Service Area: Collection Services

Lien Dissolution Bond and Suit-To-Enforce Action

Posted on June 14, 2019 by - In Other Commercial Credit News

A Quick Story about a Lien Dissolution Bond and Its Trusty Suit-To-Enforce Action

A “lien dissolution bond,” which can be filed to remove mechanic’s liens from a property, is one of many names or phrases given to bonds of this type. Some other names or phrases you may recognize include: bonded off lien, discharge bond, bonding around/over lien, lien prevention bond, transfer bond, and a new one to me, a target lien bond. (Much to my dismay, “target lien bond” has nothing to do with shopping at the infamous Target.)

While today’s post has little to do with my shopping obsessions, it does focus on what happened in one Massachusetts case when the lien claimant took steps to foreclose on the lien dissolution bond.

Massachusetts Statute Allows for Liens to be Dissolved by Filing a Bond

We’ll get the technical aspect out of the way first. Section 14 of G.L. c. 254 (i.e. Massachusetts mechanic’s lien statute) provides that a lien dissolution bond can be filed with the Registry of Deeds to remove a mechanic’s lien filed against a property.

“Any person in interest may dissolve a lien under this chapter by recording or causing to be recorded in the registry of deeds in the county or district where the land lies, a bond of a surety company authorized to do business in Massachusetts and in a penal sum equal to the amount of the lien sought to be dissolved conditioned for the payment of any sum which the claimant may recover on his claim for labor or labor and materials. Upon the recording of the bond, the lien shall be dissolved…”

Section 14 also explains that a notice of the recorded bond and copy of the bond should be provided to the lien claimant whose lien has been dissolved. And, statute states “The claimant may enforce the bond by a civil action commenced within ninety days after the later of the filing of the statement required by section 8 or receipt of notice of recording of the bond, but such bond shall not create any rights which the claimant would not have had, or impair any defense which the obligors would have had, in an action to enforce a lien.”

Section 14 is referring to the deadlines laid out under section 8 for mechanic’s liens. Here are the mechanic’s lien deadlines from The National Lien Digest –

  • File a Statement of Account no later than the earliest of:
    • 90 days from the recording of a Notice of Substantial Completion,
    • 120 days from the recording of a Notice of Termination, or
    • 120 days from the last furnishing of materials or services by the prime contractor or the subcontractor.
  • File suit to enforce the lien within 90 days from filing the Statement of Account.

In other words, a claimant can proceed with suit to enforce the lien dissolution bond within the same deadlines as they would for a mechanic’s lien: 90 days from the date the lien was filed.

Yikes, That’s A Lot of Technical. What about the Case?

I know – the downside to some of these cases is the crazy technicalities that need to be explained prior to getting to the good stuff. So, on to the good stuff!

The question before the court was “if a claimant proceeds with suit against the bond, are they required to record an attested copy of their complaint?” Because the mechanic’s lien statute states an “attested copy” of the suit action must be recorded with the Registry of Deeds.

The short answer? Nope.

According to an article by Kevin Mortimer and Samuel Tony Starr, the surety is the party that contested the court’s decision.

“…when the supplier/lienholder filed a timely enforcement action against the subcontractor and bond surety, the surety moved for summary judgment—arguing that the lienholder had failed to comply with the strict requirements of Section 14 by failing to record an attested to copy of its complaint with the Registry of Deeds.”

And the lower court sided with the surety. But, what good is a case that isn’t appealed?

Upon appeal, the Supreme Judicial Court overturned the earlier decision, because the language within statute does not state there is a requirement for recordation of an attested copy. In fact, the court compared the lack of language in section 14 to the inclusion of language in section 12.

Essentially: if the statute wanted an attested copy to be recorded, it would have said so.

But wait, there’s more. The surety argued that an attested copy should be recorded to notify other parties of the suit, even if they are non-parties to the action.

