Service Area: Collection Services

What To Do When You Can’t Get Change Orders in Writing

Posted on December 14, 2018 by - In Other Commercial Credit News, Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

What To Do When You Can’t Get Change Orders in Writing

Change orders can be tough to track. Nearly every construction project has change orders and with the number of parties on a given project and the number of projects any one party is involved in, it is no surprise that change orders are often overlooked or simply given a verbal approval to proceed.

But like all documentation, it can be vital in supporting your claim. So, what can you do when a formal change order isn’t issued?

What You Can Do When You Can’t Get a Change Order in Writing

A change order, which is a change to the original contract, should be formally issued and approved. Should. There are a lot of things that we should do: make the bed, exercise daily, avoid sugary drinks, etc. Unfortunately, we don’t always do what we should.

It’s so easy to simply send additional materials and invoice your customer when he calls in search of more scaffolding. It’s a pain to go through the proper channels to get a formal document, especially when your customer needs materials now, not a week or two from now when the formal request is issued.

If your contract requires change orders to be in writing, and a request for formal documentation falls on deaf ears, don’t just assume it’ll be OK, find a way to document, document, document. Those are the words of Todd Heffner of Smith Currie in his article Can’t Get a Written Change Order? Document, Document, Document.

Heffner mentions that if a dispute arises over an undocumented change order, “The general trend is for courts to allow a contractor to recover for the extra work that was performed.” But why risk it? If you can’t get a formal document, Heffner recommends utilizing email as a way of informal documentation.

“For example, the contractor can send an email to whoever is directing the work requesting clarification of what is to be done. The email chain will provide written evidence that the contractor did not proceed as a volunteer or consider the changed work to be in the original scope.”

What happens if the email recipient won’t acknowledge the email or refuses to respond? Is it still worth documenting? Yes, Heffner notes you can still send an email regarding the change, but follow it up with a letter sent via certified mail:

“This can be done initially by sending a long email documenting exactly what was directed and why it constitutes a change to the work. Any such email should be followed by a letter sent via certified mail. Both email and letter should give the owner, architect, or engineer a limited time to disagree, e.g., ‘We will proceed with this work in x days unless you direct otherwise.’”

The Pencil Remembers What the Mind Forgets

I’ve probably spouted this proverb before, with many thanks to my 7th grade history teacher, but it is worth repeating. “The pencil remembers what the mind forgets” – in other words, write down events and occurrences.

Document change requests, keep track of waivers, carefully itemize statements, match bills of lading/proofs of delivery to outstanding invoices. The paper trail can be annoying, with random bits of extraneous information slid in an offhanded email or quick text, but it’s critical in supporting any potential claim you may have.

Collateral Descriptions within Your UCC Financing Statement: Perfectly Imperfect

Posted on November 16, 2018 by - In Other Commercial Credit News, UCC Financing Statements

Perfectly Imperfect Collateral Descriptions within Your UCC Financing Statement: It’s a Delicate Balance.

A properly perfected security interest is nothing without a collateral description. In fact, it’s not properly perfected at all – it’s unperfected. A properly perfected security interest requires compliance with Article 9, which includes a Security Agreement and the subsequent filing of the UCC-1 Financing Statement.

Contents of a Security Agreement

What information should the Security Agreement contain? A Security Agreement should include the following:

  • The name & address of the debtor
    • The name for an organization must be the name as it appears in the public organic record
    • The name for an individual, depending on the state, should be the name as it appears on the unexpired driver’s license
  • A granting clause
  • A collateral description
  • Reference to governing law
  • The date of the agreement
  • Signatures from authorized individuals

Contents of the UCC Financing Statement

Article 9-502 clearly identifies the information that is to appear in the Financing Statement: the name of the debtor, the name of the secured party and the collateral description.

(a) [Sufficiency of financing statement.] Subject to subsection (b), a financing statement is sufficient only if it:

(1) provides the name of the debtor;

(2) provides the name of the secured party or a representative of the secured party; and

(3) indicates the collateral covered by the financing statement.

What Constitutes a Sufficient Collateral Description?

Article 9-108 provides the following:

(a) Except as otherwise provided… a description of personal or real property is sufficient, whether or not it is specific, if it reasonably identifies what is described.”

