account with an agency – after all, you have more than one customer to keep tabs on.

The longer an account is held, the less likely it is that it will be recovered. If payment or a payout is not arranged within 90 days, place the claim with a collection agency.

 Why It’s Important to Partner with the Right Collection Agency

Selecting a collection agency is not usually a pleasant or easy process. But, when extending credit, it’s a necessity. When it is time to outsource to a collection agency, make a list of the qualities you would like the agency to have.

For example, some companies are interested in collection agencies that are more persistent, aggressive and forceful, while other companies prefer agencies that adopt a straightforward, professional business-like attitude, with willingness to negotiate.  Or, you may wish to choose an agency that will tailor their approach to your circumstances.

It’s also important to ask about the fee structure and have a clear understanding of the steps the agency will take on your behalf.

What You Can Do to Reduce the Need for Collection Services

The answer to this question is easy: secure your receivables! Utilize the UCC process or the Mechanic’s Lien process to ensure you are a secured creditor. As a secured creditor you have leverage, backed by law, which often makes getting paid easier.

What is a Bond Claim? Whose Bond Are You Going to Claim Against?

Posted on September 30, 2014 by - Preliminary Notices & Construction Credit

A Contractor Supplied a Payment Bond & You Haven’t Been Paid, What’s Next?

You supplied materials to the project, served a preliminary notice as required by statute, have not been paid. Now what?

It’s time to make a claim against the bond. But, what is a bond claim? Whose bond are you going to claim against? Can you only claim against a bond if it is a public project?  These are all great questions!

Before we explore and explain a bond claim, we need to define what a bond is and who the parties within the bond are.

What is a Surety Bond?

The Surety Information Office (SIO) defines a surety bond as “…a written agreement where one party, the surety, obligates itself to a second party, the obligee, to answer for the default of a third party, the principal…”

“Contract Surety Bonds provide financial security and construction assurance on building and construction projects by assuring the project owner (obligee) that the contractor (principal) is qualified to perform the work and will pay certain subcontractors, laborers and material suppliers”

A payment bond is a surety bond that is issued as assurance of payment to certain parties should the principal of the bond breach their construction contract.  If a subcontractor, supplier or materialman is unpaid for services, they may secure their receivables by serving a claim against the payment bond.

Here is an example of a federal payment bond:

Don’t get confused: a payment bond and a performance bond are two different bonds, though they are often issued together. The payment bond protects you when the contractor fails to pay; the performance bond protects the obligee when the principal fails to perform.

What Is a Bond Claim?

A Bond Claim is a written notice informing the prime contractor and/or surety that the claimant (e.g. subcontractor, supplier or materialman) looks to them for payment.  Based on state statute, typically the bond claim must be served upon the general contractor and the surety, however, it is recommended to serve a copy of the bond claim on all parties involved. The more people that know you have not been paid, the more pressure these people will put on the appropriate party to encourage payment.

Frequently, a bond claim notice must be served within 90 days from last furnishing materials or services (e.g. Arizona). However, some state statutes, such as in Colorado, refer the claimant to the terms of the payment bond. (i.e. “Serve the bond claim notice in accordance with the terms and conditions of the payment bond.”)

Are All Contractors Required to Obtain a Bond?

The short answer is “No.”

Each state has its own statute requiring payment bonds on public projects and the Miller Act applies to payment bonds required on federal construction projects. Some statutes may require the general contractor obtain a payment bond on every construction project, and other statutes may only require a payment bond when the total value of the construction project exceeds a certain threshold.

True or False?  Bond claim remedies are only available on public or federal projects.

False! Payment bonds may be required or obtained for any project type. In fact, there are several states that have separate statute specific to bond claims on private projects:  Arizona, Arkansas, California, Florida, Georgia, Kansas, Louisiana, Mississippi, Nebraska, South Carolina, Texas, Utah & Wisconsin.

While a payment bond might not be required by statute on a private project, statute may apply as to the steps required to protect your rights under the private payment bond.  Further, it is possible that a subcontractor may be required, by the owner or the general contractor, to obtain a payment bond on a project!

Best Practice Tips

  • If a there is a payment bond on the project, attempt to obtain a copy of the bond at the time of contract.
  • Confirm the surety is on the Department of the Treasury’s Listing of Approved Sureties.
  • Review the payment bond to ensure you are covered as a potential claimant.
  • Serve applicable preliminary notices in accordance with statute.
  • If you remain unpaid, serve a copy of the bond claim upon all parties.
  • Keep all project documentation in a central location (e.g. invoices, delivery tickets, statement of account etc.)

Liens on Funds, Stop Notices, and Public Improvement Liens

Posted on August 12, 2014 by - Mechanic's Liens & Bond Claims

What Are Liens on Funds, Stop Notices, and Public Improvement Liens?

A Lien on Funds (in some states referred to as a stop notice or public improvement lien) is a tool available in certain states to help stop the flow of funds on a project until it can be shown that you have been paid.

Serving a lien on funds may halt payment to your debtor or to the general contractor, and in some cases can even require the lender to withhold money.

