Service Area: Notice and Mechanic’s Lien Services

Utah Mechanic’s Lien and Bond Claim Rights

Posted on October 11, 2021 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

What You Should Know about Securing Utah Mechanic’s Lien and Bond Claim Rights

Furnishing to a construction project in the Beehive State? Well, today’s post is just for you as we explore Utah mechanic’s lien and bond claim rights.

Utah Mechanic’s Lien Rights

If you are furnishing to a private construction project, you should file a preliminary notice with the State Construction Registry (aka the SCR) within 20 days from first furnishing. The SCR is an online database for required notices for commercial, public, and residential construction projects.

We are often asked “Can I send a late notice?” Yes, for projects in Utah, a late preliminary notice may be filed; however, the lien will only be enforceable for materials and services furnished 5 days or more after the notice is filed.

Need to proceed with a mechanic’s lien? You should file the lien within 90 days from the filing of the notice of completion or within 180 days from final completion of the original contract if no notice of completion has been filed. And you should serve a copy of the lien upon the owner within 30 days from filing the lien.

In the unlikely event you need to proceed with suit to enforce your mechanic’s lien on a commercial project, you should file suit within 180 days from filing the lien.

If the private project is residential, you should familiarize yourself with the Residential Lien Recovery Fund. If the owner can prove compliance with the requirements of the Residential Lien Recovery Fund, the lien will have to be released. The claimant can apply to the fund for payment of the claim provided a judgment has been obtained against the debtor and the claimant is registered with the fund. Suit to enforce a claim under the Lien Recovery Fund must be filed within the earlier of 180 days from filing the lien or 270 days from completion of the original contract.

Have you heard of the Preconstruction Service Lien? This lien is available to those who provide designing or planning services prior to construction. If you provide these services, you should file a Notice of Preconstruction Service on the database within 20 days from first performing service, then file the Preconstruction Service Lien within 90 days from completion of the preconstruction service, and file suit to enforce the lien within 180 days from filing the Preconstruction Service Lien.

Utah Lien Waivers

Utah is one of about a dozen states that has specific lien waiver requirements. Here’s a Utah Waiver and Release Upon Progress Payment followed by a Utah Waiver and Release Upon Final Payment.

Utah Lien Waiver - Partial

Utah Lien Waiver - Final

Utah Bond Claim Rights on Private Projects

Yes, you read that right, a payment bond may be issued for a private project in Utah (Utah Code Ann. 14-2). Generally, payment bonds are required on commercial projects exceeding $50,000, and if the owner fails to require a payment bond, the owner is liable to the claimant. To secure bond claim rights, you should file your preliminary notice with the SCR within 20 days from first furnishing.

There is no statutory provision requiring you to serve a bond claim. However, it is recommended you serve a bond claim upon all parties within 90 days from your last furnishing. If you need to proceed with suit to enforce the bond claim, you should file suit after 90 days from your last furnishing, but within 1 year from last furnishing.

Utah Bond Claim Rights on Public Projects

The process for securing bond claim rights on a public project is nearly the same as it is for private projects. You should file your preliminary notice with the SCR within 20 days from first furnishing or within 20 days from the filing of a notice of commencement, whichever is later. A late preliminary notice may be filed; however, the bond claim will only be enforceable for materials and services furnished 5 days or later after the notice is filed. A preliminary notice is not required if a notice of commencement is not filed.

Generally, there is no statutory provision requiring a bond claim notice. It is recommended to serve a bond claim notice upon all parties within 90 days from last furnishing. If the public entity fails to require a payment bond, the public entity is liable to the claimant and shall make payment to the claimant upon demand. Serve bond claim notice upon the public entity within 90 days from last furnishing.

File suit to enforce the bond claim after 90 days from last furnishing, but within 1 year from last furnishing. If the public entity fails to require a payment bond, file suit against the public entity within 1 year from last furnishing.

Retainage on Utah Construction Projects

Utah’s statute dictates retainage may not exceed 5%:

Utah Code Ann. 13-8-5(3)

(3) (a) Notwithstanding Section 58-55-603, the retention proceeds withheld and retained from any payment due under the terms of the construction contract may not exceed 5% of the payment:

(i) by the owner or public agency to the original contractor;

(ii) by the original contractor to any subcontractor; or

(iii) by a subcontractor.

(b) The total retention proceeds withheld may not exceed 5% of the total construction price.

(c) The percentage of the retention proceeds withheld and retained pursuant to a construction contract between the original contractor and a subcontractor or between subcontractors shall be the same retention percentage as between the owner and the original contractor if:

(i) the retention percentage in the original construction contract between an owner and the original contractor is less than 5%; or

(ii) after the original construction contract is executed but before completion of the construction contract the retention percentage is reduced to less than 5%.

Generally, any retention should be released pursuant to a billing statement from the contractor within 45 days from the date the owner receives a billing statement from the contractor, the date of final acceptance or the date a certificate of occupancy is issued, or the date the contractor accepts final payment, whichever is later.

