Service Area: Notice and Mechanic’s Lien Services

Arkansas Residential Mechanic’s Liens & Payment Bonds for Public Projects

Posted on July 5, 2021 by - Mechanic's Liens & Bond Claims

Changes for Arkansas Residential Mechanic’s Liens and Payment Bonds for Public Projects

Arkansas recently passed two House Bills. HB 1835, which changes the notice requirement for residential contractor’s lien, and HB 1855, which revises the bonding procedure for payment bonds issued for construction contracts. Both bills are effective July 30, 2021.

HB1835: Residential Contractor’s Lien Notice Requirement

AR HB1835 amends the statute regarding the residential contractor’s lien notice. If a residential contractor fails to serve the notice to owner, the contractor will not have lien rights.  Although the contractor will not have lien rights if it fails to serve the notice, statute no longer bars a residential contractor from bringing an action to enforce any provision of the residential contract.

The notice format did not change, but this is a great opportunity to review its contents. Here’s a copy of the notice as prescribed by A.C.A. 18-44-115(a)(7):

AR Residential Contractor's Lien Notice

HB1855: Payment Bonds Issued for Construction Contracts

General Payment Bond Notes

AR HB1855 requires a payment bond for public construction contracts exceeding $50,000 (previously $35,000).

A payment bond is optional for private, non-religious/charitable projects. However, for religious or charitable organizations projects, a payment bond is required for contracts over $20,000 (previously $1,000). If a payment bond does not comply with statutory requirements, parties (except the prime contractor) will have the right to enforce a mechanic’s lien.

Serving a Bond Claim & Filing Suit

Previously, Arkansas statute didn’t specify a deadline for serving a bond claim; rather, parties were to serve their bond claim in accordance with the terms of the bond. Effective 7/30, statute dictates any party not contracting with the principal of the payment bond (frequently the general/prime contractor), should serve the bond claim upon the contractor and surety within 90 days from last furnishing materials or services.

The deadline for filing suit has also changed. Previously, claimants were to file suit to enforce their bond claim within 6 months from the date final payment was made on the contract. As of 7/30, the suit deadline is the earlier of 1 year from date of final payment on the contract OR 1 year from the date the principal of the bond terminates work on the contract.

Please contact us if you have any questions on securing mechanic’s lien or bond claim rights in Arkansas.

UCC 9-503(a) and a Creditor’s Security Interest

Posted on June 21, 2021 by - UCC Financing Statements

UCC 9-503(a), Its Frenemy 9-506, and the Fate of One Creditor’s Security Interest

In a recent Chapter 12 bankruptcy case, two creditors competed for interest in a piece of farm equipment: a 7215R Tractor. On the UCC Financing Statements, one creditor listed the debtor’s name as it appeared on the unexpired driver’s license, the other creditor did not. Welcome to today’s edition of “The Tractors & Tribulations of UCC 9-503.”

What’s in a Name under UCC 9-503(a)?

Article 9 has clear rules. A big one, and the one that is often flubbed, is compliance with UCC 9-503(a). You must correctly list the debtor’s name on the Financing Statement; whether it is a registered entity or an individual. Article 9 says if it is a Registered Entity, then list the name on the Financing Statement as it appears in the public organic record. If it is an individual, it will be Alternative A or B. Under 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. And under 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.

Fail to comply with UCC 9-503(a)? Then be prepared to meet 9-503’s frenemy: UCC Article 9-506(b). That’s right, “Seriously Misleading.”

According to UCC Article 9-506(b), a Financing Statement is seriously misleading if a search for the debtor’s legal name does not reveal the filing.

9-506 EFFECT OF ERRORS OR OMISSIONS

(b) [Financing statement seriously misleading.]

Except as otherwise provided in subsection (c), a financing statement that fails sufficiently to provide the name of the debtor in accordance with Section 9-503(a) is seriously misleading.

The Case of Wilson Jerry Wynn aka Jerry W Wynn

The case, IN RE WYNN, Bankr. Court, MD Georgia 2021, is an all too familiar instance of failing to correctly identify an individual debtor on a UCC Financing Statement.