Though the laws vary by state, one thing does tend to be consistent – the lien on funds will likely bring attention to your non-payment situation.

At first, this may seem counterproductive.  You want money to flow down to you, so why would you do something to stop that from happening?

Unfortunately, not all funds continue to flow as they should – especially to those further down the contractual chain.  A lien on funds can make an owner or general contractor aware that your customer hasn’t paid you.

Bringing the issue of non-payment to their attention may be what is needed to shake things up in the chain of supply.

Lien on Funds and Public Improvement Lien

These two are similar – lien on funds and public improvement lien. Typically, it’s a lien against the money owed by the Project Owner under contract with the Prime Contractor.

Stop Notice

A stop notice is a notice to party paying for work of improvement of money due, which can obligate that party to withhold sufficient funds to cover noticed amounts.

Here’s a quick look at which states offer this type of security!

Lien Deadlines and First Furnishing, Last Furnishing, and Completion

Posted on July 8, 2014 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Understanding Furnishing Dates and Lien Deadlines: First, Last, and Completion

When securing your receivables through the Mechanics Lien & Bond Claim process, most often, statutory deadlines are dictated by your first & last furnishing dates and/or completion of the entire project. Typically, the first furnishing date will dictate the deadline for the Notice, whereas the last furnishing date will dictate the Mechanics Lien/Bond Claim and Suit.

Let’s Define these Important Dates

First Furnishing is the date on which the claimant first provides materials or performs services on a project. Here are some typical examples of first furnishing:

  • if you are providing only materials, the date the materials first arrive on the job site
  • if you are providing only labor to the project, the date you first arrive on location
  • if you are providing materials and labor to the project, the first date either materials or labor are provided to the job site

Last Furnishing is the date on which the claimant last substantially furnishes materials or performs services on a project. Here are some examples of questionable last furnishing dates:

  • punch list work
  • warranty
  • remediation

The key to last furnishing is that it needs to be substantial.

Completion is the date of fulfillment of prime contract for work of improvement. Completion is typically when the general contract is complete, not necessarily the date your contract is complete. Acceptance is an official act where entry is made in the government records that a public work under contract is completed and accepted.

Let’s See these Dates in Action

In our example, we are furnishing materials to a public project in Arizona. We are shipping our materials over time beginning August 1, 2021 and we anticipate our last furnishing to be October 1, 2021.

Based on our first furnishing date, our Preliminary Notice will be due August 20th, because in Arizona we need to serve the notice upon the prime contractor within 20 days from first furnishing materials or services.

If we aren’t paid in a timely fashion, we may decide to proceed with the Bond Claim and in Arizona, the bond claim should be serve the bond claim upon the prime contractor within 90 days from last furnishing materials or services. Based on our last furnishing date of October 1st, our Bond Claim should be served by December 30th.

In the event the Bond Claim doesn’t prompt payment, we need to file suit to enforce the bond claim after 90 days from last furnishing materials or services, but within 1 year from last furnishing materials or services, which means we would need to proceed with suit by September 30, 2022.

Know Your Dates

Securing your Mechanics Lien and Bond Claim rights begins the moment you enter into a contract to supply materials and/or labor to a project. Make sure you are familiar with the state statute and make sure you know what deadlines lay ahead. Missing a deadline could mean missing your opportunity to protect and collect.

Oklahoma Case: Lack of Preliminary Notice Leads to Invalidated Mechanics Lien

Posted on June 24, 2014 by - Mechanic's Liens & Bond Claims

Oklahoma Case: Lack of Preliminary Notice Leads to Invalidated Mechanics Lien

Mechanics Lien laws are rarely straightforward and courts across the nation generally require strict compliance to these often complex statutes. The case of Mel Stevenson & Associates, Inc. v. Giles, 2004 OK CIV APP. 96, 103 P.3d 631 (2004), illustrates how a simple mistake, due to confusing language in statute, can lead to losing your mechanic’s lien rights.

In Mel Stevenson, the defendant, Roy Giles, owned and occupied a Newcastle, Oklahoma residence which was completely destroyed by a fire. Giles elected to rebuild the home in the same location and engaged Wes-Star Construction, Inc. to act as contractor. Giles lived in another location while the home was being reconstructed, but kept his mailing address and phone number. Once the home became habitable, Giles promptly moved back.

Giles learned of a special type of roofing offered by Mel Stevenson & Associates, doing business as Spec Building Materials, herein referred to as Spec.

Giles consulted with Spec about their roofing materials and explained to the company the situation with the fire and the reconstruction of his home. Spec provided the roofing materials and windows to the project on account with Wes-Star. During this time, the County Assessor removed the property from the improved tax rolls due to the fire.

Then Spec Wasn’t Paid

Later, a dispute arose between Spec and Wes-Star.  Spec was not paid for the materials it had supplied. It filed a materialman’s lien but did not provide preliminary notice to Giles as required under 42 O.S.2001, § 142.1.2.

In court, Giles claimed Spec’s lien was invalid due to lack of notice.  Spec, on the other hand, urged that notice was not required under Oklahoma law because Giles was not occupying the dwelling.