Utah’s Prompt Pay Statute

The prime contractor should release progress payments to its subcontractors within 30 days after the owner remits payment to the prime. For final payments, the prime contractor should release funds to its subs 10 days after it receives final payment from the owner. [Utah Code Ann. 13-8-5]

Subcontractors should release progress payments to its subs/suppliers within 30 days after it receives payment from the prime. And, similar to prime contractors, the subcontractor should release final payments within 10 days after it receives its final payment from the prime contractor. [Utah Code Ann. 58-55-603]

Questions about securing Utah mechanic’s lien or bond claim rights? Contact us and speak with a specialist today!

Mechanic’s Lien Rights in Canada at a Glance

Posted on October 4, 2021 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Let’s Talk Mechanic’s Lien Rights in Canada

Over the last few years, several provinces in Canada have modernized or proposed amendments to their mechanic’s lien laws. Notably, Ontario paved the way for longer lien deadlines and prompt pay statutes, with its changes in 2018. Like lien rights in the U.S., each of Canada’s provinces has its own statute, which dictates when/if a notice should be served, when a lien should be recorded, and when a suit action must be initiated. So, let’s travel north and review the steps for securing mechanic’s lien rights in Canada.

Project Types: Private, Provincial Crown, Federal Crown

Although today’s post is primarily about mechanic’s lien rights in Canada, it’s worth noting that projects in Canada will fall into one of three categories:

  • Private: improvement contracted by a private entity, e.g., a person, company, or corporation
  • Provincial Crown: improvement of public works or building under formal contract made by Provincial government
  • Federal Crown: a contract for construction, alteration, or repair of any public building or public work of the Canadian government

Provincial and Federal Crown projects are generally not lienable, and any remedy available to claimants will likely be under a Labour & Material Bond. The Labour & Material Bond is a surety bond issued as assurance of payment to certain parties should the principal of the bond breach their construction contract.

10 Provinces, 3 Territories, 1 Requires a Preliminary Notice

Canada is comprised of 10 provinces: Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland / Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec, Saskatchewan, and 3 territories:  Northwest Territories, Nunavut and Yukon. Only one requires a preliminary notice to preserve mechanic’s lien rights: Quebec.

For those familiar with securing lien rights in the U.S., it may seem odd to not have a preliminary notice requirement. After all, most states require a preliminary notice and NCS’ research shows 97% of the time serving a notice will prompt payment, reducing the likelihood of a mechanic’s lien.

Though most Canadian provinces do not have preliminary notice requirements, you could serve a non-statutory notice. This gently worded notice alerts parties on the ladder of supply that you are (or will be) furnishing to the project.

Is 1 the loneliest number? If you are furnishing to a project in Quebec, you should serve notice (Declaration of Contract) upon the owner prior to furnishing or prior to the fabrication of specially fabricated materials. The lien (aka legal hypothec), when later filed, will be limited to the materials or services provided after the notice has been served.

I did say only 1 province has a notice requirement, and while that is technically the case, both Ontario and Nova Scotia provide claimants an opportunity to serve a written request upon the owner, prime contractor, or subcontractor for project information and a copy of any payment bond.

Also, Ontario, Prince Edward Island, and Saskatchewan have a Notice of Lien which may be served upon the payer (the owner, prime contractor, and subcontractor), requiring them to retain, in addition to the holdback, an amount sufficient to satisfy a lien.

Lien & Suit Deadlines Will Sneak Up on You

When you review the chart below, you may notice two things right away: the lien deadlines are often calculated from your last furnishing, and the deadlines happen quite quickly. In the U.S., we frequently see lien deadlines within 90-120 days from last furnishing (even 8 months in New York!). The same is not true for Canada, where lien deadlines are generally within 30-60 days from last furnishing.

Mechanic’s Lien Rights in Canada at a Glance

The National Lien Digest provides greater detail, but here are the general lien deadlines for all 13 provinces/territories:

[table id=3 /]

Earlier I mentioned Ontario recently modernized their mechanic’s lien statute. Part of the modernization included the implementation of a longer lien filing period, giving would be claimants an additional 15 days to file their liens. (Lien deadline used to be 45 days from last furnishing.)

Advice for Lien Rights in Canada

Because deadlines are short, carefully track your deadlines, monitor open invoices, and maintain an open line of communication with your customer.

If you have questions about securing lien rights in Canada or need assistance with filing a lien, please contact us! In addition to our network of attorneys in the U.S., NCS has a well-established network of attorneys in Canada who are prepared to assist with your claim.

Add a Check to Your Mechanic’s Lien Checklist

Posted on September 27, 2021 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Keeping A Mechanic’s Lien Checklist? Here’s One More Thing to Add to Your Mechanic’s Lien Checklist: A Check for Recording Fees.

It’s a detailed and sometimes cumbersome process to ensure your mechanic’s lien rights are secured. The process is more than painstakingly researching the project, properly serving the correct parties, and ensuring you have sufficient backup documentation to support your claim. Did you know your mechanic’s lien could be rejected by the recording office if you fail to provide a check for the exact amount of the recording fees? It happened to one lien claimant in New York, when it sent two checks to the recorder’s office and neither check was for the correct amount.

Quick Look at New York Lien Deadlines

Before we go through the case, let’s review the mechanic’s lien deadline. For commercial projects in New York, the lien should be filed within 8 months from last furnishing. The lien claimant in this case last furnished March 12, 2020, which means its mechanic’s lien deadline was November 12, 2020.

