Service Area: Notice and Mechanic’s Lien Services

Indiana Mechanic’s Liens Require Two Notarizations

Posted on August 24, 2020 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

You’re Not Seeing Double – Two Notaries Required for Indiana Mechanic’s Liens

Just when you think 2020 couldn’t get weirder, you notice two notary sections on the Indiana mechanic’s lien you intend to file. Nope, you aren’t seeing double, Indiana statute was amended (Indiana SB340) earlier this year and the changes went into effect July 1, 2020.

Is there a Typo in the Statute?

It’s possible this wasn’t accidental; the legislature could simply be taking extra precautions to ensure liens are properly executed.  While I wasn’t there when the amendments were drawn up, I suspect it was an inadvertent mistake.

Under Section 1. IC 32-21-2-3 of the amended text, the author struck through “or” and replaced it with “and.”

Wait, What?

Yes, the acknowledgement (i.e. “I’m executing this lien.”) needs to be witnessed and notarized, AND the proof that the witness witnessed the execution of the lien must be notarized.

Indiana Double Notary

Whether it’s a mistake or intentional will remain a mystery until the next legislative session. For now, be sure to have both notarized sections on every recorded document mentioned above.

Pandemic and Mechanic’s Liens Hurting Southern Food Favorite Yardbird

Posted on August 3, 2020 by - In Other Commercial Credit News, Mechanic's Liens & Bond Claims

Pandemic & Liens Hurting Southern Food Favorite Yardbird

Yardbird Southern Table & Bar (Yardbird) opened its Dallas TX location in March, just as the country began shuttering with the onset of the pandemic. We already know restaurants struggle in an excellent economy, but take into account the 40% spike in bankruptcy filings due to the pandemic, and what happens when you add in unpaid construction bills? Mechanic’s liens. Lots of expensive, title clouding, mechanic’s liens.

According to its website, Yardbird, founded by 50 Eggs, Inc., got its start in Miami and is well known for its southern hospitality and top-notch brunches. With additional locations now in Las Vegas, Dallas, Los Angeles, Singapore, and forthcoming DC, it appears to be thriving.

Unfortunately, the recently debuted Dallas location is burdened with some hefty mechanic’s liens. According to Construction Journal, the renovation of their 6,950 square foot leased location began August 2019 and was completed in March 2020. Construction completion did happen timely (an enigma in the construction industry), and Yardbird opened its doors. Folks were flocking to the hospitality hotspot – until they weren’t. Not long after its opening, the pandemic closed businesses across the country.

Mechanic’s Liens Start Rolling In

According to LienFinder™, in April, May, and June, lien claimants with combined claims of over $2,400,000 secured mechanic’s liens against the 2121 N. Pearl Street, Dallas TX restaurant. Claimants filed liens for millwork, doors/door frames, glass, artisan plaster, HVAC, painting, and supplies & labor for the construction of a patio.

The liens weren’t limited to subcontractors and materials suppliers, even general contractor Panterra Development Ltd. filed a lien, for over $1.2M including retainage.

Why weren’t the liens filed before the restaurant opened? Well, let’s think about it. In Texas, lien claimants serve notices of non-payment no later than the 15th day of the second month following each month in which they furnished. The mechanic’s lien isn’t filed until the 15th day of the fourth month following the last month in which they furnished. For those furnishing in February and March, lien deadlines were June and July, respectively.

How Will the Claimants Get Paid?

Now, if this were a “normal” economy, the restaurant would be bringing in money from its customers. Except right now, our economy and way of life are anything but normal. With a simple “We will be serving you again real soon!” on its website, Yardbird in Dallas is closed. Losing revenue by the day, it isn’t likely to recover quickly.

What is likely? If the property owner and/or tenant can’t pay the lien claimants, the claimants will need to proceed with suit to enforce their liens.

Time is ticking, as claimants must file suit to enforce their liens within 2 years from the last date the claimant could have filed a lien, OR within 1 year after completion of the original contract under which the lien is claimed, whichever is later.