“…the Court acknowledged the surety’s valid concern that many entities, including the general contractor and other subcontractors, may have an interest in knowing about a lien dissolution bond’s enforcement action. The surety asserted that since such entities are not named as parties to the action, they would not receive service, and therefore would not have knowledge of it.”

Perhaps We Will See New Legislation?

Well, it’s certainly possible. When the court acknowledged the surety’s concern about notifying interested parties of the suit action, it made a footnote comment that may be fortuitous “Any resolution of this issue, however, is for the Legislature.” So, it’s possible that new legislation may develop from this case.

You can read the court opinion here: City Electric Supply Co. v. Arch Insurance Co.

Fiber Optic Networks: Can I File a Mechanic’s Lien?

Posted on June 7, 2019 by - In Other Commercial Credit News

Fiber Optic Networks: Can I File a Mechanic’s Lien?

Lienability. One of the many questions we are asked is “Can I file a mechanic’s lien on that?” Or, if we must relay the unfortunate news that an improvement isn’t lienable, we are then asked, “Why can’t I lien that?” Determining what is or isn’t lienable might be the only task that can be just as confusing as the lien laws themselves.

In early 2017 we discussed an Illinois case that left a subcontractor unpaid to the tune of $3M and without the remedy of a mechanic’s lien. In that case it was the construction of a wind turbine, which the court deemed as a trade fixture. and declared mechanic’s liens filed on the property as invalid.

Wind and solar farms are often questionable when it comes to rights under mechanic’s lien statutes, but they aren’t alone. Some electrical work, excavation for pipelines, and even installation of fiber optic technology, also face a questionable fate under mechanic’s lien statutes.

Fiber Optic Technology and Mechanic’s Liens (in Ohio)

Technology shows no sign of slowing down, in fact it will likely increase at the speed of fiber optic technology…

[Do you hear the echoes, see the lightning strikes, and me sporting dark sunglasses in a snappy black suit?!]

OK, so my humor is a bit lame, but, it’s an entertaining way to segue to whether the installation of fiber optic networks is lienable.

First, what do we know about the typical fiber optics network? They can be massive. Much like wind farms, solar farms, and pipelines, fiber optic networks cover multiple parcels – sometimes within multiple counties or even states.

“An optical network—a data communication network built with fiber optic technology—uses a series of optical fiber cables, placed on properties typically owned by someone other than the network provider and spread out over a large geographic area. An operator connects and operates this network from real property known as an exchange, which the provider typically owns or leases.” Nick Pieczonka, author of Mechanics’ Lien Law and Work Performed on Optical Networks

In his article, Pieczonka goes on to answer two critical questions: “Can a lien attach to the property owned or leased by the network provider, even though the contractor performed no physical labor at the property?” and “How are work orders treated and what impact does that have?” The second question is interesting, but I want to focus on the first: can a lien attach to the property.

According to Pieczonka, the answer is yes. Yes, a lien can attach to the property, because the work benefits the entire network. Here’s his answer:

“The end user, not the optical network provider, generally performs work on optical networks on property it owns. So can a lien attach to the optical network provider’s real property—which houses the network’s exchange—even though no work took place on that property? The answer appears to be yes. For example, Ohio’s Revised Code §1311.08 provides, in pertinent part:

[W]here work or labor has been performed or material has been furnished for improvements which are located on separate tracts or parcels of land but operated as an entire plant or concern, and erected under one general contract, the lien for the labor or work performed or material furnished attaches to all such improvements, together with the land upon, around, or in front of which such labor or work is performed or material is furnished…

As a result, because the contractor’s work benefits the entire network and the provider operates the network at an exchange it owns or leases, the lien may attach to the entire improvement, including the exchange itself…  Indeed, the network provider’s lease, ownership documents, or master contract with the contractor may describe the network and the land being improved (i.e., the entire network or the exchange), which would also support the proposition that the lien can attach to the network provider’s exchange…”

It’s important to note, Pieczonka is referring to Ohio statute – as we know, each state’s law is different. But wow – this is huge!

Fiber Optic? Take Note!