NY ML Deadline Calculation 21

Now, I’m just going to put this out there: in general, the claimant was cutting it close, especially in an unpaid balance lien state. Remember, in New York, the lien is enforceable for the unpaid portion of the contract, either what is owed by the owner or what is owed to your customer.

OK, onto the case. 

The Twice Rejected Mechanic’s Lien

In this case, the lien claimant mailed its mechanic’s lien to the Kings County Clerk for recording. Included with its lien was a $35 check and a $10 check.

The clerk received the two checks and the mechanic’s lien on November 4, 2020; the lien was dated October 29, 2020, and the date of last furnishing was March 12, 2020.

The clerk rejected the lien because the claimant failed to include a check for the correct fees. The clerk returned the lien, the two checks, and a note explaining the rejection, to the lien claimant.

Under New York’s Civil Practice Law & Rules 8021(b)(4), the fee to file a notice of mechanic’s lien within the city of New York (Kings County) is $30.

“For filing a notice of mechanics lien, or a notice of lending, in counties within the city of New York, thirty dollars, and in all other counties, fifteen dollars. No fee shall be charged for filing a notice or order continuing, amending or cancelling same, but when a mechanics lien is discharged by deposit with a clerk of the court, there shall be a fee of three dollars in all counties other than those within the city of New York.”

Then, on November 13, 2020, the clerk received the same lien for recording, this time with a check for the correct fee. However, based on the last furnishing date listed on the mechanic’s lien (03/12/2020), the deadline to file the lien was November 12, 2020. So, the clerk rejected the lien and returned the lien to the claimant because the lien was “past the date of filing as per statute of limitations 8 months.”

Can We Blame COVID?

The lien claimant did not dispute the second rejection; understanding the lien was received a day late. However, the claimant did dispute the original rejection.

The lien claimant argued it couldn’t timely correct the initial filing issue (incorrect check amount) because the Kings County Clerk’s Office was closed to the public during the pandemic. Further arguing, the clerk should have called the claimant to see what it should do with the check for $35.

Perhaps the lien claimant should have called the clerk’s office, because as it turns out, the clerk’s office was not closed to the public during the pandemic.

“The Kings County Clerk’s Office was not and is not closed to the public. The Kings County Courthouse where The Kings County Clerk’s Office is located at all relevant times was open to the public, and a person seeking to file in person a notice of mechanics lien at could do so. Persons filing were not permitted to enter room 189, however a representative was available at the entrance to Room 189 to review the notice and if found to be in compliance with statutory requirements, accept it on behalf of The Kings County Clerk’s Office.”

This means, the lien claimant had an opportunity to timely record its lien in person. Unfortunately, since the lien claimant failed to do so, its mechanic’s lien rights were lost.

Nope, can’t blame COVID.

Double Check: Check Your Check and Check Your List

Add a check to your checklist – not a checkmark check but a monetary check – never mind. Don’t forget to confirm with the recording office the cost of the fees to record the document(s) and then include a check for the exact amount of the recording fees. Failing to include payment or including an incorrect payment, is enough to have a lien filing rejected by the clerk of courts. Also, don’t wait until the last minute. While this claimant couldn’t blame COVID, COVID has put a hamper on timely mail and caused building closures.

Is it too soon to say, “A day late and a dollar short?”

Is the Lien Consensual or Statutory?

Posted on August 30, 2021 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit, UCC Financing Statements

What’s the Difference between Consensual and Statutory Liens?

In commercial credit, creditors have an opportunity to secure accounts receivable by establishing their right to certain collateral. Then, in the event the debtor fails to pay, the creditor can leverage the collateral for payment. Depending on the goods or services provided, the collateral may be personal property or real property, and both could be secured by a lien. There are two types of liens creditors may use: consensual or statutory. The primary difference between consensual and statutory liens is that one requires consent and the other arises automatically from law or statute.

UCC Filings Are Consensual Liens

A properly perfected UCC filing benefits creditors that provide equipment, inventory, and consigned goods. To perfect the security interest the debtor must execute a Security Agreement. This Security Agreement grants the creditor a security interest in the goods/services, as noted in the collateral description within the agreement, in the event the debtor defaults or files for bankruptcy protection.

The key for consent lies within the text of the Security Agreement. The Security Agreement should include a granting clause, whereby the debtor grants the creditor a security interest in the debtor’s collateral. In other words, when your customer signs a Security Agreement, they are saying it is OK for you to proceed with filing a UCC (lien) to secure your rights to the described collateral. Your customer is providing you with consent.

Please note, if your Security Agreement does not include a granting clause, it isn’t a Security Agreement. Having your customer sign an agreement that is missing a granting clause means your customer isn’t providing consent for you to file the UCC on the collateral.

The granting clause does not need to be fancy or embellished with extraneous words or phrases. An example of a granting clause is: “In consideration for the extension of credit, Debtor hereby grants a security interest in and assigns to the Secured Party the Collateral described in paragraph II below to secure payment and performance of all debts, liabilities and obligations of Debtor of any kind whenever and however incurred to Secured Party.”

Mechanic’s Liens Are Statutory Liens

If a creditor is furnishing materials or services to the improvement of real property, the creditor may be entitled to a mechanic’s lien. The mechanic’s lien process does not require the debtor’s approval or consent, because it is a matter of law or statute. Each state’s statute may vary, but they generally permit the filing of a mechanic’s lien on the real property in the event the creditor isn’t paid. Hence, statutory lien.