Key Changes to Tennessee’s New Construction Statute

Posted on July 20, 2020 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

What You Should Know about Tennessee’s New Construction Statute

In June, the Tennessee legislature passed the Construction Industry Payment Protection Act SB2681/HB2706 (Public Chapter 749), and the statute became effective 7-1-20, but only for contracts entered, amended, or renewed on or after 7-1-20. The statute changes include additional prompt pay provisions, the implementation of a new stop work notice, and a demand for reasonable assurances.

Notice to Owner | Construction and Consumer Protection Act of 1975

Those contracting directly with the owner on a residential project or improvement are required to serve a Notice to Owner in compliance with Tenn. Code Ann. § 66-11-203. The newly prescribed form follows:

Delivered this     day of           , 20       by                  Contractor

The above-captioned contractor hereby gives notice to the owner of the property to be improved, that the contractor is about to begin improving the property according to the terms and conditions of the contract and that under the provisions of the state law (§§ 66-11-101 – 66-11-141) there shall be a lien upon the real property and building for the improvements made in favor of the above-mentioned contractor who does the work or furnishes the materials for such improvements for a duration of one (1) year after the work is finished or materials furnished.

Contractor

Prompt Pay Act of 1991 | Tenn. Code Ann. § 66-34-101 et al

SB2681/HB2706 includes changes under the Prompt Pay Act:

Interest on Late Payments: Late payments will accrue monthly interest of 1.5%, unless otherwise specified in the contract. (§66-34-601)

Prompt Payment: Under §66-34-703, banks/lenders/insurance companies must also comply with the Prompt Pay Act if they are the project owner – which means they must maintain funds in trust, just like everyone else.

Notice of Rights to Seek Relief under the Prompt Pay Act: Tenn. Code Ann. § 66-34-602 provides the requirements for making a claim under the Prompt Pay Act, along with a form for the required notification:

This letter shall serve as notice pursuant to the Tennessee Prompt Pay Act, Tenn. Code Ann. §§ 66-34-101, et seq., of [prime contractor or remote contractor]’s intent to seek relief under the Prompt Pay Act. [Prime contractor or remote contractor] furnished [description of labor, materials, or services furnished] in furtherance of improvements to real property located at [property description] pursuant to its written contract with [lender, owner, prime contractor, or remote contractor]. [Prime contractor or remote contractor] first furnished labor, materials, or services on [insert first date] and [“is still continuing to perform” or “last furnished labor, materials, or services on (insert date)”]. If [owner, prime contractor, and/or remote contractor] fail(s) to make payment, arrange for payment, or provide a response setting forth adequate legal reasons for the failure to make payment to [prime contractor or remote contractor] within ten (10) days of your receipt of this letter, then [prime contractor or remote contractor] may, in addition to all other remedies at law or in equity, file a lawsuit for equitable relief, including injunctive relief, for continuing violations of this chapter.

Stop Work: Further, Tenn. Code Ann. § 66-34-602 provides that if the party served with the above notice does not respond with payment, or a response with adequate reasons for failure to pay within 10 days of receipt of the above notice, the unpaid party may stop work.

Demand for Reasonable Assurance: Code Ann §§ 66-34-6 (a – c) is brand new to TN statute. In short, the prime contractor can request confirmation from the project owner that the owner has the available funds/financing to pay the prime contractor for services rendered. In other words, “I want to be assured you can pay me.” Upon receipt of the request, the owner has 10 days to provide “reasonable evidence (of)…financial arrangements sufficient to fulfill the… obligation to make all payments in accordance with the written contract…” The demand can be sent with a notice of non-payment or independently.

[Prime contractor or remote contractor] furnished labor, materials, or services in furtherance of improvements to real property located at [property description] pursuant to its written contract with [owner, prime contractor, or remote contractor]. As of the date of this letter, [owner, prime contractor, or remote contractor] owes [prime contractor or remote contractor] the sum of [amount past due], which is past due or for which [prime contractor or remote contractor] asserts it has not been paid from [owner]. Such amounts were due on or before [insert due date] pursuant to the written contract between the parties. Pursuant to T.C.A. § 66-34-603, [prime contractor or remote contractor] demands [owner] furnish reasonable evidence that [owner] has made financial arrangements sufficient to fulfill its obligation to make all payments in accordance with the written contract or setting forth adequate legal reasons for your failure to make payment, within ten ( 10) days of your receipt of this letter.

