Service Area: Collection Services

Convenience of Prevenient Arrangements and a Text Message

Posted on May 25, 2018 by wpengine - In Other Commercial Credit News

What Is a Prevenient Arrangement and What Does It Have To Do With a Text Message?

A prevenient arrangement occurs when parties enter “…into an ongoing relationship for the supply of services or materials over time, often at multiple locations.” This is according to Catriona Otto-Johnston, author of When Calculating Lien Periods, it’s Convenient to be Prevenient.

As an example, let’s say I own 5 separate properties and I hire ABC Contracting for improvements at each of these properties. ABC Contracting and I have an ongoing agreement of sorts. Generally, in the US, we would treat the improvement to each property as an individual project. Thus, there would be 5 first furnishing dates and 5 last furnishing dates (one for each project). However, in Alberta, under a prevenient arrangement, these 5 projects would be consolidated into one; meaning one first furnishing date and once all properties have been improved, one last furnishing date.

Clear as mud?

A Real-Life Example May Offer Clarity

In a case before the Alberta Queen’s Bench, Picturesque Landscaping Inc v Moderno Homes Inc, 2018 ABQB 5, Moderno Homes, Inc. (Moderno) hired Picturesque Landscaping Inc. (Picturesque) for landscaping services, apparently to multiple properties.

Picturesque registered a lien February 12, 2016. Obviously Moderno contested the lien and argued Picturesque failed to register its lien timely. The legal opinion indicates the “critical date” is December 27, 2015 — 45 days prior to the date of the lien filing.

Did Picturesque furnish on or after December 27? As you can imagine, Picturesque said it did furnish after December 27, whereas Moderno said Picturesque didn’t do any furnishing that late in December.

Picturesque stated its last furnishing date was January 4, 2016, when it had to do site cleanup. However, as you know, site cleanup doesn’t generally constitute as a substantial last furnishing (think punch list or warranty work).

So, if Picturesque’s last furnishing date of January 4, 2016, wasn’t substantial, why didn’t the judge invalidate Picturesque’s lien?

Because of a text message.

A Text Message Changed a Legal Decision?

Well, the text message didn’t turn the entire case upside down, but it certainly helped Picturesque. According to the court opinion, although work may not have been done at the property against which the lien was registered, Picturesque was still furnishing to a separate property owned by Moderno.

“Moderno says…no work was done at 1118 Premier Way that late in December. But the parties do not dispute that on December 29 Kory Scott of Moderno and Sansalone of Picturesque exchanged text messages about Picturesque finishing the backfilling at a different Moderno property.”

The text message revealed there was additional work performed by Picturesque, for Moderno, beyond the key date of December 27. Back to the legal opinion:

“The parties referred to it as “16A”. It appears that work was done after December 27, 2015, by Picturesque for Moderno at 16A. That work at 16A may be enough to render the lien valid in respect of 1118 Premier Way if there was the alleged Broader Arrangement. The work done on one property subject to a prevenient contract may operate to extend the time for registering a lien or liens against all such properties subject to that Broader Arrangement, and potentially by a single lien for all.”

This text, regarding additional work at a different property, indicates there may have been a continuous or ongoing contract between Picturesque and Moderno. And, in Alberta, that can extend the lien filing period.

Though, in her article, Otto-Johnston notes the judge didn’t specifically say whether a prevenient arrangement existed.

“While the Court did not ultimately decide whether a prevenient arrangement was in place, its decision shows that such an arrangement can have a significant impact on validity of a lien and the limitation period to register a lien.”

Based on the judge upholding Picturesque’s lien, it seems the judge did believe such agreement existed.

Are Prevenient Arrangements Only Applicable in Canada?

While I can’t say this with complete certainty, it appears prevenient arrangements are available in most of the provinces. Also, in my research, I can see parallels between prevenient arrangements and service contracts. (The lienability of service contracts and/or maintenance agreements is a forthcoming topic!)

Do you think you are furnishing under a prevenient arrangement? Obtain a legal opinion and, as Otto-Johnston states, know that it may require a trial to prove the existence of the arrangement.

“As this case shows, a prevenient arrangement can extend the time to register a lien against all properties, where work was completed or materials furnished at different times or locations. However, if there is a dispute as to whether your contract is in fact a prevenient arrangement, this case indicates that a full trial may be required in order to prove the nature of your agreement and validity of your lien.”