There are a few things to keep in mind, if you are providing services similar to those described above:

  • Be prepared for expensive title work (you may have to identify each parcel & the owner of each parcel)
  • Multiple liens may be required
  • You may encounter easements, which could lead to a question of lien priority
  • The lien may be limited to the leasehold interest (depending on the state statute)

Let’s Talk About Commercial Bankruptcy

Posted on June 3, 2019 by - Credit Risk Management, Mechanic's Liens & Bond Claims, UCC Financing Statements

Let’s Talk About Commercial Bankruptcy: The More You Know, the Greater Your Chance at Preserving Your Rights as a Secured Creditor

The more you understand about commercial bankruptcy and the bankruptcy process, the greater chance of preserving your rights as a secured creditor and ultimately receiving payment.

Refresher: What’s a Secured Creditor?

A secured creditor has a security interest over some or all of the assets of its debtor. This status can be achieved and maintained through a variety of credit tools such as Mechanic’s Liens, Bond Claims and UCC filings.

In the event of the debtor’s bankruptcy or default, secured creditors have payment priority over their unsecured counterparts, significantly improving the likelihood of getting paid.

The Breakdown: Chapter 7 vs. Chapter 11

In Chapter 7 bankruptcy, the debtor ceases operations, its assets are liquidated by an appointed Trustee, and the funds are used to pay the outstanding debt.

In Chapter 11 Bankruptcy, the debtor wants to continue operating. The debtor will undergo significant structural changes and arrange to pay its creditors over a set period of time.

The Bankruptcy Proof of Claim

As a creditor, it’s important you take the proper steps to protect your interest. Depending on the type of commercial bankruptcy your customer has filed, you may be required to file a Proof of Claim with the bankruptcy court by the specified date, also known as the bar date.

As per the United States Bankruptcy Court, a Proof of Claim is “a written statement and verifying documentation filed by a creditor that describes the reason the debtor owes the creditor money.” This document is critical because it provides proof to the court that your claim amount is valid and owed, as well as what class to associate your claim with.

Generally, this document will include:

  • Debtor name
  • Case number
  • Creditor information, including mailing address
  • Claim amount
  • Basis for the claim
  • Type of claim (secured or unsecured)
  • Supporting documentation

In the event of Chapter 7 bankruptcy, you must file a timely proof of claim in order to share in any distribution of funds. The bar date refers to a date, established by the bankruptcy court and based on a variety of factors, by which the proof of claim must be filed. Often, creditors fail to submit the document in time and suffer the consequence of an invalid claim. Whether your claim amount is secured or unsecured, be sure to meet the stated deadline to preserve your rights and maximize any potential distribution.

In a Chapter 11 proceeding, it’s typically unnecessary for a creditor to file a Proof of Claim. This is because the debtor is required to file a Schedule of Assets and Liabilities, which formally lists its creditors’ claim amounts. However, filing a Proof of Claim is recommended if:

  • The claim amount is listed incorrectly on the Schedule of Assets & Liabilities or,
  • The claim amount is defined as designated, unliquidated or contingent

In these cases, if a Proof of Claim is not filed, the bankruptcy court will deem the information on the Schedule of Assets & Liabilities as correct and distribute the funds accordingly.

If your debtor has recently filed for bankruptcy, it’s critical to act quickly and take the necessary steps to validate your claim amount. Immediately determine the type of bankruptcy preceding you’re dealing with and whether you should complete a Proof of Claim form. If filing, be sure the document is accurate and ON TIME.

We Can Help

Don’t risk an invalid claim and losing out on payment distribution. Let NCS assist in preparing, filing and monitoring your bankruptcy Proof of Claim today. Contact us for more information!

Here’s Why You Should Hire a Construction Attorney for Construction Litigation

Posted on May 3, 2019 by - In Other Commercial Credit News

Why Hire a Construction Attorney for Construction Litigation?

Excellent question! In today’s post we’ll review a few key considerations when deciding whether you should hire a construction attorney for construction litigation.

Why use attorneys who are experts in construction litigation?

