Service Area: Notice and Mechanic’s Lien Services

Mechanic’s Lien on a Wind Farm Can Be Complicated

Posted on January 17, 2022 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Filing a Mechanic’s Lien on a Wind Farm? Keep These 7 Things in Mind.

Supplying materials or labor to a wind farm project? Securing mechanic’s lien rights is vital to protect your receivable. Make sure you always serve preliminary notices, carefully track your deadlines, and if you need to proceed with a mechanic’s lien on a wind farm, be sure to keep these 7 things in mind.

#1: Correctly Identify the Property Parcel(s)

Wind farms cover large portions of land, frequently occupying thousands of acres, across numerous parcels throughout multiple cities and counties. According to one report, the Roscoe Wind Farm in Texas is sprawled across four counties and over 84,000 acres.

Because of their massive size, it is often difficult to identify the exact parcel(s) where materials were incorporated, or labor was provided. Whenever possible, try and obtain specific project location information before you begin furnishing. Information that may help may include the project address, parcel ID numbers, a GIS map of the area, or even GPS coordinates.

#2: Correctly Identify the Property Owner(s)

In addition to identifying the correct parcel of land, you need to take the time to correctly identify the property owners. Often, there are just as many landowners as there are parcels.

Generally, mechanic’s lien laws dictate the property owner should be served with a copy of the lien. If you furnished to multiple parcels, you need to be sure you serve the owner for each parcel.

When you serve your preliminary notice, take the time to identify each owner. If you have the location information, you can usually obtain property owner information from the county assessor.

#3: Multiple Liens May Be Required

Occasionally these sprawling farms may be under sole ownership (i.e., one person or company owns every parcel of land), but it’s unlikely this would be the norm.

If your materials were incorporated in multiple parcels, you may need to file a lien on each parcel. For example, if you furnished to 8 different parcels, you may need to file 8 liens. It isn’t easy, some argue it’s a nuisance, but it may be a statutory requirement you need to comply with.

On the upside, there is also a chance one lien will cover you. How? There have been cases where courts have accepted one lien filed on multiple parcels, where the parcels had the same owner and were contiguous (i.e., touching one another). As a best practice, use an attorney local to the project, who has construction experience; their legal expertise is vital.

Multiple parcels, multiple property owners, multiple liens – you see where this is going, right?

#4: Title Work Could Be Expensive

It’s not rocket science, but title work costs may cause a bit of sticker shock.

Do the math:

Multiple Parcels X Multiple Owners = Multiple Title Reports

Multiple Title Reports = Expensive

One contractor reportedly filed 159 mechanic’s liens on the Chisholm View Wind Project.

If each of those mechanic’s liens required individual title work and the average cost of title work is $75 per parcel, simple math indicates that title work could cost $11,925.

#5: Preparation and Recording of Liens Will Take Time

Because of the extensive title work, research, and time it will take to properly parse and identify where you furnished, please understand it will take time to prepare the liens.

Don’t wait until the deadline to file the lien. Give yourself plenty of time to ensure all documentation is accurate. You don’t want to lose your security because you rushed and filed the lien against the wrong property.

#6: Be Aware of Easements

What is an easement? “An easement is the grant of a nonpossessory property interest that grants the easement holder permission to use another person’s land.” – Legal Information Institute

Let’s say there is a wind turbine on your property, an easement may be in place to allow the power company to access the wind turbine on your property. It’s your property, but the other party has the right to access a specific part of the property for a specific purpose.

There are several different types of easements, which we won’t go into here. Just know that you may encounter existing easements, which may lead to issues of lien priority.

(Speaking of easements and wind turbines, you may want to check out: Are Lien Rights Available on Wind Turbines?)

#7: The Lien May Be Limited to the Leasehold Interest

A leasehold interest is real property held by a lessee under lease. When liening a tenant improvement, the statutes vary as to whether a lien would be available against the property, the leasehold interest of the tenant, or both.

Often, energy companies will enter into lease agreements with the landowners. The landowner continues to own the real property and the energy company owns the equipment and the output generated.

If there are lease agreements in place, you will need to determine who is liable for the improvements to the project: the fee owner or the lessee.

Take Your Time, Be Thorough, and Protect your Lien Rights

It takes multiple contractors, subcontractors & material suppliers to successfully build one energy farm, which means there are multiple opportunities for payment issues. Supply chain issues, special fabrication, change orders, construction defects, and a company’s low liquidity, are common factors contributing to slow payment or no payment. Proactively securing mechanic’s lien rights on a wind farm will help protect your company in the event of non-payment.

North Dakota Mechanic’s Lien and Bond Claim Rights

Posted on January 10, 2022 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

North Dakota Mechanic’s Lien and Bond Claim Rights

“North Dakota. Be Legendary.” This might be my all-time favorite state slogan. It’s… well, it’s legendary! And although you may not know it yet, recovering funds through mechanic’s liens and bond claims is also legendary. Let’s check out North Dakota mechanic’s lien and bond claim rights.