Pass-Through Claims and The Severin Doctrine

Posted on May 18, 2018 by wpengine - In Other Commercial Credit News

Pass-Through Claims, The Severin Doctrine & Why You Should Be “in the Know”

In construction, a pass-through claim is when one party makes a claim on a second party’s behalf. In Subcontractor Pass-Through Claims Are Vulnerable to the Severin Doctrine, authors Eric Frechtel and Amy Elizabeth Garber (Authors) define a pass-through claim as:

“A pass-through claim is a subcontractor claim against the government that a prime contractor (who is in privity of contract with the government) brings on behalf of a subcontractor.”

And what is a Severin Doctrine? Attorney Matthew Devries states the Severin Doctrine “[P]rovides that a general contractor cannot sue an owner on behalf of one of its subcontractors to recover monies due to the subcontractor unless the general contractor is itself liable to the subcontractor.”

OK, so What’s the Fuss?

Recently, two conflicting decisions on whether a general contractor could bring a claim on behalf of their subcontractor were released. According to Authors, one decision was handled down from the U.S. Civilian Board of Contract Appeals and the other from the U.S. Court of Federal Claims.

The U.S. Civilian Board of Contract Appeals provided a decision in a case between Turner Construction and the Smithsonian. The subcontractor was owed several million in dispute/delay claims which were passed through via the GC (Turner Construction) and were permitted based on the language within the progress payment releases.

“…that the subcontractor: ‘represents and warrants that there are no outstanding claims by the [subcontractor]… through the date of Application for Payment No. __ except for any retention, pending modifications and changes, or disputed claims for extra work as stated herein’”

Authors explained “The relevant progress payment releases did not list the pass-through delay and disruption claims under No. 1. The board held that even though the progress payment releases did not carve out the pass-through claims, the Severin doctrine did not bar them mainly because the releases were “clearly tied” to each progress payment.”

And in the Case of the Court?

Unlike the Turner case where the releases had language regarding disputes, the releases in the MW Builders, Inc. v. United States case had no such language. In fact, the subcontractor unconditionally waived and released its claims!

“The progress payment releases in question were from one subcontractor, Bergelectric, which stated in relevant part: “[Bergelectric] irrevocably and unconditionally releases and waives … any other claims whatsoever in connection with this Contract … through the end of the period covered by this Application ….” These releases covered the entire period of Bergelectric’s delay claim.”

According to Authors, “…based on the broad language in the releases and the fact that the releases did not expressly reserve Bergelectric’s delay claim, the court determined that the releases barred all claims by the subcontractor.”

The Trap & The Takeaway

This further supports the critical need to carefully review ALL documents before executing them. As a best practice, I would recommend having all contractual documentation reviewed by an experienced attorney.

And, as Authors remind us, recognize that sometimes it’s simply unpredictable.

“…these cases demonstrate the unpredictability of whether a judge will construe broad language in progress payment releases as a bar to subcontractor pass-through claims”

UCCs and Liens Make Your Company a Payment Priority

Posted on May 14, 2018 by wpengine - Credit Risk Management, Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit, UCC Financing Statements

Use UCC Filings and Mechanic’s Liens to Make Your Company a Payment Priority

Businesses prioritize how, when and which vendors are paid and often pay secured creditors ahead of unsecured creditors. But why? In this article, we will review how you, as a trade creditor, can use secured transactions to ensure you are a payment priority for your customers and how you can avail yourself of legal protections, should your customer default or file for bankruptcy protection.

How Does Your Debtor Prioritize Payments?

If your debtor decides to pay 3 of its 10 creditors this month, how or why does the debtor choose which three they are going pay?

Perhaps it’s because the creditor provides a product or service that is vital to the day-to-day operation of the debtor’s business. It could be the debtor has a longstanding relationship with the creditor, so the debtor ensures they are always paid timely. Or, maybe it is because the creditor has security, either through the filing of a UCC or the service of a preliminary notice to protect mechanic’s lien rights.

Why does security make a creditor a priority? Debtors tend to pay secured creditors first, because failing to pay may result in significant consequences.

For example, if a creditor has properly perfected a security interest through a UCC filing, the creditor could leverage the UCC to repossess the goods or collect money directly from third parties. And, the service of a preliminary notice or filing of a mechanic’s lien alerts all parties involved that there is a payment issue. Once the issue is known, it’s hard to hide from it.