Companies can’t afford to rely on attorneys that “dabble” in construction law. There is too much at stake and the laws are too complex. Make sure your attorneys are experts in construction litigation.

What are advantages of having a construction attorney local to a project?

Mechanic’s lien and bond claim laws can vary drastically from state to state, so having an experienced attorney local to the project is a tremendous benefit. The attorney will know the laws specific to that state and may be near the project and/or familiar with the parties involved.

Should I use a large attorney firm for my construction collection needs?

The presumption by many is that using a large law firm will somehow guarantee better results. This is not necessarily the case. Larger law firms often charge high hourly rates and assign your case to a less experienced associate attorney. Working with a small or mid-sized firm may provide your organization with more legal expertise and a better overall value.

But, That’s Not All!

At NCS, our focus is helping you get paid for materials or services provided. But construction is a massive field and in a recent article from Odin Feldman Pittleman PC, construction attorneys can assist with contract conflicts, alternative dispute resolution, bankruptcy, labor disputes, and insurance issues.

According to Odin Feldman Pittleman PC, this is when you should hire a construction attorney:

“Thanks to their extensive legal knowledge, construction attorneys can make any stage of the construction process easier. You may want to consider employing one at the beginning of a project, when you are applying for a permit or need government approval for a project. Construction attorneys can also help you adhere to local, state, federal, and environmental regulations, preventing easily-avoided disputes.

Contract review and preparation are also key areas in which a construction attorney can be a valuable ally. An attorney can assist in the project planning process, then translate your needs to make that project happen into a clear contract that protects your interests. They may also be able to compile other legal documents to supplement your project or protect it from lawsuits.

Finally, construction attorneys are well versed in labor laws and disputes. They can help you settle cases between employees and employers, whether through mediation, settlement, or litigation. Consider hiring a construction attorney if you are faced with a labor dispute of any kind.”

NCS Can Help!

NCS has a nationwide network of construction attorneys with decades of experience. Our attorneys understand that projects often have extenuating or more complicated circumstances (multiple parcels, multiple owners, complex title searches, condominiums, quasi private/public projects, oil and gas liens, etc.) and may be local to and familiar with these projects.

If you need assistance, contact us today!

Condominium Act Meets Construction Act in Ontario

Posted on April 26, 2019 by - In Other Commercial Credit News

Condominium Act Meets Construction Act in Ontario

Ontario’s Construction Act has been a prevalent topic throughout the last year, and with the second wave of amendments rolling out later this year, the conversation isn’t over! Let’s continue our Ontario conversation today with a quick review of the intersection of Ontario’s Condominium Act and its Construction Act.

In Condominium Construction in Ontario? Unique Challenges Ahead, authors Michael Swartz and Jeff Scorgie, explain how land is held under the Condominium Act and the difference between liening a single condominium unit versus a common area.

Ontario Has Condominium Corporations

Under Ontario’s Condominium Act, when a condominium corporation is registered, the property is comprised of two different types: units and common elements.

Units are typically the individual housing space, and according to authors may also include “…other non-residential types of “units” such as parking spaces or storage lockers. In either event, whether residential or non-residential, each “unit” is assigned its own distinct PIN and is owned or leased exclusively by an individual owner.”

Whereas common elements are any space except the individual units.

“…such as landscaped areas, parking lots, guest suites, recreational facilities, hallways, elevators and foyers… What is important to understand is that the “comment elements” of a condominium are “owned” by all of the units on an undivided share basis.”

Improving a Unit?

It’s imperative to only lien the property improved, therefore, if you furnished to the improvement of a unit, and you are unpaid for furnishings, your lien should be filed on the individual unit. Each unit is issued a parcel identification number (PIN), which identifies the parcel of land and its owner.

Improving a Common Element?

Unlike individual units, the common elements of a condominium do not have PINs. Let’s say you provide carpeting for the building hallways, outside of the individual units. If you are unpaid for the carpeting, your lien won’t be filed against one unit; rather it will be filed against all.