North Dakota Mechanic’s Lien (N.D. Cent. Code 35-27)

If you are furnishing to a private project, you should protect your mechanic’s lien rights. North Dakota statute doesn’t require a preliminary notice; though, we recommend serving a non-statutory notice to let others know you are furnishing to the project and expect to be paid.

The lien is actually a two-part process. First, you should serve a notice of intent upon the owner at least 10 days prior to filing the lien. Then, you should file your lien within 90 days from last furnishing.

North Dakota is a bit unique, because you might be able to file a late lien (after the 90 day deadline but within 3 years from your first furnishing); however, the lien will be limited to the unpaid portion of the owner’s contract and will not be effective as to bona fide purchasers.

35-27-14. A failure to file within ninety days does not defeat the lien except as against purchasers or encumbrancers in good faith and for value whose rights accrue before the lien is filed, and as against the owner to the extent of the amount paid to a contractor before the recording of the lien. A lien may not be filed more than three years after the date of the first item of material is furnished.

Speaking of the lien being “limited to the unpaid portion of the owner’s contract,” North Dakota is an unpaid balance lien state.

35-27-02. Any person that improves real estate, whether under contract with the owner of such real estate or under contract with any agent, trustee, contractor, or subcontractor of the owner, has a lien upon the improvement and upon the land on which the improvement is situated or to which the improvement may be removed for the price or value of such contribution. Provided, however, that the amount of the lien is only for the difference between the price paid by the owner or agent and the price or value of the contribution. If the owner or agent has paid the full price or value of the contribution, no lien is allowed. Provided further that if the owner or an agent of the owner has received a waiver of lien signed by the person that improves the real estate, a lien is not allowed.

If you need to file suit to enforce your mechanic’s lien, you should serve notice upon the owner prior to filing suit. If you serve this notice via personal service, it should be done at least 10 days prior to filing suit. Serving it via mail? Then you must serve it at least 20 days prior to filing suit. The deadline to file suit is within 3 years from the filing of the lien or within 30 days from receipt of written demand to commence suit.

North Dakota Bond Claim (N.D. Cent. Code 48-01.2)

If you are furnishing to a public project, you should protect your bond claim rights (remember, you can’t file a mechanic’s lien against publicly owned property). Generally, payment bonds are required for general contracts exceeding $200,000. As a best practice, request a copy of the payment bond up front. Once you have a copy of the bond, carefully review the bond to ensure you are covered.

48-01.2-10. 1. Unless otherwise provided under this chapter, a governing body authorized to enter a contract for the construction of a public improvement in excess of two hundred thousand dollars shall take from the contractor a bond before permitting any work to be done on the contract. The bond must be for an amount equal at least to the price stated in the contract. The bond must be conditioned to be void if the contractor and all subcontractors fully perform all terms, conditions, and provisions of the contract and pay all bills or claims on account of labor performed and any supplies, and materials furnished and used in the performance of the contract, including all demands of subcontractors. The requirement that bills and claims be paid must include the requirement that interest of the amount authorized under section 13-01-14 be paid on bills and claims not paid within ninety days. The bond is security for all bills, claims, and demands until fully paid, with preference to labor and material suppliers as to payment. The bond must run to the governing body, but any person having a lawful claim against the contractor or any subcontractor may sue on the bond.

Much like private projects, there is no required preliminary notice; serving a non-statutory notice is recommended. If you need to make a claim against the payment bond, you should serve your bond claim upon the prime contractor within 90 days from your last furnishing. Suit to enforce the bond claim should be filed after 90 days from last furnishing, but within 1 year from completion and acceptance of the project.

What if a payment bond wasn’t required? It’s possible the owner won’t require the contractor to obtain a payment bond. If there is no bond, and it’s a public project, you would pursue your customer directly to recover funds owed. Sometimes this is referred to as “suit against the debtor.”

Need help with your North Dakota mechanic’s lien and bond claim rights? Contact us today!

Bankruptcy Proof of Claim: What if It’s Late?

Posted on January 3, 2022 by - Credit Risk Management

What Happens to Your Claim if Your Bankruptcy Proof of Claim is Late?

Bankruptcy proofs of claim are your key to ensuring the Trustee is aware of funds owed to you by the bankrupt party. And, just like filing UCCs or mechanic’s liens, there are deadlines in play for proofs of claim. What happens to your claim if your proof of claim is filed late? A Bankruptcy Court in North Carolina recently decided one creditor was not entitled to distribution of funds, because its proof of claim reached the court one day after the bar date.

The Bankruptcy Proof of Claim

A proof of claim is a document filed within the bankruptcy court that alerts the court, debtor, Trustee, and other interested parties that a creditor wishes to register a claim against the assets of the bankruptcy estate. This document is important because it provides proof that the claim is valid and owed, and notifies the Trustee of the creditor’s claim as well as to what class the claim should be associated.