New Forms | Prompt Pay Act Notice & Demand for Reasonable Assurances

I mentioned them in above, but wanted to point out, the statute changes did include the addition of new forms for the Notice to Owner, the Prompt Pay Act Notice, and the Demand for Reasonable Assurances.

Remember, statute became effective 7-1-20, but only for contracts entered, amended, or renewed on or after 7-1-20. If you have questions about these changes in Tennessee, please contact us!

Your Credit-Granting Processes & COVID-19

Posted on July 6, 2020 by - Credit Risk Management, Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit, UCC Financing Statements

The Impact of COVID-19 on Your Credit-Granting Processes

We recently asked our clients whether the COVID-19 pandemic is impacting their credit-granting processes. While I expected to see an increase in collection efforts and more stringent credit-granting processes, I was surprised to see over 70% of respondents indicate they are not filing more UCCs and/or mechanic’s liens as a result of the current economic conditions.

Credit-Granting Processes, Payment Terms, Credit Checks, & Bankruptcy

1. Has your current credit-granting process become more stringent due to COVID-19?

Over 56% of respondents advised their credit-granting processes have become more stringent. In any kind of economic downturn, credit-granting processes should be reevaluated and buttoned up where necessary. If you haven’t taken this opportunity to review your process, you should. This should include reviewing payment history, an understanding of the debtor’s cash flow, and ensuring secured transactions are implemented at the time credit is granted.

2. Have you received requests for extending payment terms from your customer?

An overwhelming 75% of respondents said yes, they are receiving requests to extend payment terms. This is of no surprise. When cash slows, folks start asking creditors for some leeway with payment terms. While it may not be a big deal to grant one customer extended terms, can you afford to grant every customer extended terms? You need a clear idea of how “extended” you can go and whether you have the cashflow to sustain these long payment periods.

Extending terms can quickly snowball out of control – your customers ask you for extended terms, eventually you ask your own creditors for extended terms, then your creditors are asking the same… you can see how this can quickly get out of control.

Think about this: 61% of subcontractors are unable to cover late payments with cash on hand

It’s important you also keep in mind the longer credit terms are, the older a receivable becomes; the older a receivable becomes, the harder it is to collect.

3. Have you increased the frequency of credit checks on your customers?

Only 46% of respondents have increased the frequency of credit checks. Initially I didn’t think much of this statistic; I didn’t find it alarming. But then I took a moment to reflect on the bankruptcies we’ve been seeing. This year we are seeing well-known, long-standing companies succumb to bankruptcy. Healthcare, retail, and foodservice industries have been hit especially hard lately.

  • In 1 hour of an 8-hour workday, 88 businesses close their doors for good
  • OpenTable recently reported that up to 25% of restaurants may close permanently due to the pandemic.
  • In 2019, there were over 5,000 healthcare industry bankruptcies

You should be evaluating your existing customers’ credit on a regular basis. Whether you check quarterly on higher risk clients and semi-annually or annually on lower risk clients, it is in your company’s best interest that you maintain a current credit picture on all customers.

4. Are you monitoring your customers for bankruptcy?

38% of respondents advised they are not monitoring their customers for bankruptcy, while 62% indicated they are. Monitoring your customers for bankruptcy is an excellent practice. Especially in the event a bankruptcy is filed because bankruptcy proof of claim deadlines can sneak up fast. If you aren’t currently monitoring your customers, you should be.

Secured Transactions & Collection Efforts

These next two survey questions go hand in hand, so I’d like to review them as a pair. I’d rather see these statistics inversed. Ideally, folks would be using secured transactions and that would reduce the need for additional collection efforts.

5. Are you filing more UCCs and/or mechanic’s liens because of current economic conditions?

Over 70% of respondents have not filed more UCCs or mechanic’s liens.

6. Have you increased your collection efforts?

76% of respondents have increased their collection efforts, and 24% have not.