Although it does not require your customer’s permission, there may be prerequisites to filing a mechanic’s lien. The most common prerequisite? Timely serving a preliminary notice upon parties within the ladder of supply. In fact, 33 states have a statutory preliminary notice that should be served prior to filing a mechanic’s lien on a private project.

It’s also imperative you carefully monitor the statutory deadlines. Statute will dictate when the notice and/or mechanic’s lien must be filed and failing to comply with statute could invalidate your lien. You certainly wouldn’t want to jeopardize your payment security.

Different, But Equally Beneficial

There are strict rules when filing a UCC or mechanic’s lien, as they are different types of processes with their own idiosyncrasies. But both processes can assist creditors with securing payment or recovery – in some cases, creditors can take advantage of UCCs and mechanic’s liens at the same time for the same debtor. Bonus? NCS specializes in both & is ready to assist you!

Compliance with UCC 9-503(a) when Filing UCC in Georgia

Posted on August 23, 2021 by - UCC Financing Statements

Filing a UCC in Georgia? Make Sure You Correctly Identify the Debtor because Georgia Takes “Seriously Misleading” Seriously.

Compliance with UCC 9-503(a) must be one of the easiest and most challenging aspects of perfecting security interests. A contradiction, right? Under Article 9, a debtor should be identified on the UCC as its name appears on the public organic record (organization) or unexpired driver’s license (individual) – it’s that easy. And yet, following the Article 9 requirement has proven time and again to be quite a challenge for creditors when filing UCCs. And most courts, like the U.S. Bankruptcy Court in Georgia, are no nonsense when it comes to properly perfecting a security interest.

What is Compliance with UCC 9-503(a)?

In compliance with UCC 9-503(a), when the debtor is a registered organization, creditors should rely on the information found on the public organic record.

If the debtor is an individual, creditors must first look to the state’s legislation.  With the 2010 Amendments, each state had to decide whether they would implement “Alternative A” or “Alternative B.”

  • Alternative A: if the debtor holds an unexpired driver’s license, the Financing Statement must list the debtor’s name as it appears on the unexpired driver’s license. (If the debtor does not have a driver’s license, the Financing Statement should list the “individual name” of the debtor or the debtor’s surname and first personal name.)
  • Alternative B: the debtor’s driver’s license name, the debtor’s actual name or the debtor’s surname and first personal name may be used on the Financing Statement.

Summary of IN RE Bryant, Bankr. Court, MD Georgia 2021

The debtor, Darren Eugene Bryant (Bryant), filed for bankruptcy protection. The creditor, Regions Bank (Regions), filed a Proof of Claim for $2,515,673.21, which included both funds secured by a UCC filing and unsecured funds. The bankruptcy trustee argued Regions’ UCC was seriously misleading (thus unperfected) because Regions failed to correctly identify Bryant on the UCC.

  • Bryant’s unexpired driver’s license identified him as: Darren Eugene Bryant
  • Regions’ UCC Financing Statement identified Bryant as: Darren E Bryant or Darren E. Bryant

You see where this is going, right? This is from the court opinion:

“The financing statement must include the name of the debtor, the name of the secured party or a representative of the secured party, describe the collateral covered by the financing statement, and state the maturity date of the security obligation or state that the obligation is not subject to a maturity date. The name on the financing statement sufficiently identifies a debtor ‘if the debtor is an individual to whom this state has issued a driver’s license that has not expired, only if the financing statement provides the name of the individual which is indicated on the driver’s license[.]’”

Yep, Regions failed to comply with UCC 9-503(a).

“The Trustee argues that the Debtor’s name as listed on [Regions’] financing statements does not comply with O.C.G.A § 11-9-503(a)(4). This Court agrees. The statute requires that, for the financing statement to be effective, the name must ‘provide the name of the individual which is indicated on the driver’s license.’”

But, But, But… No, Buts, The Instructions Are Clear

In rendering its decision, the court points to the standard filing form provided by GSCCCA, stating “The UCC-1 form specifically notes that any part of Debtor’s name should not be abbreviated. While [Regions] attempted to argue that the abbreviation of the Debtor’s name still matched the Debtor’s driver’s license, [Regions] abbreviated the Debtor’s name from the name on the driver’s license despite the explicit instructions to the contrary. Therefore, the name on the financing statement does not match the Debtor’s name on the Debtor’s driver’s license, [Regions] financing statement does not comply with O.C.G.A § 11-9-503(a)(4).”

Here’s the Debtor’s Name section of the Financing Statement:

Debtor Section of UCC

Here’s the instructions for the form (highlight added):

Instructions for Debtor Section of UCC

Would It Appear in the Search?

You’re familiar with the phrase “grasping at straws,” yes? Well, in true straw-grasping-fashion, Regions tried one more argument. Regions argued if a search was done without the middle name and/or middle initial, its UCC filing would have appeared. But, the court disagreed, because in theory the searcher would be searching by the name as it appears on the driver’s license.