The U.S. Bankruptcy Court’s official form includes fields for various pieces of information, such as creditor name and location, the amount of the claim, the basis of the claim, whether the claim is secured, if the claim is based on a lease, and whether the claim is subject to right of setoff.

The Bar Date

The bar date is a deadline by which all creditors must file their proof of claims within the bankruptcy court. It is critical that the proof of claim is filed correctly and timely, whether it’s secured or unsecured, to ensure creditors’ rights are preserved and to maximize any possible distribution.

A Day Late Means Your Hanging Out with the General Unsecured Creditors

In the bankruptcy case of North Carolina New Schools, Inc., the bar date was set for September 13, 2016. One creditor, WorkSmart, Inc., mailed its proof of claim around September 7, 2016, and its claim was received by the court September 14, 2016. One day after the bar date. The bankruptcy Trustee filed an objection to avoid the creditor’s claim, arguing the creditor failed to file its claim timely. The creditor filed a response, claiming a “…’mailbox presumption’ creates a rebuttable presumption that the Claim was received in the ordinary course of business.”

A mailbox presumption? Yeah, I didn’t know what it was either. According to the court “The mailbox presumption is a common law evidentiary principle that permits a party to prove receipt of a document that has been mailed.” Essentially, the creditor argued that because the document was allegedly mailed timely, it should be considered received timely. And although I initially chuckled at the word “common” it is apparently a popular topic. The court went on to explain that courts are split, and there isn’t a definitive answer as to whether the mailbox presumption should apply in the mailing of a proof of claim.

Unfortunately for this creditor, the court decided there is a difference between service of a document and the filing of a document (we just talked about this in another post), and it is the creditor’s responsibility to ensure the document is filed by the deadline.

“…applying the mailbox presumption to the mailing of a proof of claim would complicate, bring uncertainty, and cause undue delay to the bankruptcy claims process. Setting a bright-line rule for the filing of claims is vital to the timely administration of a chapter 7 case. Creditors, with minimal expense or inconvenience, can ensure that a proof of claim is received by the clerk’s office before the deadline by filing their claims electronically or directly at the clerk’s office counter, using some form of priority or overnight mail, or calling the clerk’s office to verify the receipt of the claim.”

And just like that, the creditor’s claim for $169,569 was not entitled to distribution, because it was filed a day late.

The Bankruptcy Proof of Claim Lesson

Make sure your proof of claim is received by the bar date. Navigating a proof of claim? Contact us today and let our experts help you!

Nebraska Construction Lien and Bond Claim Rights

Posted on December 6, 2021 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Nebraska Construction Lien (aka Mechanic’s Lien) and Bond Claim Rights

I once heard the state insect of Nebraska is the honeybee. So, I thought it’d bee great if we reviewed mechanic’s lien and bond claim rights in Nebraska! Oh, before we buzz through this information, preserving your lien rights falls under the Nebraska Construction Lien Act, which means Nebraska statute refers to the lien as a construction lien vs. a mechanic’s lien, but the terms are interchangeable.

OK, no more bee jokes, I know they sting.

Nebraska Construction Lien Rights

For private commercial projects, you do not need to serve a preliminary notice, though we recommend serving a non-statutory notice to alert all parties of your involvement. If you’re furnishing to a residential project, there is an optional notice. You could serve a Notice of Right to Assert a Lien upon the owner any time after entering a contract. This notice requires the owner to withhold sufficient funds from the prime contractor.

You should file your construction lien within 120 days from your last furnishing date, and for residential projects, be sure to serve a copy of the recorded lien upon the owner within 10 days from filing the lien. In the event you need to proceed with suit, you should file suit within 2 years from filing your lien, but within 30 days from receipt of written demand to commence suit. [Neb. Rev. Stat. 52-125 – 52-159]

Things to Keep in Mind

  • Nebraska is an unpaid balance lien state, which means the lien is only enforceable for the unpaid portion of the general contract.
  • A Notice of Commencement may be recorded by the lender to ensure the priority of their deed of trust over any subsequent mechanic’s liens.
  • The cap on retainage is 10%.
  • Under NE prompt pay statute, the owner should pay the GC within 30 days from payment request and the GC should pay its subs and suppliers within 10 days from payment request. This is, of course, assuming all work was performed in accordance with the terms of the contract.
  • If the owner or prime contractor records a payment bond, a lien may not be filed. Instead, your claim would be against the payment bond.

Speaking of payment bonds on a private project… You should serve bond claim notice upon the prime contractor within 90 days from your last furnishing and file suit to enforce your claim within 1 year from your last furnishing. [Neb. Rev. Stat. Sec. 52-141]

Nebraska Bond Claim Rights

Typically, payment bonds are required for State projects with general contracts exceeding $15,000.00, or for county board, city, village, or school district projects with general contracts exceeding $10,000.00.