I mentioned earlier that I wasn’t too surprised to see an uptick in collection efforts and more stringent credit-granting processes. But I am surprised that UCC filings and mechanic’s lien activity are down. Because the UCC filing and mechanic’s lien filing processes are two of the greatest proactive risk-mitigating tools available, vastly improving collectability of receivables.

Here’s What We Know about Secured Transactions

  • 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 the costs associated with chasing receivables.

For those of us in credit from 2008-2010 (during the recession), we saw firsthand how devastating the impact unsecured receivables could have on a business. Why would we open ourselves back up to that kind of heartache? If we learned anything from 10 years ago, it should be that we need to implement proactive protective measures and practice them regularly.

I’m going to leave you with one last statistic. I keep this statistic written on a sticky note at my desk, to serve a staunch reminder that my goal is to ensure I’m providing you with the information necessary to improve your credit-granting processes.

Did You Know: 30% of business failure is due to poor credit-granting practices.

Legislation Updates for Wyoming, Utah & Virginia

Posted on June 22, 2020 by - Legislative Updates & News Alerts, Mechanic's Liens & Bond Claims

Legislation Updates for Wyoming, Utah & Virginia

There have been mechanic’s lien and bond claim legislation updates for Wyoming, Utah & Virginia. Here’s a quick rundown of the changes.

Changes to Wyoming Payment Bond Requirements

Wyoming HB0052 is effective 7-1-2020 and relates to public works and contracts. The contractor’s performance and payment bond will be required for all general contracts for public projects of more than $150,000.00. For contracts of $150,000.00 or less, another form of guarantee may be required. Additionally, for contracts exceeding $150,000.00, the penal sum of the bond must be not less than 100% of the contract price. The deadline for suit to enforce a claim against a bond has been changed to within one year after the date of final completion of the public work.

Securing Bond Claim Rights in Wyoming

For Wyoming public projects, you should serve a notice upon the prime contractor within 60 days from first furnishing materials or services. The bond claim should be served with 90 days from last furnishing and, currently, suit should be filed within 1 year after the date of first publication of the notice of final payment of the contract.  Effective July 1, 2020, suit must be filed within 1 year after the date of final completion.

Utah Mechanic’s Lien Disputes

Utah HB308 extends the number of days a person has to dispute the correctness or validity of a lien by recording a notice of release of lien and substitution of alternate security. The time has been extended to 180 days after the first summons is served in an action to foreclose the lien. Effective 5/11/20.

Securing Mechanic’s Lien Rights in Utah

For Utah private projects, you should file your preliminary notice with the State Construction Registry within 20 days from first furnishing. The mechanic’s lien should be filed 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. Should you need to enforce your mechanic’s lien, you should file suit within 180 days from the filing of the mechanic’s lien.

Virginia

  • Use of Funds Paid to General Contractor or Subcontractor

Virginia S208, effective 7-1-20, specifies that the use of funds paid to a general contractor or subcontractor and used by such contractor or subcontractor, before paying all amounts due for labor performed or material furnished, gives rise to a civil cause of action for a party who is owed such funds. The bill further specifies that such cause of action does not affect a contractor’s or subcontractor’s right to withhold payment for failure to properly perform labor or furnish materials and that any contractual provision that allows a party to withhold funds due on one contract for alleged claims or damages due on another contract is void as against public policy.

  • Liability of Contractor/Subcontractor for Wages of Subcontractor

Virginia SB838, effective 7-1-20, includes a provision under which the general contractor and the subcontractor at any tier are jointly and severally liable to pay any subcontractor’s (at any tier) employees’ wages under a construction contract. This provision is applicable if it can be demonstrated that: the general contractor knew or should have known the subcontractor was not paying his employees all wages due, the value of the project exceeds $500,000.00, and the project is not a single family residential project.

Securing Mechanic’s Lien Rights for Commercial Projects in Virginia

In Virginia, there is no required preliminary notice for private commercial projects. You should file your mechanic’s lien within 90 days from the last day of the last month in which materials or services were furnished, but within 90 days from the project completion or work termination. Suit to enforce the mechanic’s lien should be filed within 6 months from filing the lien or within 60 days from the project completion or work termination, whichever is later.