In fact, according to authors, “registering a lien against the common elements requires a lien claimant to list all of the units in the “Properties” section of the claim for lien—thereby liening each unit in the condominium for its proportionate share in the common elements.”

Who Will You Notify of the Lien?

When filing a lien against a single unit, you would notify the property owner. When filing a lien against a common element, you would notify the condominium corporation and ALL unit owners. In an example provided by authors, if the condominium has 200 units with 200 different owners, you must notify all 200 owners. This means you must identify the owners, which let’s face it, could be quite costly (massive title work!).

OK, so what happens if you lien the common elements and individuals want to pay you to have the lien removed from their units? I’ll defer to the experts:

“… under the new Construction Act, an individual unit owner (or an owner of a CEC) can make a motion to court to vacate the registration of the lien as against their unit…. it poses some interesting practical questions for the lien claimant and the other parties in the litigation.  Specifically, if many unit owners vacate a portion of the lien from their individual unit, it could become difficult to track who has paid what amounts into court to clear title.”

My Advice

If you are liening a common element, hire a construction-oriented attorney. You need a legal professional familiar with the law(s) and who can manage payments on your behalf. Don’t try to go it alone!

“Pay-If-Paid” Leaves Subcontractor High and Dry

Posted on April 22, 2019 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

“Pay-If-Paid” Leaves Subcontractor High and Dry

An Alabama Court of Appeals has upheld a trial court’s decision: a subcontractor cannot recover its claim from the general contractor’s surety if the subcontract contains a contingent payment clause (pay IF paid). In today’s post I’ll discuss securing bond claim rights in Alabama, explain contingent payment causes, and review a recent Alabama Court of Appeals’ case.

Securing Bond Claim Rights in Alabama

For public projects in Alabama, payment bonds are typically required if the general contract is $50,000 or more. As a best practice, you should always attempt to obtain a copy of the payment bond when you agree to a contract or purchase order.

You are not required to serve a preliminary notice, but it’s a good idea to serve a non-statutory notice to alert parties within the ladder of supply that you are furnishing to the project.

If you furnish to the project and are not paid, you would serve a bond claim notice upon the surety no later than 45 days prior to filing suit. Then, you would file suit to enforce the bond claim after 45 days from serving the bond claim notice, but within 1 year from the date of final settlement. [Ala. Code 39-1-1]

IF and WHEN: Contingent Payment Clauses… if & when…

How quickly two small words can create a payment mess! Pay-if-paid is generally interpreted to mean that the subcontractor will receive payment from the general contractor IF the general contractor is paid by the owner. Whereas, pay-when-paid is interpreted to mean the subcontract will receive payment from the general contractor WHEN (or after/once) the general contractor receives payment from the owner.

The “IF” clause is also known as condition precedent. Payment to the subcontractor is dependent on payment made to the general contractor by the owner.

The “WHEN” clause is viewed more as a timing provision. The general contractor will pay the subcontractor within a reasonable amount of time from when the subcontractor issues its invoices. Payment under this clause is not reliant on the owner paying the general contractor.

Pay-when-paid is more desirable than pay-if-paid, because the general contractor is not relieved of paying its subcontractors under pay-when-paid.

Subcontractor Can’t Recover Claims from Surety

Keller Construction Company v. Harford Fire Insurance Company

  • Subcontractor & claimant: Keller Construction Company (Keller)
  • General Contractor & payment bond obligor: J.F. Pate & Associates Contractors, Inc. (Pate)
  • Owner & payment bond obligee: City of Spanish Fort (City)
  • Surety: Hartford Fire Insurance Company (Hartford)

City hired Pate, and Pate obtained a payment bond from Hartford. Pate hired Keller and the parties executed a subcontract. Under the terms of the subcontract, Pate could withhold retainage from Keller for the same retainage amount City withholds from Pate. Also, under the terms of the subcontract, Keller assumes the risks associated with the City not paying Pate.