52-118. (2) The labor and material payment bond or bonds referred to in subsection (1) of this section shall not be required for (a) any project bid or proposed by the State of Nebraska or any department or agency thereof which has a total cost of fifteen thousand dollars or less or (b) any project bid or proposed by any county board, contracting board of any city, village, or school district, public board, or officer referred to in subsection (1) of this section which has a total cost of ten thousand dollars or less unless the state, department, agency, board, or officer includes a bond requirement in the specifications for the project.

Much like the construction lien, you do not need to serve a preliminary notice to secure bond claim rights, but as a best practice, send a non-statutory notice to let parties know you are furnishing to the project.

The bond claim should be served upon the prime contractor within 4 months from your last furnishing and suit should be filed after 90 days from your last furnishing, but within 1 year from final settlement.

Need help filing your construction lien or serving the bond claim in Nebraska? We’re here for you!

What Is a UCC-3 Filing and Why Should You File One?

Posted on November 29, 2021 by - UCC Financing Statements

What Is a UCC-3 Filing and Why Should You File One?

Have you filed a UCC-1 to secure your interest in certain collateral? Well, if you have and you need to continue, amend, assign, or terminate your UCC filing, you will file a UCC-3. You may have already guessed, but today’s post is all about the UCC-3, including its magical powers. OK, it may not be magical per se, but it is certainly powerful and shouldn’t be ignored.

UCC-1, UCC-3, UCC-5, UCC-11

It may seem like an odd numbering system, but each form is important in its own right. A UCC-1 is the initial Financing Statement and is filed to provide notice to other creditors of your security interest. Typically, when we talk about perfecting your security interest or filing a UCC, we are usually referring to a UCC-1 or your initial filing.

Let’s skip the UCC-3 for now and jump ahead to the UCC-5 and the UCC-11. A UCC-5 is an information statement you file when you believe an existing record is inaccurate or was wrongfully filed. In compliance with Article §9-518, this statement should include reference to the original filing (the filing with the alleged errors). It should indicate it is an information statement and it should identify what you believe to be inaccurate in the original filing. It’s important to note, this filing does not amend any information – you will need to file the UCC-3 if you need to amend info.

The UCC-11 is an information request to determine whether there are other secured parties, whether specific collateral is already secured by a UCC, and to determine a creditor’s priority.

Bouncing back to the UCC-3.

A UCC-3 Wears Many Hats

It’s true, a UCC-3 is used to continue your existing filing, amend your existing filing, terminate your existing filing, or assign your interest to another secured party.

Continuation

A UCC is effective for 5 years. If you need to extend the filing, you will file a UCC-3 Continuation within 6 months before the expiration date of the existing filing. Once the continuation has been filed, your UCC is effective for another 5 years. If you don’t file your continuation timely, your UCC will become ineffective.

How often should you continue a filing? It depends on what you are providing as the creditor. If you are a lender, and your customer’s loan period is longer than 5 years, you would need to file continuations every 5 years until the loan is paid off/closed, to maintain your security. If you are a distributor of goods, and your customer operates on a revolving line of credit with you, you should file a continuation every 5 years as your relationship continues.

I’m going to repeat what I just said moments ago: if you do not file a continuation timely, your existing UCC will become ineffective. And, as we’ve discussed on our blog before, you can’t revive your security interest; you will lose your place in line.

Amendment

Ah, UCC Amendments, let me count the ways! Why would you need to amend your UCC? The most common reasons to amend a filing include a change in your customer’s name or address, a change in your company’s name or address, or a change in the collateral.

The most common, and arguably most critical, reason to amend your filing is if your customer’s name or address changes. We talk about this a lot, because not only is it vital to your security interest, it’s also one that consistently stymies creditors. Article §9-507(c) clearly states you have a 4-month window to amend your filing for a debtor name change to maintain your priority. If you fail to timely amend your filing, your filing will be considered seriously misleading, and your security interest will be unperfected. Remember, names matter in UCCs, after all, a search by name is how parties identify whether a security interest already exists on certain collateral.

I mentioned you may want to amend a filing if your company’s name or address changes, and while this is not dictated by Article 9, it is a best practice. I recommend amending the filing to alleviate delays or missed notifications about a debtor’s bankruptcy. For example, let’s say your customer files for bankruptcy. The bankruptcy trustee will go through public records (i.e., UCC filings) to ensure notifications of the bankruptcy – including the mega important bar date info – are mailed to all parties. If your address is wrong and the mail is either delayed or returned, you could miss the bar date. Yes, you could likely argue you missed the bar date because you didn’t receive timely notification, but the court may say “Hey, not my problem, you should have maintained the public record.” Is it worth the hassle?

If there is a change in the collateral, you will need to amend your filing. Other creditors are relying on the information you provide to determine whether an interest already exists on certain collateral. If your Financing Statement doesn’t correctly identify the collateral, other creditors can assume there is collateral available for them to use as security – keep it current, don’t let that happen.

Assignment

If you need to assign or transfer all or some of your rights to the collateral to another secured party, you will file an Assignment.

9-514 Assignment of Powers of Secured Party of Record

(b) [Assignment of filed financing statement.]