In 2013, the debtor Wilson Jerry Wynn (Wynn) entered into a security agreement with Deere & Company (Deere) for the purchase of a 7215R tractor. Deere, in turn, filed a UCC and listed the debtor’s name as “Jerry W Wynn.” Deere later filed an amendment in 2015 and listed the debtor as “Wilson Jerry Wynn.”

In 2014, Wynn entered into an agreement with AgGeorgia Farm Credit, ACA (AgGeorgia) for a loan. The collateral was farm equipment and expressly included the 7215R tractor.  According to the court opinion, at the time the loan/agreement was executed, Wynn provided documentation to AgGeorgia which indicated Deere had a UCC filed on the tractor. AgGeorgia filed a UCC and listed the debtor’s name as “Wilson Jerry Wynn.”

Key: from 2011 to 2016, Wynn possessed an unexpired Georgia driver’s license, which identified him as “Wilson Jerry Wynn.”

In 2017, Wynn filed for Chapter 12 and ultimately, AgGeorgia filed a complaint to determine the validity of Deere’s security interest.

The Court Considered

Here’s an excerpt from the court opinion:

“Georgia law requires… for a financing statement to be effective, it must include the debtor’s name… if the Debtor has a Georgia driver’s license, the financing statement should list the Debtor’s name as listed on the driver’s license. According to Georgia law, however,

[i]f a search of the records of the filing office under the debtor’s correct name, using the filing office’s standard search logic, if any, would disclose a financing statement that fails sufficiently to provide the name of the debtor in accordance with subsection (a) of Code Section 11-9-503, the name provided does not make the financing statement seriously misleading.

O.C.G.A § 11-9-506(c). Deere listed the Debtor’s name on its original financing statement as “Jerry W. Wynn,” but the Debtor’s name as listed on his driver’s license was Wilson Jerry Wynn… Although Deere listed the Debtor’s name incorrectly on its initial financing statement, if Deere’s financing statement would appear in a search of the Debtor’s correct name, the financing statement would still have priority over subsequent correctly filed financing statements, including AgGeorgia’s.”

So, the question becomes: Would Deere’s Financing Statement appear in a search using Wynn’s correct name?

Turns out, Deere and AgGeorgia performed two different search types. AgGeorgia performed an exact name search and Deere performed a certified search. The court clarified the difference between a certified search and an exact name search.

“A certified search… adds a second step beyond the exact name search to cross-reference the file numbers of amended financing statements and returns them in addition to the original financing statements; the results of a certified search include more results than the exact name search would have disclosed.”

Seems Deere’s search was more thorough, which is good, right? Well, it may have been more thorough, but it is not the standard search logic used in Georgia. Georgia has two standard search logics: exact search and stem search.

The exact name search would not have revealed Deere’s original 2013 UCC, though it would have revealed the 2015 amendment. Unfortunately for Deere, AgGeorgia properly perfected its security interest in 2014, giving AgGeorgia priority over Deere.

But Wait, AgGeorgia Knew about Deere’s Interest in the Tractor

Earlier I mentioned Wynn provided AgGeorgia with documentation about Deere’s interest in the tractor. Deere argued it has priority, because AgGeorgia knew about Deere’s interest. But the argument was futile. “This Court finds that, under Georgia law, actual notice does not affect the priority of liens and the first to perfect rule governs, giving AgGeorgia’s lien on the Tractor priority over Deere’s.”

AgGeorgia wins.

Changes for Texas Lien Claimants Effective January 2022

Posted on June 7, 2021 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Changes for Texas Lien Claimants

*Post updated 6/16/2021 to include official enactment*

For several years, the Texas legislature has been trying to pass amendments to its mechanic’s lien statute, and finally change is on its way. It’s true, Texas HB 2237, relating to mechanic’s liens, has officially been signed by the governor. What changes are ahead for Texas lien claimants? Let’s review.

When Is It Effective?

The new statute applies only to original contracts (contracts between the owner and prime contractor) entered on or after January 1, 2022. Original contracts entered before January 1, 2022, will follow current statute.