“A third party searching for a lien on potentially encumbered property relies on the system created by the Georgia Superior Court Clerks’ Cooperative Authority, the ‘GSCCCA,’ to produce results. Whether using the exact search or the stem search, the Georgia UCC Search logic description states, “[w]hen searching for an individual, [the Debtor’s] last name and first name are required, [the Debtor’s] middle name is optional.’ Georgia Superior Court Clerks’ Cooperative Authority, UCC NAME SEARCH LOGIC. Therefore, a proper search done by the guidelines set by the GSCCCA could include a debtor’s middle name. Liens that would not be disclosed by a search that includes a debtor’s middle name would not be perfected. In this case, a third-party searcher optionally could include the Debtor’s middle name, Eugene, when searching for encumbered property, which would not disclose [Regions’] lien. Because a search for “Darren Eugene Bryant”, a correct search according to the guidelines set by the GSCCCA for liens on the Debtor’s property, would not have disclosed [Regions’] lien, [Regions’] financing statement would qualify as seriously misleading under § 11-9-506(c).”

It’s an expensive lesson to learn. Always, always, always identify the individual debtor by the name that appears on their unexpired driver’s license.

UCC Filings Work, Here’s a $95,000 True Story

Posted on August 9, 2021 by - UCC Financing Statements

Yes, UCC Filings Work, and Here’s a $95,000 True Story

With a properly perfected security interest (aka UCC filing), you can recover funds (or inventory/equipment) from your customer in the event of default or bankruptcy. Of course, as a brilliant credit professional this is not news to you, after all, it’s why you file UCCs – to protect your receivable. But did you know you could potentially recover funds from unsecured creditors who were paid with funds secured by collateral identified in your UCC? It’s true; UCC filings work.

Let Me Be Candid for Just a Second

Here’s the reality, sometimes UCCs unfairly get a bad rep. I’ve heard creditors balk at UCCs, claiming they are ineffective, a waste of money, and for all intents and purposes, useless. Some say, “Why bother filing a UCC, the bank is always going to be ahead of me?” or “Nah, there’s no guarantee that UCC will get me paid!” and others “Well, even if I file a UCC, if my customer files for bankruptcy, I won’t see a dime.”

Further, some believe in putting their security all in one proverbial basket : “We don’t need UCCs, we use credit insurance,” or “We don’t need UCCs, we file 503(b)(9) claims.” And, you know what? Is it possible, perhaps even likely, a bank will ask you to subordinate? Sure. Are UCCs an absolute guarantee? Nope, though neither is credit insurance or 503(b)(9) claims. But it bears repeating, UCC filings work. Honest, they do.

So, for my credit friends hanging out in the UCC-non-believer-pool, this is a $95,000 story you should read.

Tale as Old as Credit: Secured Creditor vs. Unsecured Creditor

In a recent decision from a U.S. Bankruptcy Court in Kentucky, secured creditor Nutrien AG Solutions, Inc. (Nutrien) was awarded summary judgment and able to recover funds paid by the debtor to unsecured creditor Burkmann Feeds of Glasgow, LLC (Burkmann).

The relationship between the debtors and Nutrien began in 2013, at which time Nutrien executed several Security Agreements with the debtors and then filed its UCCs. The relationship continued, an additional Security Agreement was executed in 2017, and its UCC filings were appropriately amended to include additional debtor names. The collateral description within the 2017 agreement and on the UCC filing was (emphasis added):

“All of the following whether now owned or hereafter acquired, all products and proceeds thereof, all additions or accessions thereto, and all substitutions and replacements thereof: All crops growing, grown or to be grown in 2017 and subsequent years. All harvested crops. All warehouse receipts or other documents (negotiable or non-negotiable) issued for storage of such crops. All seeds, fertilizer, chemicals and petroleum, and any other crop input products. All inventory, contract rights, chattel paper, documents, instruments, supporting obligations, accounts, general intangibles, and cash and noncash proceeds from the sale, exchange, collection, or disposition of any of the Collateral. All entitlements and payments, whether in cash or in kind, including but not limited to agricultural subsidy, deficiency, diversion, conservation, disaster, contract reserve, under any government or any similar or other programs. All farm and business machinery, equipment and tools.”

In 2018, the debtors entered a “Payment Agreement” with Burkmann and Burkmann did not file a UCC. Within the agreement, the following appears: “I hereby agree to give my entire MFP payment as partial payment for charges incurred regarding the above account number with Burkmann Feeds of Glasgow, LLC.” (MFP = Market Facilitation Program)

There were some other issues with this case, but ultimately the debtors applied for and received MFP payments totaling $95,000. The debtors then used the subsidy payments to pay Burkmann $95,000. Nutrien caught wind of this payment to Burkmann and Nutrien’s counsel sent a demand to Burkmann for the $95,000. Burkmann denied Nutrien’s demand.

Fast forward. Debtors file for bankruptcy. Burkmann files its proof of claim, and attached a promissory note and real estate mortgage, but no UCC filing. Nutrien contended its own properly perfected security interest covered the MFP payment that was made to Burkmann. The court agreed:

“The Application & Note/Security Agreement executed by the Debtors on July 11, 2017, at Paragraph 2, granted a security interest to Nutrien on all entitlements and payments “including but not limited to agricultural subsidy, deficiency, diversion, conservation, disaster, contract reserve, under any government or any similar or other programs.” As outlined in the Findings of Fact section of this Memorandum, Nutrien properly perfected its security interest in payments from all governmental programs by filing UCC Financing Statements against each of the Debtors. Since Burkmann Feeds did not perfect any security interest with respect to the funds owed them by the Debtors in 2018, Nutrien’s interest takes priority over any interest of Burkmann Feeds in the MFP payments.”