Except as otherwise provided in subsection (c), a secured party of record may assign of record all or part of its power to authorize an amendment to a financing statement by filing in the filing office an amendment of the financing statement which:

(1) identifies, by its file number, the initial financing statement to which it relates;

(2) provides the name of the assignor; and

(3) provides the name and mailing address of the assignee.

Assignments occur frequently with banks, as one bank transfers its security to another bank.

Termination

Seems fitting to end today’s post with Terminations. The filing of a termination ceases the effectiveness of the original UCC. Typically, terminations are filed at the end of the relationship when monies have been paid and/or collateral returned. As an example, your bank filed a UCC when you signed for your car loan; once your car loan is paid off, the bank terminates their UCC, which frees up the collateral (i.e., your car).

Use caution when terminating filings because you can’t un-terminate them. If you need a billion dollar warning, check out How JP Morgan Chase Bank’s Billion Dollar Mistake Can Make You a Better Credit Manager.

Serve the Mechanic’s Lien and File the Mechanic’s Lien

Posted on November 8, 2021 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Make Sure you Serve the Mechanic’s Lien and File the Mechanic’s Lien

Serve the mechanic’s lien and file the mechanic’s lien. Two actions that are often lumped together or referenced interchangeably. But they are, in fact, two distinct and separate actions. What happens if you file your mechanic’s lien, but don’t serve the mechanic’s lien on the appropriate parties? It will depend on statute, but generally failing to serve the lien where required by statute means your mechanic’s lien is invalid.

Serve and File, What’s the Difference?

To serve a document means to provide a copy of the document to another party; to give them notice. For example, if statute says the owner must receive a copy of the lien, you will serve them with a copy of the lien, which alerts them of the lien being filed on their property. (We’ll get into types of service in a minute.)

To file a document means to provide the document to the appropriate county or state office for the office to record. Filing, also referred to as recording, creates a public record of the document. In the case of mechanic’s liens, the public record of the document is confirmation the property has a lien against it for funds due to the liening party.

Types of Service

State statute will define what is appropriate service of a document, but generally you can serve documents via certified mail, registered mail, overnight mail (e.g., FedEx), or personal service. Of course, each state is different, but here’s a look at a handful of states.

California

In California, the mechanic’s lien should be served “…by registered mail, certified mail, or first-class mail, evidenced by a certificate of mailing, postage prepaid, addressed to the owner or reputed owner at the owner’s or reputed owner’s residence or place of business address or at the address shown by the building permit on file with the authority issuing a building permit for the work…” [CA Civ. Code 8416 (e)]

What happens if you don’t serve a lien in California? Statute is clear: “Failure to serve the copy of the claim of mechanics lien as prescribed by this section, including the Notice of Mechanics Lien required by paragraph (8) of subdivision (a), shall cause the claim of mechanics lien to be unenforceable as a matter of law.”

Florida

In Florida, section 713.18 of the state’s statute provides a thorough explanation of service, but here some of the highlights:

(a) By actual delivery to the person to be served; if a partnership, to one of the partners; if a corporation, to an officer, director, managing agent, or business agent; or, if a limited liability company, to a member or manager.

(b) By common carrier delivery service or by registered, Global Express Guaranteed, or certified mail, with postage or shipping paid by the sender and with evidence of delivery, which may be in an electronic format.

(c)  By posting on the site of the improvement if service as provided by paragraph (a) or paragraph (b) cannot be accomplished.

Statute goes on to say “Failure to serve any claim of lien in the manner provided in s. 713.18 before recording or within 15 days after recording shall render the claim of lien voidable to the extent that the failure or delay is shown to have been prejudicial to any person entitled to rely on the service.”

Pennsylvania

In Pennsylvania, the mechanic’s lien should be served “…by an adult in the same manner as a writ of summons in assumpsit, or if service cannot be so made then by posting upon a conspicuous public part of the improvement.” [Title 49 P.S. Chapter 6, Sec. 1502. Filing and notice of filing of claim]

This means the lien can be served by a person (e.g., sheriff or personal server) or if that doesn’t work, you can also meet the statutory requirement by posting a copy of the lien at the project.

Does Serving the Lien Really Matter? Let’s Ask this Nevada Lien Claimant

The project, Phase 1 of the construction of a medical marijuana facility in Las Vegas, is owned by 4620 Eaker Street LLC (Owner) and for this construction, the general contractor and lien claimant is RL Jaehn Group Construction LLC (GC). Owner hired the GC and the GC hired various subcontractors and material suppliers. Ultimately, Owner fell behind in payments and the GC filed two mechanic’s liens. The first mechanic’s lien was filed for $241,761 and about 6 months later, the GC filed a second lien (adjusted for payments received) for $197,194.

At some point, someone with the Owner’s company did a lien search, and discovered mechanic’s liens had been filed on the project. Of course, there are other issues going on in this case (primarily focused on the frivolity of the GC’s liens) and the case ended up in court. One issue in court was presented by Owner, who argued the GC’s liens were invalid because GC didn’t comply with statute.