Language from the subcontract, in part:

“[T]he receipt by [Pate] of payment from [the city] for the work performed by [Keller Construction] is a condition precedent to the obligation of [Pate] to pay [Keller Construction]. [Keller Construction] further acknowledges that it is assuming the risk of delay in payment or non-payment by the [city] to [Pate]. Both the condition precedent for payment and the assumption of this risk are bargained for considerations in this agreement, without which [Pate] would not have entered into this agreement with [Keller Construction].”

The words “condition precedent” are right there in the contractual language. Not only that, but the language clearly indicates that Keller is aware of and is assuming any of the payment risk. The Court’s opinion states Keller was fully aware of the conditions of the contract and understood the provisions.

Keller completed its work and Pate had remitted payment to Keller except for the retainage amount. Why? Because City did not pay Pate the retainage or the withheld funds. And according to the subcontract, if Pate was not paid by the owner, Pate did not have to pay Keller.

Keller proceeded with a bond claim and Hartford denied Keller’s claim. Hartford claimed it was not obligated to pay Keller, because the surety is only obligated to pay what the general contractor was obligated to pay. In this case, the general contractor wasn’t obligated to pay retainage, because it hadn’t been paid retainage, thus, relieving the surety of any payment obligation.

Keller tried several arguments, all of which failed, including conflicting language within the terms of the payment bond and the terms of the subcontract.

It got a bit muddy, but the gist is the court determined the two contracts (payment bond and subcontract) need to be treated separately as they fall under separate laws. Essentially, you can use payment bond language to override subcontract language.

Takeaway

Payment provisions are often strictly interpreted. If you enter into a contract, make sure you understand the terms of the contract and know that if you execute the contract you are committing to the terms. When reviewing the contract, it’s a good idea to have a legal professional also review, specifically to look for clauses that may jeopardize payment.

Not-So-Peachy Mechanic’s Lien for One New York Landlord

Posted on April 5, 2019 by - In Other Commercial Credit News, Mechanic's Liens & Bond Claims

Not-So-Peachy Mechanic’s Lien for One New York Landlord

According to a recent Court of Appeals decision, enforcing a mechanic’s lien on leased property in New York does not require consent of the landlord. That is, if the lease agreement required the tenant to improve the property.

Lien on Leasehold

Landlord/tenant agreements aren’t uncommon; just drive by any strip mall or shopping plaza and you’ll see oodles of stores operated by tenants that are leasing space from the property owner.

In a lease situation, the property is owned by one party & then a second party leases or rents the space from the owner. When improvements are made to the property, depending on the hiring party (the owner or the tenant), a mechanic’s lien may attach to the property, the leasehold interest, or both the property and the leasehold interest.

For this Court of Appeals case, there is one additional variable to be considered: the language within the lease agreement between the landlord (COR) and tenant (Peaches Café LLC).

In Ferrara v. Peaches Café LLC, Peaches Café LLC (Peaches) hired Ferrara (prime contractor) to perform electrical work. Peaches hired Ferrara because the lease dictated that Peaches would need to improve the property to meet electrical specifications.

“The lease imposed certain construction requirements on Peaches [tenant] for it to operate its restaurant, including adherence to specific electrical specifications. The lease also provided that COR [landlord] approve of any improvements to the premises, that Peaches submit to COR all design plans for the electrical work, and that any improvements made become part of the realty.” – Michelle Cuozzo of Pepper Hamilton LLP

As is common in the restaurant industry, Peaches went out of business and Ferrara was stuck with an unpaid bill of $50,000. To recover the claim, Ferrara filed a mechanic’s lien against the property and eventually filed suit to enforce its mechanic’s lien.