(b) [Examples of reasonable identification.]

Except as otherwise provided in subsection (d), a description of collateral reasonably identifies the collateral if it identifies the collateral by:

(1) specific listing;

(2) category;

(3) except as otherwise provided in subsection (e), a type of collateral defined in [the Uniform Commercial Code];

(4) quantity;

(5) computational or allocational formula or procedure; or

(6) except as otherwise provided in subsection (c), any other method, if the identity of the collateral is objectively determinable.

Be careful, there’s a fine line between being too specific and too generic.

Can I Attach My Collateral Description as an Exhibit to the UCC Filing?

Yes, you could attach an exhibit to your filing. But… just because you can, doesn’t mean you should. Authors from Troutman Sanders LLP explained in their recent article UCC Incorporation by Reference: An Imperfect Way to Perfect: “Generally, a UCC-1 financing statement’s collateral description is sufficiently descriptive when it refers to details provided in an attachment.” And, they further stated “a collateral description that refers to an unattached, lapsed financing statement may be sufficient when the UCC-1 includes the financing statement’s filing number.”

However, a bankruptcy court recently deemed a security interest unperfected, because the document which identified the collateral was not available at the local clerk’s office (interestingly, it was available on other websites – just not the local clerk’s). According to the authors, the court “held that a UCC-1 financing statement is ineffective to perfect a security interest if the public document to which its collateral description referred is not available at the local clerk’s office where UCC records are maintained.”

A Bit of Background

The debtor issued bonds pursuant to a “pension funding bond resolution.” The debtor & secured parties executed Security Agreements accordingly. The resolution was posted publicly online and provided the pledged property in detail, but did not provide a description of the collateral.

The bond holders filed UCC-1s to properly perfect their security interest, and within the UCC-1 they described the collateral as the “pledged property described in the Security Agreement attached as Exhibit A hereto and by this reference made part hereof.” The UCC was then filed with a copy of the Security Agreement, although, it did not include the separate resolution that identified the collateral.

So, what’s the problem? Without the resolution document, “an interested third party reading the financing statement and the attached security agreement would know to look for the resolution to find a detailed description of the collateral but would not be able to find the resolution at… the applicable financing statement filing office.” The court further noted it would be out of scope to have an interested third party tracking down a document — even if it is just a matter of going to a different website.

Be Careful, Because Perfect Can Quickly Be Imperfect

UCC filings can be quite precarious. Again, there is a fine line between a collateral description that is too specific or one that is too generic.  Just as it is debatable whether a court will uphold a security interest as perfected if the collateral is identified within an exhibit. Be careful, be thorough, don’t take short cuts and always review.

Parting thoughts from Troutman Sanders LLP:

“Although this bright-line rule tightens court oversight of the incorporation by reference doctrine, it provides needed clarity moving forward for practitioners — particularly those looking to save a bit of work or time by not including a full collateral description on the financing statement itself. Lenders should refrain from drafting collateral descriptions that rely on extrinsic documents, especially when the referenced document is not attached as an exhibit to the financing statement. Lenders should take particular care when using collateral descriptions that contain terms that are defined in nonpublicly available documents, such as credit agreements and security agreements, if those documents are not attached to the financing statement, and this decision suggests that financing statements may be insufficient to perfect if not all applicable defined terms are specifically included on the financing statement itself or on an exhibit annexed to the financing statement. Lenders should ensure that interested third parties can sufficiently identify the covered collateral without having to take additional steps in the search process. If further sleuthing is needed, the UCC-1, and the drafting skills of its scribe, may be deemed imperfect.”

Miller Act May Not Cover Unused Labor

Posted on November 12, 2018 by - Mechanic's Liens & Bond Claims

Furnishing to a Federal Construction Project? Beware, the Miller Act May Not Cover Unused Labor

The Miller Act is federal statute that requires payment bonds on projects contracted by the United States. We’ve previously discussed the Miller Act, but this post is going to take a look at something that isn’t covered under the Miller Act: unused labor.