Recap:

“Nutrien properly perfected its security interest… Since Burkmann Feeds did not perfect any security interest… Nutrien’s interest takes priority over any interest of Burkman Fees in the MFP payments.”

Ouch, that’s gotta sting.

As with any court case, there was additional back and forth. Futile efforts by Burkmann to stake its claim in this $95,000, but the court wasn’t having it. Ultimately, the court then determined Burkmann was guilty of conversion. Admittedly, I was unfamiliar with conversion, but in Kentucky it is the “wrongful exercise of dominion and control over property of another.” In other words, Burkmann accepted funds that belonged to Nutrien.

Here comes my favorite part:

“Nutrien made demand on Burkmann Feeds for return of the $95,000 paid to the Debtors which they then paid to Burkmann Feeds under the MFP program. Under Article 9 of the UCC, Nutrien had superior rights to these funds over Burkmann Feeds at the time Burkmann Feeds took possession of them. Burkmann Feeds exercised dominion and control over the funds in a manner that denied Nutrien its rights in the funds. Burkmann Feeds intended to interfere with Nutrien’s rights to the payments when it refused Nutrien’s demand for return of the funds and Nutrien was damaged by the loss of the funds by Burkmann Feeds’ refusal to return them. Thus, all of the elements to establish a claim for conversion are met.

The facts as determined by the Court based upon the record are undisputed. Under Article 9 of the UCC, Nutrien had a perfected security interest in the $95,000 MFP payment that the Debtors paid to Burkmann Feeds. Burkmann Feeds’ interest was subordinate to that of Nutrien and under the undisputed facts, Burkmann Feeds’ retention of those funds constitutes conversion under Kentucky law. Accordingly, summary judgment in favor of Nutrien on Count III of the Complaint is appropriate.”

What does that mean?

Burkmann, the unsecured creditor who didn’t file a UCC, gets to pay Nutrien, the secured creditor who did file a UCC, $95,000.

Yes, UCC filings work.

Legislative Updates in Construction 2021

Posted on July 26, 2021 by - Legislative Updates & News Alerts, Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Notice, Mechanic’s Lien, and Bond Claim Legislative Updates 2021

In 2021, several states have enacted legislative updates to their mechanic’s lien and bond claim statutes. We’ve previously discussed some of the big changes (ahem, yes Arkansas, Iowa, and Texas – I’m looking at you), but here’s a quick recap of 2021 statute changes thus far.

GEORGIA SB143

New Form for the Affidavit of Non-Payment

Georgia SB143, effective 7-1-2021, provides a new form for the Affidavit of Non-Payment under O.C.G.A. 44-14-366. The form should be in at least 12-point font, and though statute presents the form in bold capital letters, it doesn’t have to be bold/capital.

AFFIDAVIT OF NONPAYMENT UNDER

O.C.G.A. 44-14-366

STATE OF GEORGIA

COUNTY OF __________

THE UNDERSIGNED MECHANIC AND/OR MATERIALMAN HAS BEEN EMPLOYED BY ____________________________ (NAME OF CONTRACTOR) TO FURNISH _______________________ (DESCRIBE MATERIALS AND/OR LABOR) FOR THE CONSTRUCTION OF IMPROVEMENTS KNOWN AS _______________________ (TITLE OF THE PROJECT OR BUILDING) WHICH IS LOCATED IN THE CITY OF ______________, COUNTY OF ________, AND IS OWNED BY  _______________________ (NAME OF OWNER) AND MORE PARTICULARLY DESCRIBED AS FOLLOWS: _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________

(DESCRIBE THE PROPERTY UPON WHICH THE IMPROVEMENTS WERE MADE BY USING EITHER A METES AND BOUNDS DESCRIPTION, THE LAND LOT DISTRICT, BLOCK AND LOT NUMBER, OR STREET ADDRESS OF THE PROJECT.)

PURSUANT TO O.C.G.A. 44-14-366 THE UNDERSIGNED EXECUTED A LIEN WAIVER AND RELEASE WITH RESPECT TO THIS PROPERTY DATED ______________, ____. THE AMOUNT SET FORTH IN SAID WAIVER AND RELEASE ($______) HAS NOT BEEN PAID IN FULL AND $_________________ OF THE AMOUNT SET FORTH IN SAID WAIVER AND RELEASE REMAINS UNPAID, AND THE UNDERSIGNED HEREBY GIVES NOTICE OF SUCH NONPAYMENT.

THE ABOVE FACTS ARE SWORN TRUE AND CORRECT BY THE UNDERSIGNED, THIS ______ DAY OF ______________, ____.