The court turned to the statutory language of 42 O.S.2001, § 142.1.2. Under this provision, no lien which affects property presently occupied by an owner is enforceable unless written notice was provided prior to furnishing of the materials. The statute sets out the language which the notice must include.

The question then became whether Spec was required to send notice to owner to Giles because he was not currently occupying the home. The court looked to prior case law on the issue and found much dissention on the subject.

Was the Preliminary Notice Really Required?

The court ultimately found the issue turned on whether Giles had begun occupying the property before construction, and therefore his absence was merely temporary, or whether he was deemed to have first occupied the property upon his taking of possession once it was habitable.

The court found that under the circumstances, Giles absence was temporary because he never intended to leave the property permanently.  Thus, it reasoned, Giles was entitled to notice.

The court also found persuasive the fact that Giles stated he was unaware Spec could file a lien against his property in the event of nonpayment by the contractor.  After addressing all issues, the appellate court held Spec’s mechanics lien to be invalid.

In Mel Stevenson, the Oklahoma law concerning the notice to owner was far from clear, given the circumstances of the absent owner and destroyed home.

Best Practice: Better Safe than Sorry!

We recommend serving a copy of the preliminary notice upon all parties within the contractual chain, even when it appears no notice is required. The old adage is true: “better safe than sorry!”

Notice to Commence Suit and Summons & Complaint

Posted on June 2, 2014 by - Preliminary Notices & Construction Credit

You’ve Received a Notice to Commence Suit and Summons & Complaint

Congratulations! You have taken the proper steps to secure your receivables through the mechanic’s lien process.  You’ve checked The National Lien Digest© to confirm you completed the necessary steps within the state specific time frame.  You properly served your preliminary notice and unfortunately had to proceed with the mechanic’s lien, because you weren’t paid.

While you wait for the mechanic’s lien to prompt payment, you recheck The National Lien Digest, just one more time, to confirm what the deadline is for proceeding with Suit to Enforce the Mechanic’s Lien.
Then… you receive an official document which indicates the deadline to proceed with Suit is different than the deadline you see in The National Lien Digest!

What is going on?!

In many states, the statute provides a remedy for an owner to shorten the deadline for a lien claimant to file suit: the owner can file a Notice to Commence Suit. When properly notified by an owner or the court, any lien claimant who receives a Notice to Commence Suit must proceed with suit by the deadline stated, or they will lose their lien rights. This process allows the owner to “thin out” those who may not have a valid claim.

Another action that can change your suit deadline is when another claimant files suit to foreclose on the property. When filing suit, the plaintiff must notify all other parties with an interest in the property that an action to foreclose is being filed. This filed document is often referred to as a Summons and Complaint.

At first glance, the Summons and Complaint may cause the unwary to believe they are being sued. In actuality, the Summons and Complaint is a legal action which requires all lien claimants to join in the foreclosure action within a specific time frame, by submitting an Answer and Cross Claim.

Frequently an Answer and Cross Claim is required in as little as 20 days from receipt of the Summons and Complaint. If a lien claimant does not respond by the deadline, lien rights may be lost.

When a Notice to Commence Suit or a Summons and Complaint is received by your office, in response to a lien that was filed on your behalf, we recommend taking immediate steps to retain the services of an attorney to protect your rights.

The Importance of Proper Service of the Preliminary Notice

Posted on May 20, 2014 by - Preliminary Notices & Construction Credit

Overnight Delivery, Registered Mail, Certified Mail! Oh My!

Contractors, subcontractors, material suppliers & laborers throughout the U.S. & Canada understand the Preliminary Notice is often the foundation for securing Mechanic’s Lien & Bond Claim rights.

Mechanic’s Lien & Bond Claim statutes are quite particular when it comes to preserving your rights. The various deadlines, parties to be served, document wording & even font size can vary by statute.

However, there is one fundamental step that if overlooked, could render your mechanic’s lien or bond claim unenforceable: proper service of the preliminary notice.

Let’s take a quick look at a case that came before the California Court of Appeals.

In IGA Aluminum Products, Inc. V. Manufacturers Bank, 130 Cal.App.3d 699, 181 Cal. Rptr. 859, IGA Aluminum furnished materials & labor to Welch Construction Company.  In an effort to preserve its mechanic’s lien rights, IGA sent Welch a preliminary 20-day notice, as required under California’s Civil Code section 3097.

However, IGA sent the preliminary notice via first class mail.  Civil Code section 3097, subdivision (f), required the preliminary notice be delivered by personal service, certified or registered mail.

The court had to determine whether or not the notice requirement of section 3097 had been met when written notice was delivered by first class mail.  The court found the substantial compliance doctrine to be inapplicable in the case.

It reasoned that when the statutory language is clear, there is no room for construction of the statute.  Section 3097 unambiguously required notice be delivered in one of these ways: by personal service or by registered or certified mail.

Accordingly, under the plain language of the statute, IGA’s preliminary notice was fatally defective.

If IGA had served their preliminary notice as statute dictated, it is quite possible they would have been afforded the opportunity to enforce their mechanic’s lien.

Don’t get caught in technicalities – closely follow the statutorily required methods of service in each state where notices are required.