During the hearing, the GC confirmed he “never served either notice of lien through any method of service set forth in NRS 108.227.” But the GC claims the Owner had notice of the liens because the GC “sent the notices of liens through regular mail.”

Guess what? There’s no proof that “regular mail” makes it to the intended destination or party.

Hmm, if only there were a form of mail that included “proof” of receipt.

Wait a minute. There IS. Hello certified mail!

Nevada statute (NRS 108.227) clearly outlines the service of a mechanic’s lien, and “regular mail” isn’t on the list.

Nevada statute says, serve a copy of the lien upon the owner:

(a) By personally delivering a copy of the notice of lien to the owner or registered agent of the owner;

(b) By mailing a copy of the notice of lien by certified mail, return receipt requested, to the owner at the owner’s place of residence or the owner’s usual place of business or to the registered agent of the owner at the address of the registered agent; or

(c) If the place of residence or business of the owner and the address of the registered agent of the owner, if applicable, cannot be determined, by:

(1) Fixing a copy of the notice of lien in a conspicuous place on the property;

(2) Delivering a copy of the notice of lien to a person there residing, if such a person can be found; and

(3) Mailing a copy of the notice of lien addressed to the owner at:

(I) The place where the property is located;

(II) The address of the owner as identified in the deed;

(III) The address identified in the records of the office of the county assessor; or

(IV) The address identified in the records of the county recorder of the county in which the property is located.

As you can imagine, the court agreed with Owner – GC’s liens didn’t comply with statute, meaning the liens were invalid.

“We conclude that (GC) did not perfect its liens because it failed to serve (Owner) with notices of the same, rendering its liens invalid as a matter of law.”

In fact, the case ended there. There was no need to discuss the potential frivolity of GC’s liens, because even if they weren’t frivolous, GC still failed to adhere to statute and the liens would be invalid.

Remember, Serve AND File

If you don’t serve the mechanic’s lien AND file the mechanic’s lien, you may find yourself with nothing more than an invalid mechanic’s lien and an unpaid claim.

Need help serving and filing your mechanic’s lien? Contact us!

You can read the case text here: 4620 EAKER STREET LLC v. RL JAEHN GROUP CONSTRUCTION LLC, Nev: Court of Appeals 2021

Indiana Material Supplier Gets a Win in Appeals Court

Posted on November 1, 2021 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Appeals Court Determines Indiana Material Supplier Contracted with Subcontractor, Not a Material Supplier; It’s a Win!

In Indiana, a material supplier who contracts with another material supplier is not entitled to mechanic’s lien rights. However, one Indiana Court of Appeals’ judge dug in to further clarify what constitutes a material supplier versus a subcontractor. A case that started as “material supplier to material supplier” shifted to a case of “material supplier to subcontractor” and the lien claimant in limbo was granted mechanic’s lien rights.

Mechanic’s Lien Rights for Commercial Projects in Indiana

You are not required to serve a preliminary notice to secure mechanic’s lien rights on a commercial project in Indiana, though we recommend serving a non-statutory notice, which notifies all parties that you are furnishing to the project.

Your mechanic’s lien, or sworn statement and notice of intention to lien, should be filed within 90 days from your last furnishing. And, in the event you remain unpaid, you should file suit within 1 year from filing the lien and within 30 days from receiving a notice to commence suit from the owner. [IC 32-38-3]

Indiana is a full balance lien state, which means the lien is enforceable for the full amount owed, regardless of payments made by the owner. (This is important in today’s case.)

As mentioned earlier, in Indiana a material supplier contracting with a material supplier is not entitled to mechanic’s lien rights. Why not? Well, in the case we are about to review, the Judge stated:

“This Court has noted that the prohibition of supplier-to-supplier-based liens ‘promote[s] honesty and fair dealing among the parties to a construction contract.’ …If the supplier of another supplier has a right to a lien, any supplier—no matter how far removed from a project’s owner—has the same right… Thus, without the supplier-to-supplier prohibition, a distant supplier could assert a lien against an owner with whom it has had no contact by showing only that it furnished material for a project and that the material was used therein.”

Some may be inclined to argue that no matter how far down the ladder of supply you are, if you supply materials to a construction project and those materials are incorporated in the project, you should have the right to file a lien. In theory, I would agree with that – I think parties in the ladder of supply should be entitled to a right to recover payment. However, I do understand the Judge’s comments about remoteness. I understand that property owners would be at a disadvantage if there are oodles of random material suppliers filing liens on their property. But might I be so brazen and suggest Indiana look at instituting a preliminary notice? A notice that all parties would serve, alerting the owner of possible lien claimants. (A novel idea, I know.) I digress; on with the case.