Goose Creek Nuclear Power Facility

The United States Department of the Navy hired general contractor, Caddell Construction Co. (DE), LLC (Caddell), to construct the Goose Creek Nuclear Power Facility near Charleston, South Carolina. In accordance with statute, Caddell obtained the appropriate payment bond.

Caddell hired Allan Spear Construction, LLC (ASC) to provide “supplemental concrete” to the project. Within the contract, there is a provision that “[ASC] will have a minimum of 12 consecutive weeks to provide a minimum of 20 workers over the 12 weeks period.”

ASC interpreted this provision as a minimum – as in, “for a minimum of 12 weeks, the GC will pay for at least 20 workers, even if the GC doesn’t use the 20 workers.” Of course, this is not the same provision interpretation that Caddell had – but we’ll come back to that.

According to the court opinion, Caddell initially used at least 20 workers. But as time went on the number of needed workers dropped. Caddell continued to pay ASC as though it were using the 20 workers, but eventually Caddell stopped paying for the 20 workers & began paying for only the workers used.

When payments dropped, ASC made a demand upon Caddell for payment and then filed suit against the payment bond, seeking claims just under $600,000.

May Be Valid Breach of Contract Claim, But Not Under Miller Act

ASC filed suit (and additional breach of contract claims) to recover the funds ASC believed it was owed by Caddell, based on ASC’s interpretation of the contractual provision: ASC will be paid for 20 workers per week for 12 weeks.

Caddell contested this claim, arguing ASC’s claim does not fall within the parameters of the Miller Act, because the claim is not based on labor/materials provided, rather it’s based on labor not used.

3133. Rights of persons furnishing labor or material

(b) Right To Bring a Civil Action –

(1) In general.-Every person that has furnished labor or material in carrying out work provided for in a contract for which a payment bond is furnished under section 3131 of this title and that has not been paid in full within 90 days after the day on which the person did or performed the last of the labor or furnished or supplied the material for which the claim is made may bring a civil action on the payment bond for the amount unpaid at the time the civil action is brought and may prosecute the action to final execution and judgment for the amount due.

The court observed “the surety of a bond furnished by the Miller Act may not be held liable for claims which a subcontractor may have against the prime contractor not based on labor or materials furnished.” To be within the scope of the Miller Act, the claim must be for labor or materials that were actually furnished.

The court decided ASC’s claims may be appropriate for a breach of contract claim, but not a Miller Act claim.

“Here, by ASC’s own allegations, Caddell paid for the laborers actually used but breached their contract by refusing to meet the twenty-laborer-minimum provision. Because ASC seeks damages arising out of an agreement to pay for twenty laborers not actually used—rather than “labor performed” or “materials furnished”—the Miller Act does not provide the remedy. Accordingly, the Court finds that ASC’s only cause of action against the Moving Defendants fails as a matter of law. Therefore, the Court grants the Moving Defendants’ Motion for Summary Judgment.”

Securing Rights Under the Miller Act

For those who have furnished labor or materials to a federal project, and have not been paid, the bond claim should be served after your last furnishing, but within 90 days from your last furnishing. If serving the bond claim does not prompt payment, file suit to enforce the Miller Act Bond Claim in U.S. District Court after 90 days from last furnishing materials or services, but within 1 year from last furnishing materials or services.

Questions about securing rights under the Miller Act? Contact us today!

Notice of Non-Payment May Not Be Required in Louisiana

Posted on October 26, 2018 by - In Other Commercial Credit News

Notice Non-Payment May Not Be Required for Louisiana Public Projects

For material suppliers furnishing to public projects in Louisiana, one court recently handed down a decision that notices of non-payment aren’t required. Even though the court has deemed a notice of non-payment optional, should you still serve the notice of non-payment? Yes!

Securing Bond Claim Rights in Louisiana

In Louisiana, on public projects, a payment bond is generally required for general contracts exceeding $25,000. As a best practice, you should attempt to obtain a copy of the payment bond at the beginning of the project. Louisiana is one of the handful of states that has a recurring notice, based on months furnished.

You should serve a notice of non-payment upon the owner and prime contractor within 75 days from the last day of the month for EACH month in which materials were furnished, but within the period in which a sworn statement must be filed. It’s a bit confusing – here’s an example:

Let’s say I furnished in October. If I have not been paid, I need to serve my notice of non-payment within 75 days from October 31st, which makes my notice deadline January 14, 2019. If I also furnish in November, and am unpaid for November, an additional notice of non-payment would be due February 13, 2019 (75 days from November 30th).