Wisconsin Lien and Bond Claim Rights

Posted on June 1, 2020 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Furnishing to a Wisconsin Construction Project? Here’s What You Should Know in order to Secure Payment

Furnishing to a private construction project in Wisconsin? Today’s post is all Wisconsin. Let’s review what you should know about mechanic’s lien, bond claim, and lien on funds rights for private construction projects!

Mechanic’s Lien

Wisconsin mechanic’s liens are governed by Wis. Stat. Sec. 779.01 through 779.17. For both commercial and residential projects, the mechanic’s lien is enforceable for the full amount owed, regardless of payments made by the owner – this is known as a full balance lien state.

Generally, there is no statutory requirement for serving a preliminary notice to secure your mechanic’s lien rights on commercial projects. However, residential projects do have a preliminary notice. On residential projects, the notice deadline is different if you are the prime contractor versus any other party in the ladder of supply.

  • Prime contractors(those contracting directly with the owner) and who have contracted or will contract with any subcontractor or materialmen):
    • Include the notice in the written contract. If there is no written contract, serve notice upon the owner within 10 days after first furnishing materials or services
    • If the notice is required but not given, it may still be possible to file a lien provided certain circumstances exist.
  • All claimants other than a prime contractor:
    • Serve notice upon the owner within 60 days after first furnishing materials or services.
    • Serving a late, but otherwise proper, notice upon the owner preserves lien rights for any materials or services furnished after the late notice is received by the owner.

For both commercial & residential projects, the mechanic’s lien is a two-step process: notice of intent + mechanic’s lien. You should serve the notice of intent at least 30 days prior to filing the lien and you should file the lien within 6 months from your last furnishing. In the event you need to pursue suit to enforce your lien, you should file suit within 2 years from filing the lien.

Bond Claim & Lien on Funds (Private Projects)

In Wisconsin, if the contract between the owner and prime contractor contains a provision for payment by the prime contractor of all claims, and the prime contractor provides a payment bond, then lien rights are eliminated for all lien claimants except the prime contractor. What do all other parties do? Pursue a bond claim and/or lien on funds.

To secure your right to make a claim against the prime contractor’s payment bond, serve a notice upon the prime contractor within 60 days after first furnishing materials or services. It is then recommended you serve a bond claim upon all parties within 90 days after last furnishing. If filing suit is needed, it should be filed within 1 year after completion of contract work. (You can find additional information in Wisconsin statute: Wis. Stat. Sec. 779.03 through 779.036)

Generally, for a lien on funds, no preliminary notice is required. You should serve the lien upon the owner and any mortgage lender before payment is made to the prime contractor or subcontractor. The lien attaches to the unpaid funds.

If neither the prime contractor nor subcontractor disputes the lien by written notice to the owner and the lien claimant, within 30 days after service of the lien, the amount liened shall be paid to the claimant on demand.

The deadline to proceed with suit to enforce the Lien on Funds is a bit trickier than it is for the mechanic’s lien or bond claim.

  • If the prime contractor or subcontractor disputes the lien, suit must be filed to enforce the lien by the claimant, the prime contractor, or subcontractor, within 3 months from serving the lien.
  • When the total undisputed lien claims exceed the amount due to the prime contractor or subcontractor, the owner and lender shall determine who is entitled to the money and shall serve written notice on all claimants and the prime contractor or subcontractor of the determination. Unless suit is filed by a lien claimant, the prime contractor, or subcontractor, within 20 days after the mailing of the notice of determination, the money shall be paid out in accordance with the determination.
  • File suit to enforce the lien within 6 months after project completion or within 20 days after the mailing of the notice of determination (see above), whichever is earlier.

Questions about securing your payment rights on private Wisconsin projects?

We’re here to help!

Watch Your Language, Your Lien Waiver Language

Posted on May 18, 2020 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Watch Your Language, Your Lien Waiver Language: How One Subcontractor Waived Its Right to Lien

“Watch your language!” Does it sound like I’m having flashbacks to my rowdy unruly teenage years; my dad hollering when I got a bit too sassy? Maybe. But today I’m ignoring those flashbacks and focusing on watching my lien waiver language. Lien waiver language is easily overlooked or ignored, despite its critical role in the security of your mechanic’s lien rights. Today we’ll review lien waiver language and a true story of a waiver that prevented one claimant from leveraging its mechanic’s lien.