A Subcontractor, not a Material Supplier

In the case of Service Steel Warehouse Co., L.P. v. United States Steel Corp., the ladder of supply looks a bit like this:

United States Steel Corp. (US Steel) contracted with Carbonyx Inc. (Carbonyx) Carbonyx contracted with Steven Pounds dba Troll Supply (Troll). Troll contracted with CPN Ventures LLC dba Texas Steel (TX Steel) to assist with fabrication and with Service Steel Warehouse Co., L.P. (SSW) to supply materials.

SSW supplied structural steel to the project. Most of the steel was shipped to TX Steel’s warehouse for fabrication (Troll helped with fabrication). At some point, a dispute resulted in US Steel paying Troll $1,780,249 for its fabrication work. However, Troll did not pay SSW the $563,084 SSW claimed it was owed. So, SSW filed a mechanic’s lien within 90 days from its last furnishing. When the lien failed to prompt payment from the owner (US Steel), SSW proceeded with suit to enforce its lien.

US Steel, having already paid over $1.7M to Troll, challenged the validity of SSW’s lien, arguing SSW and Troll were both material suppliers. And, as we now know, material suppliers to material suppliers do not have lien rights in Indiana.

Initially the court sided with US Steel, and that’s how we get here – to SSW’s appeal. Upon appeal, SSW argued Troll was a subcontractor, because Troll performed labor (off-site) in the fabrication of the structures for the project.

US Steel argued subcontractors must perform on-site labor, meaning they must be at the physical project location performing labor. And, since Troll didn’t provide labor at the actual project location, it must be a material supplier.

The Court of Appeals disagreed with US Steel’s argument because statute and case law don’t specify that labor must occur on-site.

“To qualify as a subcontractor, the party must perform some portion of the work for which the owner originally contracted. It is not necessary that the work be done at the construction site, but work must be performed to the contract’s plans and specifications. The work can be performed on material supplied to another subcontractor of the contractor, but the material cannot be generic, stock, off-the-shelf items or items generally available without modification—it must be fabricated uniquely or specially by the contractor for the requirements of the particular project.”

The Court of Appeals went on to say the labor must be substantial for a party to be considered a subcontractor.  What constitutes substantial? Apparently, the thousands of labor hours Troll provided to fabricate the structure components.

“Here, the designated evidence establishes that Troll Supply performed a definite and substantial portion of the prime contract between U.S. Steel and Carbonyx. Based on Carbonyx’s unique plans and specifications, Troll Supply fabricated the majority of the steel components needed for the Project. The components required thousands of labor hours to produce. And the Project’s carbon alloy synthesis process could not have functioned without them. We therefore find that Troll Supply was a subcontractor, not a material supplier, under Indiana’s mechanic’s lien statute.”

Earlier I mentioned Indiana is a full balance lien state. For US Steel, this means if SSW’s lien is valid and enforceable, US Steel will need to pay SSW for its claim – even though, US Steel already paid Troll.

“Accordingly, we hold that Service Steel’s mechanic’s lien is not barred by the supplier-to-supplier prohibition and the trial court erred in entering summary judgment in favor of U.S. Steel on Service Steel’s mechanic’s lien foreclosure claim.”

Not a Done Deal

Now, the case was remanded, which means the whole gang heads back to court to argue other points of the lien validity, like whether the lien was filed timely. But it’s a checkmark in the win column for this material supplier.

Pro Tip: Whenever possible, use a construction attorney when proceeding with suit. You want an attorney that will argue the finer points and details of construction related law; like whether on-site vs off-site work will determine whether a party is a subcontractor or material supplier.

Security Interest Survives Crazy Collateral Transfers

Posted on October 25, 2021 by - UCC Financing Statements

Bank’s Security Interest Survives Crazy Collateral Transfers; UCC Filing for the Win

It’s a great day to read about a UCC success story! The secured creditor’s UCC filing allowed it to maintain its secured position, despite the collateral being transferred from the debtor’s company to a related company owned by the same debtor. I’ll forewarn you; this case is a little crazy and convoluted, but the takeaway is strong. A security interest, via UCC filing, survives if you properly perfect it.

The Case: IN RE K&L TRAILER LEASING, INC., Bankr. Court, ED TN 2021

I mentioned this case is a bit convoluted. Before we dive in, let’s map out the key players and facts.

  • The Secured Creditor: Greeneville Federal Bank (GFB)
  • The Collateral for the Security Interest: Certain Trailers and Lease and Sales Proceeds
  • The Debtor: K&L Sales & Leasing, Inc. (Sales)
  • The Debtor’s Other ½ of a Company: K&L Trailer Leasing, Inc. (Leasing)
  • Other Creditors: other parties who claim a security interest in the transferred inventory and have filed claims in the Debtors’ bankruptcy cases. (This includes defendant FirstBank, a creditor of Leasing.)

OK, let me explain the debtor’s ½ company. K&L Sales & Leasing, Inc. (Sales) is GFB’s debtor, and is owned 100% by Kris Fellhoelter. Kris also has 50% ownership in K&L Trailer Leasing, Inc. (Leasing); the other 50% is owned by Kris’ parents (Marvin and Linda). Kris is the president of both companies, and according to the court summary, both companies “share other officers, and employees, some of whose salaries were paid by Sales.”