____________________(SEAL)

CLAIMANT’S SIGNATURE

SWORN TO AND EXECUTED

IN THE PRESENCE OF:

_____________________

WITNESS

____________________

NOTARY PUBLIC

TENNESSEE HB0633

Electronic Document Recording

Effective 7-1-2021, an electronic document must be certified by either a licensed attorney or the custodian of the original version of the electronic document and the signature of that person must be acknowledged by a notary public. The certification must be transmitted with the electronic document and recorded by the county register as a part of the document being registered. Legislation

ARKANSAS HB1835 & HB1855

HB1835: Residential Contractor’s Lien Notice Requirement & HB1855: Payment Bonds Issued for Construction Contracts 

AR HB1835, effective 7-30-21, amends the residential contractor’s lien notice requirement and AR HB1855, also effective 7-30-21, requires a payment bond for public construction contracts exceeding $50,000 and for private religious or charitable organization projects, a payment bond is required for contracts exceeding $20,000. The deadline to serve a bond claim has been changed to 90 days from last furnishing materials and services, and the deadline to file suit to enforce a bond claim (on either public or private project) has also changed.  Here’s a recent post about Arkansas’ changes.

IOWA HF561

Mechanic’s Liens Covering Multiple Counties

Effective 1-1-22, Iowa HF561 requires a mechanic’s lien involving property that covers multiple counties to be posted once on the Mechanics’ Notice and Lien Registry and indexed on all applicable counties. Additionally, in a court action to enforce or challenge a mechanic’s lien, or an action brought upon any bond given in lieu thereof, the updated statute allows for a prevailing plaintiff to be awarded attorney fees, and on a residential construction property, a person challenging the lien or defending an action against the bond may be awarded attorney fees.

Check out Changes to Iowa’s Mechanic’s Lien Law in Effect January 2022.

TEXAS HB2237

Changes to Second Month Notice Requirements, Notice Delivery, New Forms, and More 

Texas statute changes are for original contracts entered into ON or AFTER January 1, 2022. You should continue to serve second month notices for current contracts. Learn more in this blog post: Changes for Texas Mechanic’s Lien Claimants Effective January 1, 2022.

Stay Tuned

We’ll keep you posted on additional legislative updates as we progress through 2021.

Survey: Securitization on A/R During the Pandemic

Posted on July 12, 2021 by - In Other Commercial Credit News, Mechanic's Liens & Bond Claims, UCC Financing Statements

Credit Research Foundation Survey: The Use & Impact of Securitization on A/R During the Pandemic

Originally published in The Credit Research Foundation’s Perspective newsletter (June 2021)

The Credit Research Foundation recently surveyed their membership on the use and impact of securitization (UCCs, mechanic’s lien, etc.) on accounts receivable during the pandemic. The survey explored the use of securitization as a risk mitigation tool.

“I Believe There Will Be an Increase in Bankruptcies During 2021.”

Unsurprisingly, 88% of respondents believe there will be an increase in bankruptcies in 2021. In general, 2020 saw a low rate of bankruptcies, in fact Epiq reported bankruptcy filings across all chapters were at their lowest point since 1986. However, commercial Chapter 11 bankruptcies continued to rise year over year, with a 29% increase in 2020, for a total of 7,128 filings. Forecasts indicate bankruptcy filings will increase in 2021, with a predicted spike in Q3 2021.

Why Will Bankruptcy Filings Increase in 2021?

This is certainly a question on many credit professionals’ minds as the challenges of the economy, government stimulus and indebtedness in the marketplace plague the overall portfolio risk of many organizations.  Additionally, Congress extended Sub-Chapter 5 of the Bankruptcy Code (small business) and the grace period to file under the extended debt levels ($7.5 million) an additional year, which now expires in March of 2022.  Given these factors there seems to be an awareness to the potential for at least certain segments of the economy to file for bankruptcy.  Anecdotally, conversations from many members of the Foundation have all eyes on Q3 and Q4 of 2021 as a pivotal and anticipated point for the next level of bankruptcy activity.

In an earlier NCS survey, 62% of respondents were actively monitoring their customers for bankruptcy. Continue to monitor your customers, and if there is a bankruptcy, ensure to complete your Proof of Claim by the bar date.

“Our Company Has Been an Unsecured Creditor in a Bankruptcy and Recovered Less Money Than Secured Creditors.”

An overwhelming 90% of respondents have suffered as unsecured creditors in a bankruptcy, watching from the sidelines as secured creditors recovered payments in full. These losses are preventable and at minimal cost. Secured transactions are your greatest defense against customer failure. Time & time again, we see secured creditors receive payment in full while unsecured creditors receive pennies on the dollar.

For example, Katy Industries, a leading manufacturer, importer, and distributor of commercial cleaning and consumer storage products, filed for bankruptcy when it was unable to meet the obligations of its creditors, with nearly $56 million of debt. In this case, secured creditors recovered the total amount of allowed claims (100%) while unsecured creditors faced a recovery rate of only 9.6%.

Another example comes from the healthcare industry. Holmes, Inc., provided health & wellbeing programs nationwide. When it filed for bankruptcy protection, its capital deficit was $31.5 million. According to the bankruptcy plan, secured creditors were to receive 100% of their claims and unsecured creditors were to receive approximately 3.5% of their claims.

Need more? In the Hostess bankruptcy, secured creditors recovered 100% and unsecured creditors recovered 0. In Kodak’s bankruptcy, secured creditors recovered 100% and unsecured creditors recovered 4-5%. Then there was Uno, where secured creditors received 100% and unsecureds received 13%. And HomeBanc Corp. distributed 100% of claims to secured creditors and unsecureds recovered anywhere from 1-10%.