Generally, a notice of non-payment is not required when contracting directly with the prime contractor, when providing labor and materials or only labor, when the general contract has not been recorded, or to protect your rights under the payment bond.

The Court Says…

Jacob E. Roussel reviewed the recent case in his blog post, Court Rules That Supplier Notices of Non-Payment Are Not Required.

A material supplier contracted with a subcontractor who contracted with the GC, hired by the owner. The material supplier did not serve notices of non-payment, yet, when it remained unpaid, the material supplier filed a timely sworn statement of amounts due (aka bond claim).  The claim made it to trial court, where the judge determined the subcontractor did owe money to the material supplier. However, the material supplier’s claim against the GC/owner was void, because the material supplier hadn’t served the notices of non-payment.

Then came the appeal…

The appellate court reversed the trial court’s decision, by clarifying “…a supplier’s failure to furnish the 75 day notice of non-payment only results in the supplier losing its right to a privilege against any unexpended funds in the possession of the owner.” According to Roussel, “The court stated that its interpretation of the statutes was consistent with the purpose of the Public Works Act, which is to protect those performing labor and furnishing materials for public works.”

While this decision has proven beneficial to the material supplier, it may not be in the best interest of all parties going forward. Roussel’s take for the GC:

“From a practical standpoint, this decision could result in suppliers no longer providing notices of non-payment to general contractors on public projects. Suppliers may conclude that the hassle of timely providing the notices is not worth of the benefit of preserving a privilege against any funds in the possession of the owner since the supplier can maintain a claim against the general contractor and surety regardless of whether it sends the notice of non-payment. As such, a general contractor may receive no notice throughout a project that a subcontractor has failed to pay a supplier, yet the general contractor can ultimately be liable to the supplier despite only learning of the unpaid amounts following substantial completion of the project.”

My take for the subcontractor/material supplier? It’s an avoidable risk. If a notice isn’t served, how will the owner and/or GC know you are on the job & expecting payment? Sure, you could just wait and serve up the bond claim, but does that make good business sense? Maintain open lines of communication with all parties: serve the notice.

Which leads me to an opportunity to repeat myself…

Why Serve a Notice if It’s Not Required?

Why not? I know – I shouldn’t answer a question with a question. Truthfully, serving a notice, even if it’s not required, increases the likelihood that you will be paid.

Arbitration is Alternative Dispute Resolution

Posted on October 12, 2018 by - Credit Risk Management, In Other Commercial Credit News

Dispute Resolution Alternative: What is Arbitration?

Arbitration, like mediation and adjudication, is a form of alternative dispute resolution and is typically favored in lieu of litigation. Generally, in arbitration an impartial third party listens to each side of the dispute and makes a decision resolving the dispute.

It’s important not to confuse arbitration with mediation, which, admittedly, I initially did. The American Bar Association notes “Arbitration is different from mediation because the neutral arbitrator has the authority to make a decision about the dispute.” In mediation, the third party is present to facilitate the conversation, rather than offer resolution.

The American Arbitration Association explains arbitration as “A private, informal process by which all parties agree, in writing, to submit their disputes to one or more impartial persons authorized to resolve the controversy by rendering a final and binding award.”

In most contracts, construction & otherwise, you will find an arbitration clause. On its website, American Arbitration Association provides visitors with the following standard construction arbitration clause.

“Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association under its Construction Industry Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.”

Clause is Present, Suit Dispute

Despite the presence of an arbitration clause within a contract, one or more parties involved in a dispute may file a lawsuit. Once a lawsuit has been filed, someone may file a motion to dismiss the lawsuit, based on the arbitration clause within the contract. However, according to a recent article by Robert Cox of Williams Mullen, once the court is involved, it’s up to a judge to determine whether the dispute should be arbitrated by the court or by an arbitrator.

“A court resolving an arbitrability dispute must engage in a two-step inquiry… First, the court must determine who decides whether a particular dispute is arbitrable – an arbitrator or the court. Second, if the court determines that it is the proper forum to adjudicate the arbitrability of the dispute, then the court must decide whether the dispute is in fact arbitrable.”