It Started with a $2.5M Loan, Secured by a UCC

GFB loaned Sales $2.5M and GFB perfected its security interest by filing a blanket UCC with the Tennessee Secretary of State. As mentioned above, the collateral included “certain trailers and lease and sale proceeds.” As necessary, GFB continued its security interest by filing Continuations. “At all pertinent times, Sales was engaged in the sale of ‘big rig trailers’ so that GFB’s filing of the UCC-1 perfected its blanket inventory lien on all used trailers owned by Sales.”

Cash Disappeared and Things Got a Bit Questionable

In theory, and in albeit questionable business practices, Leasing would buy trailers from Sales to lease to its customers. “The transfers of trailers from Sales to Leasing ‘ordinarily occurred only after [Leasing] had a potential third party willing to lease that trailer.’” One of the first, but minor-ish, questionable business practices was Kris insisting on being the one to enter these sales transactions in the records for both companies – despite having a CFO that manages the books.

The real questionable behaviors started just before Sales and Leasing both filed for bankruptcy. Here’s a snippet from the court opinion:

“During May 2020, the month before Sales and Leasing filed their bankruptcy petitions, Sales transferred trailers that were subject to GFB’s inventory lien to Kris and Marvin at a rate that was more than twenty times the historical average monthly volume of such transfers, with such transfers in May 2020 exceeding $2 million in value. Transfers by Sales to Leasing, Kris, and Marvin in June (at the end of which the bankruptcy petitions were filed) also far exceeded the previous monthly average for such transfers. Sales’ records for ‘virtually all of the transfers’ from Sales to Leasing or Marvin reflect that Kris was the salesperson. For many of the trailers transferred from Sales to Leasing, Kris, and Marvin in May and June of 2020, the CFO ‘could find no evidence of any funding.’”

So, just before Sales files for bankruptcy protection, it transfers collateral (secured by GFB’s UCC!) to Leasing, and unsurprisingly Sales doesn’t pay GFB.

Know what this sounds like? Well, I’ll tell you what it doesn’t sound like: transfers to a buyer in the ordinary course of business.

Bankruptcy Trustee Tries to Avoid GFB’s Security Interest

GFB argued it was owed the proceeds from these transfers because the transfers didn’t occur in the ordinary course of business and remained protected by its UCC. The Bankruptcy Trustee (Trustee) claimed GFB’s “security interest was interrupted” when Sales transferred goods to Leasing, and that these transfers happened in the ordinary course of business.

Why does that matter?

Well, if the transfers occurred during the ordinary course of business, the Bankruptcy Trustee could avoid GFB’s security interest. In addition to the Trustee’s efforts to avoid GFB’s lien, FirstBank (a creditor of Leasing) joined the fight for funds. FirstBank argued GFB’s security interest was subordinate to FirstBank’s because GFB’s interest ended once goods transferred from Sales to Leasing.

Ultimately, the Trustee and FirstBank arguments relied on these transfers occurring during the ordinary course of business. It was up to GFB to prove the transfers happened outside the ordinary course of business.

GFB Proves It and Wins It; The Security Interest Survives

First, GFB defeated FirstBank’s argument. The court determined, if FirstBank had done its due diligence and run a UCC search, it would have uncovered GFB’s security interest in the trailers in Leasing’s possession.

“Had such would-be creditor of Leasing inquired into how Leasing came into ownership of the trailers, the creditor would have discovered that the trailers were transferred from Sales. That knowledge would then have led the creditor to search the UCC filing office in Tennessee for liens against Sales’ inventory, only to discover the inventory lien of GFB. The discovery of GFB’s lien against Sales’ inventory then would have led to an inquiry into whether the transfer by Sales to Leasing was either (a) approved by GFB or (h) a sale in the ordinary course under section 47-2-403(2) because those are the only two ways that GFB’s perfected security interest in the inventory of Sales could have been lost by Sales’ transfer to Leasing of the inventory on which GFB had a perfected security interest.”

Next, GFB defeated the Trustee. When relying on “ordinary course of business” failed the first time, the Trustee claimed it was within its “strong arm power” (see Bankruptcy Code 11 U.S.C. § 544(a)(3)) to avoid GFB’s security interest. And that’s where the argument failed a second time.

“…under Tennessee law as discussed above, unless the trailers at issue were transferred by Sales to Leasing as a buyer in the ordinary course or with GFB’s permission, GFB’s perfected security interest in those trailers continued in the hands of Leasing, and nothing about § 544(a)(1) or (2) allows the Trustee to overcome GFB’s prior perfected security interest.”

GFB’s security interest survives and its secured creditor status remains in tact.

Never underestimate the power of a properly perfected security interest. Your UCC filing is the leverage and protection you need to ensure recovery of your receivable.