4 Primary Lien Waiver Types

Every lien waiver should clearly identify the property name & project location, the debtor’s name (your customer), the invoice or purchase order number, the payment amount and the disputed claim amount. If the lien waiver is for partial payment, you should also include the payment period or a through date.

There are four primary types of lien waivers:

  1. Partial Conditional: A signed document agreeing to waive rights to a claim for a dollar amount or through a specified date, conditioned upon receipt and clearance of the partial payment.
  2. Partial Unconditional: A signed document agreeing to waive rights to a claim for a dollar amount or through a specified date. The waiver is not conditioned upon clearance of a payment.  If the check is not received, or does not clear, the contractor/subcontractor/supplier will have waived their rights to that partial payment.
  3. Final Conditional: A signed document agreeing to waive rights to a claim, conditioned upon receipt and clearance of a final payment. If the contractor/subcontractor/supplier does not get the final payment, or the payment does not clear, the waiver does not waive their rights.
  4. Final Unconditional: A signed document agreeing to waive all rights to a claim. The waiver is not conditioned upon clearance of a final payment.  The contractor’s/subcontractor’s/supplier’s rights will be waived whether or not payment is received or cleared.

Waive Not, Want Not

A spin on another phrase from my youth: waste not, want not. While I may find it entertaining, I’m reasonably certain the subcontractor in today’s case isn’t as amused. (You can view the case here.)

The subcontractor (sub) & general contractor (GC) executed an agreement which stated the sub would perform all work necessary for a lump sum amount. Within the contract there was additional language stipulating the sub would do whatever it takes to maintain the project schedule & the GC would not be charged.

“The Subcontractor is responsible to mobilize as many times as necessary to conform to job site conditions and the project schedule. Any fees associated with these mobilizations are to be covered by this Subcontractor. The GC and client will not incur any costs associated as a result of these mobilizations.”

Throughout the course of its work, the subcontractor executed lien waivers for various pay periods. Here’s language from the lien waiver:

“… the undersigned acknowledges and agrees that it will have received payment in full, less retainage withheld, for all services and work performed and all materials and equipment furnished or stored in connection with the construction of the Project through the Period Ending Date, and hereby now and forever waives, releases and quitclaims, with respect to the Project, all claims and rights to claim against the Contractor, the Owner, the Lessor, the Lender or the land upon which, or the improvements within which, the Project is situated, except for retainage withheld… “

Well, as you might have guessed, the relationship between the sub & GC grew tenuous and the GC terminated the sub. The sub sought recovery of $626,340 in “delay damages for change order requests… an alleged unpaid balance of the Subcontract.” Unfortunately, the sub was barred from pursuing the claim. Why?

It’s all in the lien waiver. And frankly, it’s pretty clear –

“…that it will have received payment in full, less retainage withheld, for all services and work performed and all materials and equipment furnished or stored in connection with the construction of the Project through the Period Ending Date, and hereby now and forever waives, releases and quitclaims, with respect to the Project, all claims and rights to claim against…”

Hereby Now and Forever Waives – Seems Permanent

The sub waived its rights to claims when it executed the waivers. According to the court opinion “In each of the written releases, Metro certified that, ‘there are no additional costs or claims for any extras or additional for work, services, material and/or equipment on the Project.’” And, in case there was any doubt on the waiver language, the court furthered “there is no ambiguity in the releases here…”

Now, in this case the sub had two documents working against its claim: the subcontract and the lien waivers. But the court opinion was clear, even without the terms of the subcontract, the executed waivers barred the sub from pursuing it’s claim.

No Ownership, No Lien in North Carolina

Posted on May 4, 2020 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

No Mechanic’s Lien Rights in North Carolina for a Design Firm Hired by the Property “Owner” Who Didn’t Purchase (aka Own) the Property

In construction, there are often multiple contracts and agreements being executed simultaneously, between a multitude of parties. Frequently, the sale of a property occurs while construction is underway or construction contracts are executed, before a property is officially sold.