Texas Notices of Non-Payment – Current Statute – Commercial Projects (effective for original contracts executed before 1/1/2022)

Contracting with a Subcontractor:

  • Serve a notice of non-payment upon the prime contractor by the 15th day of the second month following each month of furnishing (aka “2nd month notice)
  • Serve a notice of non-payment upon the owner and the prime contractor by the 15th day of the third month following each month of furnishing (aka “3rd month notice”)

Contracting with a Prime Contractor:

  • Serve a notice of non-payment upon the owner and the prime contractor by the 15th day of the third month following each month of furnishing (aka “3rd month notice”)

Texas Notices of Non-Payment – New Statute – Commercial Projects (effective for original contracts executed on or after 1/1/2022)

Contracting with a Prime Contractor or Subcontractor:

  • Serve a notice of non-payment upon the owner and the prime contractor by the 15th day of the third month following each month of furnishing (aka “3rd month notice”)

Under the new statute, parties will have to serve only the 3rd month notice on a commercial contract. To protect your rights, if the date of the original contract is unknown, it is recommended to follow the current statute and to serve both the 2nd month and the 3rd month notices.

Delivery of Notices

The new legislation provides for additional methods of service. Aside from the typical certified mail, service can be “by any other form of traceable, private delivery or mailing service that can confirm proof of receipt.” (Section 53.003 (b)(3))

New Forms?

Under the new statute, both Notices of Non-Payment and Notices of Retainage will see changes.

SECTION 11.  Section 53.056, Property Code, is updated by amending Subsection (a) and adding Subsections (a-1), (a-2) …

(a-2) The notice must be in substantially the following form:

“NOTICE OF CLAIM FOR UNPAID LABOR OR MATERIALS

“WARNING: This notice is provided to preserve lien rights.

“Owner’s property may be subject to a lien if sufficient funds are not withheld from future payments to the original contractor to cover this debt.

 “Date: _______________

“Project description and/or address: _______________

“Claimant’s name: _______________

“Type of labor or materials provided: _______________

“Original contractor’s name: _______________

“Party with whom claimant contracted if different from original contractor: _______________

“Claim amount: _______________

“_______________ (Claimant’s contact person)

“_______________ (Claimant’s address)”

SECTION 12.  The heading to Section 53.057, Property Code, is amended to read as follows:

(a-2) The notice must be in substantially the following form:

“NOTICE OF CLAIM FOR UNPAID RETAINAGE

“WARNING: This notice is provided to preserve lien rights.

“Owner’s property may be subject to a lien if sufficient funds are not withheld from future payments to the original contractor to cover this debt.

“Date: ________________

“Project description and/or address: ________________

“Claimant’s name: ________________

“Type of labor or materials provided: ________________

“Original contractor’s name: ________________

“Party with whom claimant contracted if different from original contractor: ________________

“Total retainage unpaid: ________________

“________________ (Claimant’s contact person)

“________________ (Claimant’s address)”

Texas Suit to Enforce Mechanic’s Lien

The deadline for filing suit is reduced to one year (instead of 2 years) from the last date the claimant could have filed a lien.

  • Except as provided by Subsection (a-2), suit must be brought to foreclose the lien not later than the first anniversary of the last day a claimant may file the lien affidavit under Section 53.052.

Currently, claimants should file suit to enforce the lien 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.

Change to Lien Waivers

Although the basic template for Texas lien waivers remains the same, the waiver will no longer need to be notarized. (Section 53.281(b)(2))

Lien Rights Now Available to Licensed Professionals

Under current statute, licensed professionals such as architects are only afforded lien rights if they contract directly with the owner. Under the new statute, lien rights are extended to licensed design professionals regardless of who they contract with.

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

Posted on May 17, 2021 by - Legislative Updates & News Alerts, Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Changes to Iowa Mechanic’s Lien

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

Iowa Governor, Kim Reynolds, has signed HF 561 into law. The bill contains two key changes to Iowa’s mechanic’s lien law. Though the new statute won’t take effect until January 1, 2022, here’s a quick look at what’s changing.

First Change: Liens Covering Multiple Counties Can be Posted Once to Registry

Iowa is upping its efficiency game. Under the current law, if a mechanic’s lien is filed against parcels that cover multiple counties, the claimant is required to post a lien to the registry for each county. Under the new statute, claimants can file one lien.