Payment Priority | The Leverage of UCC Filings

Article 9 of the Uniform Commercial Code was created to promote commerce. UCCs provide trade creditors the opportunity to secure goods and/or accounts receivable by using the debtor’s personal property/assets as collateral. To create a security interest, you must have a signed security agreement, record the Financing Statement to make the security interest public record and notify the prior secured creditors to establish priority in inventory.

There are two primary types of UCC filings: Blanket and Purchase Money Security Interest (PMSI).

A Blanket filing is a security interest in all assets of your customer on a non-priority basis, eliminating potential conflict with your customer’s primary lender. The priority or payout in a bankruptcy is determined by the filing date (first in time, first in right). Blanket filings are applicable when providing financing, selling services, or in situations when your customer “consumes” or otherwise does not stock your goods.

A PMSI filing provides the same benefits as the blanket filing, with the addition of the priority of repossession of specific identifiable goods, primarily inventory or equipment that your company would provide.

In the event the debtor defaults on payment or files for bankruptcy protection, the type of UCC filing in place dictates the next steps available to the creditor.

For example, if you filed a PMSI, you would first determine whether you would like your equipment/inventory back. If you do not want your goods back, you can place your claim with an attorney to file suit. By filing suit, you may receive Judgment, which allows you to garnish accounts and/or attach to assets. If you want your goods back, and your customer has the goods, you have the right to repossess without disturbing the peace. If you are unable to peacefully repossess the inventory/equipment, you could take legal action by filing a temporary restraining order or by filing suit against your debtor.

In addition to the security of the UCC filing, the Security Agreement can be used as leverage for breach of contract. Payment terms are written into every Security Agreement. Therefore, if your customer defaults, they are breaching the terms of a signed agreement.

It’s also worth mentioning that a UCC filing program has widespread benefits. Not only will a sound UCC filing program make you a payment priority, it will also minimize financial risk, reduce DSO, improve cash flow and increase sales. UCCs aren’t solely used for reducing risk; it’s about the opportunity to expand your market, by providing you with the security needed to sell to marginal accounts and by providing the added security needed to increase existing clients’ credit lines.

Payment Priority | Using the Mechanic’s Lien Process

Payment cycles in the construction industry are painfully slow. It’s all too common to see invoices age 60-90 days, and still be considered “average payment terms.” Fortunately, in construction, creditors can leverage the mechanic’s lien process to reduce DSO. More specifically, NCS clients with a sound preliminary notice program have experienced an average of a 25% reduction in DSO, with some clients experiencing reductions as high as 50%.

Much like Article 9, mechanic’s lien laws were created to promote commerce and provide creditors, who furnish to the improvement of real property, credit security. However, unlike Article 9, there is very little that is uniform about mechanic’s lien laws, as each state has its own statute.

Become familiar with the mechanics lien statute for the state in which your project is located. It’s important to know the deadlines for each action in advance, to allow ample time to follow the state’s requirements & to take advantage of every opportunity to protect your receivables.

Implementing a mechanic’s lien process is one of the greatest securities available to the construction credit professional. To leverage your position as a secured creditor, you must have a solid foundation for your mechanic’s lien process, which may include a properly drafted, executed & served preliminary notice.

A preliminary notice is a low-cost, proactive alternative to the high-cost & high-stress, reactive remedy of a collections placement. Serving preliminary notices regularly reduces the need to file a mechanic’s lien or proceed with suit actions.

— 97.3% of the time, serving a notice will get you paid.

— 99% of the time a notice and mechanic’s lien will get you paid.

— Only 1% of the time will a project go to suit.

A 97.3% success rate is HUGE and the primary driver behind that success is that everyone within the contractual chain knows you are supplying to the project and taking steps to secure your rights as a creditor – there is transparency.

Don’t be afraid! Too often, companies are led to believe that by protecting their rights to get paid, they will jeopardize projects and relationships. UCC Article 9 and Mechanic’s Lien and Bond Claim laws are there to protect creditors.

Be a payment priority; implement secured transactions.

Substantial Completion, Completion and Acceptance

Posted on May 11, 2018 by wpengine - In Other Commercial Credit News

Substantial Completion, Completion and Acceptance Are Not the Same

The Court of Appeals in Georgia recently deemed a supplier’s suit action was untimely, because the supplier failed to comply with filing suit within one year from substantial completion of the project.