Cox goes on to say a dispute is suited for the courts unless the language within the contract “clearly and unmistakably provides that the arbitrator shall determine what disputes the parties agreed to arbitrate.” Further, according to Cox, courts have frequently determined “… that incorporation of the American Arbitration Association’s (AAA) arbitration rules constitutes clear and unmistakable evidence that the parties agreed to arbitrate arbitrability.”

When Arbitration Won’t Be Arbitrated, Arbitrarily

There may be circumstances when a judge will determine an arbitrator should not preside over a dispute. According to Cox, several U.S. Courts of Appeals have used a test called “wholly groundless” to determine whether arbitration is appropriate. What is “wholly groundless”? Essentially, if the claim is frivolous or deemed unlawful.

Parting Thoughts

There are many benefits to arbitration. Arbitration may be a faster and less expensive process than formal litigation; plus, in binding decisions, an arbitrator’s decision will be upheld by courts.

I admit, the arbitration clauses are a bit foreign to me, but I found The AAA Guide to Drafting Alternative Dispute Resolution Clauses for Construction Contracts, published by American Arbitration Association to be quite insightful. It appears American Arbitration Association maintains an industry standard for arbitration clauses, though as a best practice you should seek legal guidance when drafting and/or signing an agreement.

Progress Payments Have Stopped, Now What?

Posted on August 31, 2018 by - In Other Commercial Credit News

Progress Payments Have Stopped, Now What Should You Do?

Progress payments are payments made as work progresses under a contract, upon the basis of costs incurred, percentage of completion accomplished, or a specific stage of completion. Progress payments may be made from the owner to the general contractor, the general contractor to its subcontractors/suppliers, the subcontractor to its suppliers, etc.

Progress payments have positive potential, as they can eliminate the need for various parties to finance a project. Unfortunately, if the progress payments stop, progress on the project may stop.

No Payment, Now What?

Julie Weller of Faegre Baker Daniels advises a contractor has two choices when an owner stops making payments: “It can either continue to perform the work or cease the work…” As you’d imagine, neither of these options is appealing for a multitude of reasons.

Weller’s article, Progress Payments: What to Do When the Money Stops Trickling In, focuses on the owner/general contractor dynamic. Ordinarily, NCS would recommend moving forward with a mechanic’s lien or bond claim, but Weller recommends carefully reviewing the contract and determining whether payment is “clearly due and owing.”

What’s in the Contract?

Contract terms can be tricky. Hidden among long legal sentences and paragraphs of tiny font you may find provisions regarding payment, suspension and termination.

Weller recommends carefully reviewing these provisions, as they may include notice requirements, and if ignored, the general contractor could be in breach of its contract.

“If the contract expressly states that the contractor must give notice of intention to stop work, the contractor must do so or it will be in breach of contract. Many contracts require the contractor to continue performance despite any ongoing dispute, even those that relate to payment. The contractor should consider the consequences if it does not make payment to its subcontractors – its failure to pay its subcontractors, despite not being paid by the owner, could be a breach of its contract with the owner and its contract with the subcontractors.”

Many of our clients, typically subcontractors and suppliers, come to us with the same story, “The GC says the owner isn’t paying him, so he can’t pay us.” This inevitably leads to the review of contracts for contingent payment clauses, and to  mechanic’s lien filings or enforcement of arbitration clauses. If I could plead a case to general contractors, I would beg you to continue paying parties you have hired!

Next Up: “Clearly Due & Owing”

Yikes, very few things are “clear” in construction, unless we consider mud to be clear. In her article, Weller states that an owner will not be held in breach of contract if the payment is not “clearly due and owing.” Further, in the long run on sentences & tiny font of the contract, there may be provisions allowing the owner to withhold money.