“Our Company Currently Secures Our Accounts Receivable, Either in Full or Partially.”

83% of respondents currently secure their A/R. For the 17% who don’t currently secure A/R, the top two cited reasons are concerns about customer reaction and the costs associated with securing A/R, followed by no significant write-offs, no need, and reliance on 503(b)9 claims. A respondent from the manufacturing industry stated they do not secure A/R because “We have an 85% recovery rate as a Critical Vendor in our industry.”

Let’s circle back to the top two cited reasons for not securing A/R:  concerns about customer reaction and costs. First, it’s OK to be nervous about how your customer will respond to your request for a signed Security Agreement (needed to file UCCs) or your customer’s reaction when they receive a preliminary notice (needed to secure mechanic’s lien rights) via certified mail. But rest assured, these are traditional business practices that do not harm your customer’s creditworthiness or cost your customer a dime. UCCs and preliminary notices/mechanic’s liens secure your right to recover payment in the unlikely event your customer defaults or files bankruptcy. If your customer never defaults or files for bankruptcy, it’s as though the UCC/lien never existed.

As for the costs associated with UCCs and preliminary notices/mechanic’s liens, they are nominal compared to the hundreds of thousands of dollars you could lose as an unsecured creditor. These are general numbers, but a blanket UCC filing may cost around $100 and a PMSI filing with search & notify may cost around $175, and the protection is in place for 5 years. As for preliminary notices/mechanic’s liens, let’s focus on the preliminary notice. Why? Because research shows 97.3% of the time a preliminary notice is enough to get you paid. Generally, a preliminary notice may cost around $60 per project. Now, mechanic’s liens may have a higher price tag ($500+) but again, when compared to what you could lose, it’s a small price to pay.

Lastly, I do want to mention that 503(b)9 claims are a great resource; however, there are some pitfalls. The bankruptcy code was amended in 2005 to include a new administrative claim: 503(b)(9). With the addition of 503(b)(9) claims, some creditors became complacent. The availability of a 503(b)(9) claim seemed to misleadingly allay creditor concerns, “Nah, I don’t need UCC filings. We just file a 503(b)(9) to get paid.” This somewhat false sense of security can easily cost creditors millions of dollars.

Under 503(b)(9), creditors may file a claim for “the value of any goods received by the debtor within the 20 days before the date of commencement of a case under this title in which the goods have been sold to the debtor in the ordinary course of such debtor’s business.”

As you can imagine, there are challenges with 503(b)(9) claims. High-profile cases are in heated debate over the definition of “received by” for the 20-day rule. And, of course, there is the question of what constitutes a “good” because services are not covered under these claims, and whether those goods have been sold in the ordinary course of business.

A member of the panel at CRF’s Fall Forum, Judge Christopher S. Sontchi, Chief Judge of The United States Bankruptcy Court for the District of Delaware, has presided over several cases determining “goods” and “receipt.” Notably, in one case, Judge Sontchi looked to the UCC definition of goods and subsequently held that electricity is not a “good” under 503(b)(9).

To be clear, a UCC filing is not without potential obstacles. Your UCC must be properly perfected and there is a narrow margin for error. But, ensuring a UCC has been properly perfected is less cumbersome than proving goods are goods, defining date of receipt and verifying goods are sold during ordinary course of business. 

Rounding Out the Survey

How Are Creditors Securing A/R?

For creditors securing their A/R the top two security measures were Cash in Advance and UCC filings.

How Are Creditors Securing AR

Biggest Concerns with UCC Filings

Despite concerns surrounding UCC filings, respondents certainly recognize the benefits of UCC filings. Benefits include being a secured creditor in a bankruptcy, the ability to repossess goods if customer defaults, the customer will consider creditor a greater payment priority and there would be public record of the debt.

Biggest Concerns with UCC Filings

Biggest Concerns with Protecting Mechanic’s Lien Rights

Similar to what we see with UCC filings, respondents agree protecting mechanic’s lien rights would make them a secured creditor in the event of bankruptcy, customers would consider the creditor a greater payment priority and there would be public record of the debt.

Biggest Concerns with Mechanic's Liens

Secured Transactions are Excellent Way to Secure A/R

Whether you file UCCs or mechanic’s liens:

  • You are a priority. In bankruptcy, secured creditors have priority and are paid before unsecured creditors.
  • You can sell more. Securing your A/R allows you to extend larger credit limits and sell to those accounts that were previously out of reach.
  • Fewer write-offs. Fewer write-offs lower the costs associated with your product. Lower costs mean you can sell your product at a lower price while maintaining viable profit margins. Selling at a lower price makes your company more competitive, opening the doors to a larger market share. More sales with stable profit margins are a win.
  • Improved DSO. Here’s a testimonial from one of our clients: “After implementing the lien/notice to owner program, we have seen our DSO numbers steadily decline each month, to an average of around 22 days. That is over a 30% improvement in our DSO since we first partnered with NCS.”
  • Low cost solutions. UCC filings and preliminary notices/mechanic’s liens are truly a low-cost solution; especially when compared to the costs associated with chasing receivables.