Ah, What’s in a Date?

Dates are imperative in accurately determining mechanic’s lien and bond claim rights and the deadlines associated with securing those rights.

What dates? No, not your plans for Saturday night or the peculiar fruit often found in fruit cake.

Dates as in calendar dates, or significant events. Dates may include first & last furnishing dates, date of project completion and the date of final acceptance.

Completion is the date of fulfillment of the prime contract for the work of improvement. Acceptance is an official act where entry is made in the government records that a public work under a contract is completed and accepted.

Then there’s that word: substantial. As if tracking lien and bond claim deadlines weren’t tricky enough, there is this added caveat of “substantial.”

While it seems the definition of substantial may end up in a judge’s hands to determine, generally items such as punch list work, warranty work, remediation and small shipments don’t qualify as substantial.

Georgia, on My Mind & in the Courts

If you are furnishing to a public project in Georgia, you should serve the bond claim within 90 days from last furnishing and file suit to enforce the bond claim after 90 days from last furnishing, but within one year from completion and acceptance of the project.

In this case, the claimant filed its suit action nearly four years after the project was deemed substantially complete, arguing that its maintenance and repair obligations extended the date of project completion.

Jane Fox Lehman reviewed the recent court decision in her article Eleventh Circuit Holds That the Statute of Limitations on Payment Bond Claim Under Georgia Law Commences at Substantial Completion Rather Than Final Acceptance.

According to Lehman’s review, the owner deemed the project substantially complete in 2010, the punch list work was completed, and final acceptance occurred in 2011. In 2014, the claimant discovered the owner was closing out the project and the claimant brought the suit action against the payment bond. Regardless of whether calculating from substantial completion or final acceptance, the claimant was far beyond the one year mark.

But, getting back to completion vs. acceptance “The Court of Appeals noted that Georgia’s statute of limitations on payment bond claims commenced at the “completion of the actual construction work and acceptance thereof by the public authority,” and that Georgia courts had construed the term “completion” to mean not just total completion, but also substantial completion with only punch list items remaining.”

When its arguments on completion date(s) were lost, the supplier tried to argue the statute of limitations had not expired, because the payment bond remained active.

“Finally, the Court rejected Strickland’s argument that the statute of limitations had not run because the payment bond remained in “full force and effect” until all suppliers were paid, and Strickland had not been paid. Strickland’s interpretation would render the statute meaningless because the limitations period would never begin where a supplier or subcontractor had not been paid.”

What’s a Supplier to do?

For starters, pay attention! If I look at the sheer amount of time that passed where the supplier wasn’t paid, I can’t help but think “Why are you waiting years to pursue payment?!” Suppliers need to carefully monitor deadlines and act accordingly. The laws are there to protect you, but you must take steps to closely adhere to the requirements.

In this case, Georgia’s statute is quite clear on time limits:

“No action can be instituted on the payment bonds or security deposits after one year from the completion of the contract and the acceptance of the public works construction by the proper public authorities.” – O.C.G.A. § 36-91-95

Supreme Court Sides with Subcontractor in Washington Case

Posted on April 20, 2018 by wpengine - In Other Commercial Credit News, Mechanic's Liens & Bond Claims

Subcontractor Complied with Washington Statute, according to the Supreme Court

Previously, we reviewed a case before a Washington Appeals Court, where the subcontractor’s right to recover its claim was hinging on whether the subcontractor named the correct parties in the foreclosure action. This case made it to the Washington Supreme Court and the decision stands: when a lien is bonded off, the only required party in the foreclosure action is the surety.

The subcontractor can recover its claim!

The Case: Inland Empire Dry Wall Supply Co., v. Western Surety Company

You can read our earlier post here, but here’s the recap.

The Supreme Court’s decision? The subcontractor complied with statutory requirements & the surety was the only required party in the foreclosure action.

But why doesn’t the owner have to be included? In her article, Washington Supreme Court Upholds Rule That Property Owner and General Contractor Are Not Indispensable Parties in a Lien Foreclosure Action Against the Surety of the Lien Release Bond, author Jennifer Beyerlein explains.