Weller provides the following situations which may permit the owner to withhold payment:

  • Defective work not remedied
  • Claims filed by a third-party
  • Failure of the contractor to pay its subcontractors
  • Reasonable evidence that the work cannot be completed for the remainder of the contract sum
  • Damage to the owner or another contractor
  • Reasonable evidence that the work will not be completed within the contract time, and the unpaid balance is not enough to cover damages for the anticipated delay
  • Persistent failure to carry out the work in accordance with the contract

It’s worth noting, the owner should only withhold the amount that corresponds to the circumstance. This means, if the owner is withholding payment because the contractor hasn’t paid its subcontractor, the owner can only withhold the amount of the subcontractor’s claim. Another example is if the contractor has successfully completed the foundation, but has failed to complete the piping, the owner can only withhold money for the incomplete piping.

A Demand to Commence Suit May Shorten Your Deadline

Posted on August 27, 2018 by - Credit Risk Management, Mechanic's Liens & Bond Claims

Did You Receive a Notice to Commence Suit? Your Suit Deadline May Be Shorter Than You Think

The mechanic’s lien and bond claim processes follow the same basic three steps: serve preliminary notice > file/serve mechanic’s lien/bond claim > file suit to enforce the mechanic’s lien/bond claim. You, the creditor, initiate the preliminary notice and lien/bond claim actions & you may initiate suit. However, you aren’t the only party that may initiate suit.

Notice to Commence Suit

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.

Ohio Example

Although each statute may vary, here is an example of the Notice to Commence Suit in Ohio. Ohio has one of the longest periods in which a claimant can commence suit: 6 years from filing the lien, unless, the claimant has been served with a Notice to Commence Suit. A claimant has 60 days from being served with a Notice to Commence Suit to proceed with suit. If the claimant fails to proceed with suit, the lien is void.

If the lienholder fails to commence suit upon the lien within sixty days after completion of service upon him of the notice to commence suit, or if the action is commenced but dismissed with prejudice before adjudication, the lien is void and the property wholly discharged from the lien. When a lien is void by reason of failure to commence suit within sixty days after service of the notice to commence suit, the claim upon which the lien was founded is not prejudiced by the failure, except for the loss of the lien as security for the claim. – 1311.11 Notifying Lienholder to Commence Suit

Ohio ties with South Dakota, which also provides claimants 6 years from last furnishing materials or services to file suit. But, in South Dakota, if the claimant receives a demand to commence suit, the claimant must file suit within 30 days from receipt of the notice.

44-9-26.   Forfeiture of lien for failure to commence suit upon demand–Cancellation by register of deeds. Upon written demand by the owner, the owner’s agent, or contractor, served on any person holding a lien, requiring the person to commence suit to enforce the lien, the person shall commence suit within thirty days after such service or the lien is forfeited. The register of deeds shall cancel the lien of record, if the owner, the owner’s agent, or contractor files no sooner than the fortieth day following service of the written demand:

             (1)      An affidavit stating that the person holding the lien has not commenced suit to enforce the lien within thirty days after the service of the written demand;

             (2)      A copy of the written demand that was served on the person holding the lien; and

             (3)      Proof of service on the person holding the lien.

Florida & Georgia Examples

Generally, for private projects in Florida, a lien claimant should file suit to enforce its lien within 1 year from the filing of the lien. However, the property owner can shorten that 1-year period to 60 days, if it files a Notice of Contest of Lien.  (You can find the following in FL’s statute, section 713.22 Duration of Lien)

NOTICE OF CONTEST OF LIEN

To: (Name and address of lienor)  

 You are notified that the undersigned contests the claim of lien filed by you on  ,   (year)  , and recorded in   Book  , Page  , of the public records of   County, Florida, and that the time within which you may file suit to enforce your lien is limited to 60 days from the date of service of this notice. This   day of  ,   (year)  .

 Signed: (Owner or Attorney)  

 The lien of any lienor upon whom such notice is served and who fails to institute a suit to enforce his or her lien within 60 days after service of such notice shall be extinguished automatically. The clerk shall serve, in accordance with s. 713.18, a copy of the notice of contest to the lien claimant at the address shown in the claim of lien or most recent amendment thereto and shall certify to such service and the date of service on the face of the notice and record the notice.

Georgia is quite like Florida. In fact, the suit period in Georgia is also shortened to 60 days, with the filing of a Notice of Contest of Lien. What’s the difference? Well, the verbiage for the Georgia Notice of Content of Lien is slightly different than Florida’s. Florida statute says to file suit within 1 year from filing the lien and Georgia statute says to file suit within 365 days from filing the lien – note the difference – it is more than semantics!