Unfortunately, there may be times when construction is underway and then the bill of sale on the property falls through. So, what happens if you are furnishing to a project and the party that hired you doesn’t actually purchase the property you were hired to improve? For one design firm in North Carolina, it meant mechanic’s lien rights didn’t exist.

The Case of Davis & Taft Architecture, PA v. DDR-Shadowline, LLC

DDR-Shadowline, LLC (DDR) was interested in purchasing property from Shadowline Partners, LLC (Shadowline); the property was to become a student housing complex. DDR hired Davis & Taft Architecture, PA (Davis), a design firm, to provide architectural services for the planned student housing complex.

Davis was contracted, by DDR, to provide $230,000 in design services. Within the Agreement for Purchase and Sale of Real Property between Shadowline and assignee DDR, there was a specific section outlining the amount of Davis’ contract and the terms in which Davis should be paid.

Davis was paid all but $80,000 for which it filed a lien on Shadowline’s property.

Did you catch that? “Filed the lien on Shadowline’s property.” See, the sale of the property from Shadowline to DDR never went through. And DDR is the one that hired Davis; Shadowline, the actual property owner, didn’t hire Davis. When Davis proceeded with suit to enforce the mechanic’s lien, the court said “no.” Because statute specifically states the contract needs to be with the owner of the property – not the “would be owner” or the “owner to be.”

“Any person who performs or furnishes labor or professional design or surveying services or furnishes materials or furnishes rental equipment pursuant to a contract, either express or implied, with the owner of real property for the making of an improvement thereon shall . . . have a right to file a claim of lien on real property on the real property to secure payment of all debts owing for labor done or professional design or surveying services or material furnished or equipment rented pursuant to the contract.”

Davis filed an appeal, which resulted in the same decision: you contracted with a party that had no rights to the property, therefore no lien rights exist.

My advice? Keep an eye on living documents – the documents that haven’t’ officially been executed. I recognize it is tough to wait for the annoying red tape of documents, especially when you have been hired for a job. But, in the long run, it may be best to ensure t’s are crossed and i’s are dotted before moving forward.

North Carolina Mechanic’s Lien Rights

First, let’s review the steps for securing mechanic’s lien rights in North Carolina, starting with the preliminary notice. For private projects in North Carolina, you should serve a Notice of Subcontract upon the prime contractor as soon as possible to trap funds. If you don’t serve the Notice of Subcontract, you may defeat your lien against the property. The Notice of Subcontract may not be required if: contracting directly with the owner, contracting directly with the prime contractor, or if a Notice of Contract was not properly filed and posted by the owner or prime contractor.

Then there’s the Notice to Lien Agent.  Serve the Notice to Lien Agent within 15 days from first furnishing labor or materials or before the property is conveyed to a bona fide purchaser.

A Notice to Lien Agent is not required:

  • when the Lien Agent information was not provided by the owner within 7 days from receipt of a written request from a lien claimant or was not posted at the project or included within the building permit,
  • when the lien is filed prior to the conveyance of the property to a bona fide purchaser,
  • for design professionals contracting directly with the owner when the Lien Agent information is included within their contract, or
  • to maintain a lien on funds.

You should renew the Notice to Lien Agent within 5 years from the date the Notice to Lien Agent was delivered. If not renewed within 5 years, the Notice to Lien Agent will expire.

In the event you need to proceed with the lien, you should file the lien within 120 days from last furnishing. Bear in mind, North Carolina is an unpaid balance lien state, which means the lien is enforceable for the unpaid portion of the contract.

  • Serve a copy of the lien upon the owner and, when contracting with a subcontractor, upon the contractor, within 120 days from last furnishing materials or services.
  • Serve a copy of the lien on funds upon all parties within the contractual chain.
  • When contracting directly with a third-tier subcontractor, a lien on property is not available and a lien on funds is limited to the funds owed to the third-tier subcontractor.  Serve the lien on funds as soon as possible to trap funds.

Lastly, should you need to file suit, it should be filed within 180 days from your last furnishing.