“When a lien release bond is obtained…the real property is released from the lien and becomes “unreachable” and the bond becomes the security for enforcement of payment… [T]he Court found that neither the real property owner nor the entity who purchased the lien release bond are necessary parties in any action to enforce the lien against the surety who posted the lien release bond… because the surety is substituted for the real property owner in the eyes of the mechanic’s lien statutes for purposes of enforcement.”

Recovery of Claim + Legal Fees = Happy Subcontractor

Within its decision, the Supreme Court awarded fees to the subcontractor –

“Pursuant to RAP 18.1(i) and RCW 60.04.181(3), if on remand the trial court determines Inland Empire to be the prevailing party in the lien foreclosure action and upon submission of satisfactory proof of the claimed amount due, judgment against the bond should be entered. Reasonable attorney fees and expenses, including statutory fees and costs on appeal, are also recoverable.”

What this all Necessary?

Truthfully, litigation, regardless of circumstance, is never pleasant. It is quite possible this could have been avoided, had the subcontractor named the other parties in the initial foreclosure action. But, without a crystal ball, no one could have known for sure.

The best advice I can offer when foreclosure actions are imminent? Ensure your legal counsel is well-versed in construction law.

Understanding Suit, Because Mechanic’s Liens Don’t Live Forever

Posted on April 16, 2018 by wpengine - Mechanic's Liens & Bond Claims

You Should Understand Suit to Enforce Your Claim, Because Mechanic’s Liens Don’t Live Forever

What happens after a mechanic’s lien has been filed? The mechanic’s lien will remain in place forever, right? Does a mechanic’s lien have an expiration date? If the mechanic’s lien expires, do I have to file a release of lien, or can I just ignore it?

Often, the filing of a valid mechanic’s lien will prompt payment. In fact, when a notice and a lien are filed as part of a complete process, the claimant will be paid 99% of the time. A lien claim that has been satisfied (paid in full or settled) should always be released. But what happens to the liens on the 1% of projects that aren’t paid?

There’s a Step 3? Proceed with Suit

Generally, the first step to protecting your lien rights is to serve a preliminary notice. Step two is to file, and possibly serve, the lien. Many folks don’t realize the third step, if payment has not been received, is to file suit by the state’s prescribed deadline.

What is Suit?

A suit, or lawsuit, is an action in a court of law to enforce a claim. Is this the same as foreclosure? Foreclosure is a legal action to enforce a lien against real property with the purpose of having the property sold to satisfy the lien.

Suit may lead to foreclosure. During litigation, it may come to light that debts can only be paid if the property is sold & the proceeds are then used to square up the debts. Please understand, it has been our experience that suit does not usually result in foreclosure/sale of the property; more often, during the suit phase, settlement agreements are reached without the need for sale of the property.

When is the Suit Deadline?

The suit deadline is dictated by state statute. Yes, each state is different, but most states calculate the deadline: 1. From the date of the lien filing (this is the most common) 2. From the date of last furnishing 3. From the date the debt became due (typically defined as last furnishing) or 4. From completion of the project. In certain states, the service of a demand to commence suit/notice of contest may shorten the deadline to file suit. Also be aware, in some states, if a surety bond is obtained to take the place of a lien, the suit deadline may change.

As an example, in California, the suit deadline is within 90 days from the recording of the lien.

8460.(a) The claimant shall commence an action to enforce a lien within 90 days after recordation of the claim of lien. If the claimant does not commence an action to enforce the lien within that time, the claim of lien expires and is unenforceable. ARTICLE 6. Enforcement of Lien [8460 – 8470]

Whereas, in Illinois, claimants should file suit to enforce the lien within 2 years from last furnishing materials or services, but within 30 days from receipt of a demand to commence suit.

“Such suit shall be commenced or counterclaim filed within two years after the completion of the contract, or completion of the extra or additional work, or furnishing of extra or additional material thereunder.” – 770 ILCS 60/9, from Ch. 82, par. 9

“Upon written demand of the owner, lienor, or any person interested in the real estate… requiring suit to be commenced to enforce the lien… suit shall be commenced or answer filed within 30 days thereafter, or the lien shall be forfeited.” – 770 ILCS 60/34, from Ch. 82, par. 34

Many states provide the owners with the opportunity to serve a notice to commence suit (sometimes called a notice of contest) to force lien claimants to either take action within a short time period or to go away. This provision allows owners to more quickly weed out invalid claims or claims that will not be pursued through suits to foreclose.

If the Mechanic’s Lien Has Expired, is a Release of Lien Necessary?