You can access Georgia’s statute on the Notice of Contest of Lien here: O.C.G.A. § 44-14-368

Summons & Complaint, Answer & Cross 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. 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.

Litigation: Mapped Out

Litigation can get quite confusing, here’s a mapped view of an average litigation.

*This chart is for demonstration purposes only and is in no way a guarantee of any particular outcome. NCS does not engage in rendering legal advice. All options should be reviewed by your corporate counsel.

Seek Legal Guidance!

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.

Retail Bankruptcy and the Impact on the Landlord

Posted on August 24, 2018 by - Credit Risk Management, In Other Commercial Credit News

Bankruptcy, Bankruptcy Everywhere. Landlord, Landlord Have No Fear

Landlords are impacted by retail bankruptcy, too! The hot topic continues to be retail bankruptcies – with no signs of slowing down. We’ve previously discussed what retail bankruptcies mean for creditors who supply inventory, but what about the landlord? Most brick and mortar stores are leased by the retail entity; very few retailers own the building in which they are located.

Read on to learn more about what landlords can do to protect themselves in commercial bankruptcies.

Look Out for the Automatic Stay

The automatic stay is an injunction that stops any and all collection activity against the bankrupt entity and the automatic stay goes in to effect as soon as the bankruptcy petition is filed. The automatic stay impacts ALL creditors, whether supplying an inventory of board games or leasing the property to the bankrupt entity.

However, a landlord may have some remedies available, so long as the landlord seeks bankruptcy court approval first.

In an excellent article by Lars Fuller, Unique Challenges for Commercial Landlords Posed by Large-Scale Retailer Bankruptcies, Fuller explains the actions for which the landlord will need court approval:

  • Changing the locks on the premises or engaging in other self-help remedies.
  • Commencing or continuing to prosecute an action to evict the debtor.
  • Sending notices to the debtor to terminate the lease or revoke a right of lease renewal (even if the lease allows the landlord to take that action).
  • Demanding payment of past due rent.

Know the adage “easier to ask for forgiveness than permission?” Yeah, that doesn’t apply to this situation. If you fail to obtain court approval, prior to taking any of the above actions, you may be subject to fines, damages or even held in contempt of court, according to Fuller.

What about the Cash?

We recently discussed DIP financing, and Fuller recommends “Landlords should also review budgets because they often provide the first signal regarding the debtor’s intentions for the Chapter 11 case, including whether it will be maintaining or closing stores and on what timetable.”

And, while you are reviewing those budgets, check to see whether the budget allows for rent payments under administrative claims.

Accept or Reject?

Section 365 of the Bankruptcy Code is specific to the treatment of leases in a bankruptcy. Fuller provides four key issues for landlords regarding the treatment of their leases in bankruptcy:

  • Ensuring payment of post-petition rent and other lease charges, including stub rent.
  • The effect on the landlord of an assumption of the lease versus a rejection of the lease.
  • The circumstances under which the debtor can assign the lease, including the conditions particular to assigning shopping center leases.
  • Timing and other strategic considerations.

Ultimately, the bankrupt entity has an opportunity to review its leases and decide whether it is a lease they want to maintain (i.e. reject or accept). The debtor has up to 210 days to make decisions on their leases; decisions should be made within 120 days of the bankruptcy filing, but an extension may be granted for an additional 90 days.

Obviously, money is a driving factor for bankruptcy – if a debtor has some leases that are costlier or more restrictive than others, they will take this as a chance to reject or renegotiate those costly leases. A more favorable lease, such as one that is in a great location & likely seen as appealing to prospective buyers, will likely be assumed or accepted by the debtor. It should come as no surprise, landlords benefit from leases that are assumed or accepted versus those that are rejected.

Pro Advice

Fuller recommends landlords carefully review the bankrupt entity’s pleadings to “discern its intentions for its leases and then evaluate the benefit of joining forces with other landlords or pursuing rights individually.” My recommendation: Make sure you have legal representation! Don’t take on the challenge of legal documentation on your own.