Once suit had been filed, the property owner (i.e. the landlord) moved to have Ferrara’s lien invalidated. The owner argued the lien could only be enforced if the owner expressly consented to the work performed. The court didn’t agree; here’s a recap from Michelle Cuozzo of Pepper Hamilton LLP:

“COR [owner/landlord] argued that a contractor performing work for a tenant can only enforce a lien on the property if the landlord expressly or directly consented to the work performed. The Court of Appeals rejected this argument… [T]o enforce a lien, the landlord must “either be an affirmative factor in procuring the improvement to be made, or having possession and control of the premises assent to the improvement in the expectation that he will reap the benefit of it.” Affirmative acts by a landowner include lease terms requiring the tenant to make specific improvements to the property.”

The lease clearly required Peaches to improve the property to meet the electrical specifications. Plus, the lease included language that the landlord could “retain supervision over the work by reviewing, commenting on, revising, and granting ultimate approval for the design drawings related to the work.”

Ultimately, the landlord consented to the improvement when it incorporated the requirements within the lease. Thus, the court held Ferrara’s lien to be valid.

Retainage, Payment Bonds, and Private Projects in Texas

Posted on March 29, 2019 by - In Other Commercial Credit News

Retainage, Payment Bonds, & Private Projects in Texas

Private projects in Texas – mechanic’s lien or bond claim? Ordinarily I would say “Mechanic’s lien!” However, that may not always be the case. And be careful, because mechanic’s liens and bond claims are not the same and may require different actions.

Texas Bond Claim

In Texas, a properly recorded payment bond prevents mechanic’s liens from attaching to the property (think “bond off lien”). Author Amy Wolfshohl explains in her article The Often Overlooked Protection Provided By A Statutory Payment Bond Under Chapter 53 Of The Texas Property Code, the payment bond must meet the following criteria.

To provide the protection contemplated by the statute, the bond must:

1. be in the original contract amount;

2. be in favor of the owner—as obligee;

3. have the written approval of the owner endorsed on it;

4. be executed by:
(a) the original contractor as principal; and
(b) a corporate surety authorized, admitted, and licensed to do business in Texas;

5. be conditioned on prompt payment for all labor, subcontracts, materials, specially fabricated materials, and normal and usual extras not exceeding 15% of the contract price; and

6. clearly and prominently display the contact information for the surety.

Although the security is different – a payment bond instead of a mechanic’s lien – you protect your Texas bond claim rights similarly to how you would protect mechanic’s lien rights.

Notice of Non-Payment (Commercial): When contracting directly with a subcontractor

– Serve notice upon the prime contractor no later than the 15th day of the second month following each month in which materials or services were furnished.

– Serve notice upon the owner and prime contractor no later than the 15th day of the third month following each month in which materials or services were furnished.

The difference? Also serve the surety with a copy of the notices and subsequent lien. And, be aware, if a payment bond is not properly recorded, you must comply with the terms and conditions of the payment bond when perfecting a claim!

Interesting Fact

Did you know, for private projects in Texas, the owner is required by statute to withhold 10% retainage?

Retainage is an agreed amount of a contract price retained from a contractor as assurance that subcontractors will be paid, and the job will be completed.

Sec. 53.101.  REQUIRED RETAINAGE.

(a)  During the progress of work under an original contract for which a mechanic’s lien may be claimed and for 30 days after the work is completed, the owner shall retain:

(1)  10 percent of the contract price of the work to the owner; or

(2)  10 percent of the value of the work, measured by the proportion that the work done bears to the work to be done, using the contract price or, if there is no contract price, using the reasonable value of the completed work.

(b)  In this section, “owner” includes the owner’s agent, trustee, or receiver.

According to Wolfshohl, if the payment bond is recorded, the owner does not have to withhold retainage.

“If the owner obtains a bond that is consistent with these requirements and records it in the applicable real property records, the owner is relieved of the requirement to withhold retainage and cannot be held liable for failing to trap funds.”

Wolfshohl reminds readers, payment bonds aren’t just good for project owners, they’re good for subcontractors too!

“This is a win-win for owners and subcontractors because the subcontractor’s remedy is not limited to its proportionate share of retainage plus any trapped funds and the owner is not subjected to a multiplicity of often conflicting subcontractor claims if bankruptcy, termination, or abandonment occurs at the prime contractor level.”