As a best practice, a mechanic’s lien that has “expired” or is no longer enforceable should be released.

When a lien is filed, it becomes public record and encumbers the property. Unless a release of lien is filed, the public record will continue to reflect the lien and it will appear as an encumbrance, even if the lien is invalid, expired or unenforceable.

Can an Unreleased, Expired Lien, Be Used as Leverage?

Although I am in the camp that would recommend invalid/expired/unenforceable liens be released, there is another camp that believes the lien can still be leveraged.

I recently read an article, “Didn’t Foreclose on Your Mechanic’s Lien? What Should You Do Now?,” by Kelly M. Davis Esq. Davis explained that an unreleased, invalid lien was used as leverage or “bargaining power” because the title company discovered the lien in the public record & wanted the lien released.

“If you fail to foreclose, your lien is oftentimes considered “invalid.” … So, where does this leave you? Many times, it leaves you with some bargaining power down the line… I will have a title company contact me asking for a payoff amount for a lien I filed years before. In this situation, there is rarely an argument as to whether the lien is still valid just how much my client will accept to release its lien… “

Again, I’m of the camp that believes a lien, whether satisfied or invalid, should always be released. But, know the options available to you, and weigh those options carefully before proceeding.

In the End, it’s Suit or Release

Once a lien has been recorded, you will need to carefully track the suit deadline. As the deadline approaches, decide whether you want to pursue legal action. If you decide not to enforce your lien, or if you miss the deadline to enforce your lien, take steps to have the lien released. As always, before you make any decisions that could impact your right to get paid, seek guidance.

Top 3 Mistakes Collectors Make According to IACC

Posted on April 6, 2018 by wpengine - In Other Commercial Credit News

According to IACC, Here Are the Top 3 Mistakes Collectors Make

What are the top 3 mistakes made when calling on past due accounts? Poor or out of date supporting documentation of the claim, waiting too long to involve a 3^rd party collection agency & failing to adequately communicate with the debtor, according to a recent article from International Association of Commercial Collectors, Inc. (IACC).

It should come as no surprise that a well-organized paper trail, including pertinent customer information, will ensure a smooth collection process. Which leads us to the mistake identified in IACC’s article, Top 3 Mistakes Internal Collectors Make with Customers When Attempting to Collect on Delinquent Accounts: failing to keep complete & current documentation. What is the most important document? A well-crafted credit application.

“According to IACC President Greg Cohen… the most important document is a properly constructed and complete credit application that will ensure that the customer understands your terms and that you have the proper legal name of the entity and its corporate address, as well as the names of the principles and officers, and the correct email addresses and phone numbers. The credit application should also be reviewed and updated on a regular basis, particularly with larger and higher risk customers.”

Number 2 on the list is a topic we discuss often – don’t wait to turn the past-due account over to a collection agency. It is a well-known fact, and long studied trend, that the longer an account remains past due, the harder it becomes to collect. Some reports indicate the collectability of an account drops to around 50% after six months and drops below 10% after a year.

Rounding out IACC’s list is communication. “Silence is golden,” said no collector ever. Unreturned calls, unread emails, a disconnected phone number, undeliverable mail & email are all signs of silence. And, when money is owed, silence is never a good thing. How can you combat the silence? IACC recommends finding the communication style that suits your customer & sticking with it.

“It’s important to have a clear understanding of what type of communication your customer best responds to, whether it’s blunt language and a professional but terse reminder of the consequences of not paying on a delinquent account, or whether a softer approach is called for. Also, you need to communicate often and respond to communications quickly in order to express the gravity of the situation.”

How Can You Make the Collection of Past Due Accounts Easier?

This NCS list pops up now & then and never gets old, so I’m going to share it with you once again:

Monitor open invoices: Routinely review open invoices and as soon as an invoice is past due (e.g. If you bill on 30-day terms, day 31) contact your customer and inquire on the invoice.
Try multiple mediums: Use phone calls, emails, demand letters, etc. & make sure you keep track of your communications – good record keeping is important!
Pay attention to cues: Social cues & non-verbal cues are frequently early warning signs that an invoice (or customer) is going to be an issue. When people stop communicating, they are sending a clear signal “I can’t/won’t pay the invoice, and maybe if I ignore you, you will go away.”
Check status: Note changes with your customer’s business, such as a disconnected phone number, undeliverable mail or email, and changes in their corporate status with the Secretary of State.
Review credit: Credit reports can provide a wealth of information, especially for payment history, DBT changes, recent collection placements or judgments.
Cut them off: If you have invoices that a customer isn’t paying, stop extending them additional credit. Debt is like a beast and if you continue to feed it, it will gobble up every last bit and give you nothing in return.
Know when to let it go: Don’t immediately toss the invoice into the bad-debt-write-off-pile. “Let it go” from your desk and move it to the desk of a specialized collection agency. Collection agencies are trained and experienced, not to mention, a third party is sometimes more effective simply because they are a third party – removed from the situation.

Are you struggling with slow-paying customers? Do you need assistance with collection efforts? NCS can help ~ contact us today!

What Happens to Your Massachusetts Mechanic’s Lien in a Bankruptcy

Posted on March 16, 2018 by wpengine - In Other Commercial Credit News

What Happens to Your Massachusetts Mechanic’s Lien in a Bankruptcy?

This week we shared an article that focused on the impact of bankruptcy on mechanic’s lien claimants for projects in Massachusetts. In How Bankruptcy Affects Mechanic’s Lien Rights, authors Gregory M. Boucher and Steven Reingold, explain what happens under the automatic stay, the importance of complying with the bankruptcy code, and the key element of when a lien “relates back.”

What Happens Under the Automatic Stay?

Once a bankruptcy petition is filed, the automatic stay prevents creditors from further pursuing the collection of debts. This injunction occurs the moment a party files for bankruptcy protection, hence the “automatic” of automatic stay.

If you are furnishing to a construction project and the project owner files for bankruptcy protection, you can still perfect or file your mechanic’s lien without violating the automatic stay. However, you must comply with section 362(b)(3) of the bankruptcy code and should you need to file suit to enforce your mechanic’s lien, you would have to seek relief from the automatic stay.

It’s a bit trickier when another party in the ladder of supply, such as the general contractor, files for bankruptcy protection. According to Boucher & Reingold “…when a general contractor files for bankruptcy, a subcontractor or supplier might violate the automatic stay by taking action to assert or perfect a mechanic’s lien, even if the owner is not in bankruptcy.”

Might is the keyword here. Boucher & Reingold referenced a NJ case where the GC filed for bankruptcy protection and the court determined payments owed from the owner to the GC were property of the bankruptcy estate. And, as with all things in the mechanic’s lien world, whether a lien filing violates an automatic stay may be state-specific and could be based on attachment.

When the Lien Relates Back or Attaches

Authors Boucher & Reingold use the phrase “relates back,” however, you may have also heard it referred to as attachment. When does a lien attach to the property? In the state of Minnesota, liens attach from the time of first furnishing materials or services. In Ohio, liens are “…effective from the date the first visible work or labor is performed or the first materials are furnished by the first original contractor, subcontractor, material supplier, or laborer to work, labor on, or provide materials to the improvement.

Boucher & Reingold cite Massachusetts and Pennsylvania as additional examples of states where the lien attaches or relates back to the date of first furnishing, and the state of Florida, where the lien attaches to the date of the recording of the Notice of Commencement.

“…in Florida, such rights “relate back” to the date of the recording of a Notice of Commencement in the public records concerning the real property improvements, which typically precedes that start of the work. In those states, where the first date of labor or materials, or the recording of a Notice of Commencement, precedes a bankruptcy petition, a claimant may still proceed with asserting and perfecting its mechanic’s lien rights.”

Claimants should be cautious in states where statute doesn’t allow lien rights to relate back, warns Boucher & Reingold. “However, in those states whose mechanic’s lien laws do not provide for a claimant’s rights to “relate back,” such as New Jersey and New York, a claimant has no ability to assert or perfect its mechanic’s lien rights once a party files for bankruptcy protection without first seeking relief from the automatic stay.”

Know Before You Go

Become familiar with the dates lien attach in the various states, so that you are aware of potential problems. If a party within the ladder of supply files for bankruptcy, ensure your potential or existing mechanic’s lien filing is not in violation of the bankruptcy code.

Proactively, you may want to consider monitoring all parties with a service such as bankruptcy monitoring, which will alert you of a party’s bankruptcy filing. Time is of the essence when a party files for bankruptcy protection, and the sooner you know the faster you can act.