This is the amended statute text; the changes are underlined:

Section 1. Section 572.8, subsection 3, Code 2021, is amended to read as follows:

3.A lien perfected under this section shall be limited to the county or counties in which the building, land, or improvement to be charged with the lien is situated. The county or counties identified on the mechanics’ notice and lien registry internet site at the time of posting the required notices pursuant to sections 572.13A and 572.13B shall be the only county or counties in which the building, land, or improvement may be charged with a mechanic’s lien.

Second Change: Can Recover Attorney Fees if Lien is Bonded Off

If you file a mechanic’s lien, the lien is bonded off, and you are the prevailing party, you will be entitled to recovery of attorney fees. Some sources indicated this has been a contested issue among district courts. Fortunately, the new statute clears up any question.

This is the amended statute text; the changes are underlined:

Sec. 2. Section 572.32, Code 2021, is amended to read as follows:

572.32 Attorney fees — remedies.

1.In a court action to enforce a mechanic’s lien, or an action brought upon any bond given in lieu thereof, a prevailing plaintiff may be awarded reasonable attorney fees.

2.In a court action to challenge a mechanic’s lien posted on a residential construction property, or any bond given in lieu thereof, if the person challenging the lien or defending against any action on the bond prevails, the court may award reasonable attorney fees and actual damages. If the court determines that the mechanic’s lien was posted in bad faith or the supporting affidavit was materially false, the court shall award the owner reasonable attorney fees plus an amount not less than five hundred dollars or the amount of the lien, whichever is less.

For Now, Follow Current Statutory Guidelines

Remember, these changes do not go into effect until January 2022. Until then, if you need to file a lien on parcels that cover multiple counties, you should continue to post a lien to the registry for each county where the property is located.

Bonus: Securing Lien Rights in Iowa

For commercial projects, you should serve the preliminary notice upon the prime contractor within 30 days after first furnishing. The mechanic’s lien should be posted to the Mechanics’ Notice and Lien Registry within 90 days from last furnishing and suit should be posted to the registry within 2 years from the 90-day lien filing period or within 30 days from the receipt of a demand to commence suit.

For residential projects, the mechanic’s lien and suit deadlines are the same as commercial projects. However, the preliminary notice requirements are different. Residential projects are considered single- or two-family dwellings occupied/used primarily for residential purposes. For prime contractors, the notice should be served upon the owner, and a Notice of Commencement should be posted to the registry no later than 10 days after commencement of the project. For subcontractors or suppliers, post a preliminary notice on the registry as soon as possible to trap funds and serve a copy of the notice upon the owner. A lien, when later filed, may only include labor or materials provided after the preliminary notice is posted and served. If not posted by the prime contractor or owner-builder, a subcontractor or supplier may post a Notice of Commencement on the registry, after which they may post their preliminary notice.

New York Tolling the Lien Line

Posted on May 10, 2021 by - In Other Commercial Credit News, Mechanic's Liens & Bond Claims

Mechanic’s Lien Deadline Tolls

For Whom the Mechanic’s Lien Deadline Tolls; New York Mechanic’s Lien Extended

Did the March 20, 2020 Executive Order issued by Governor Andrew Cuomo toll the mechanic’s lien clock for lien claimants? In a recent New York Supreme Court decision, the answer is yes. The lien claimant’s lien remained valid, because the extension of lien and/or suit deadline was “extended” to account for time courts were closed/reduced due to the pandemic.

New York Lien Law

The general guidelines for mechanic’s lien rights on private commercial projects in New York are reasonably straightforward. There is no required preliminary notice, the mechanic’s lien on commercial property should be filed within 8 months from last furnishing, the lien can be extended if an extension is filed within 1 year from the date of the lien filing, and suit should be filed within 1 year from the date of the lien filing.

The hitch? Well, amid the COVID-19 pandemic, Governor Cuomo issued an Executive Order (EO):

“I hereby temporarily suspend or modify, for the period from the date of this [EO] through April 19, 2020 the following: . . . to limit court operations to essential matters during the pendency of the COVID-19 health crisis, any specific time limit for the commencement, filing, or service of any legal action, notice, motion, or other process or proceeding . . . is hereby tolled from the date of this executive order until April 19, 2020…”

I should note, this EO was extended beyond the April 2020 date as the pandemic progressed, which is addressed below. But, before we go further, what exactly does “toll” mean? Precisely what the court had to determine.

Did the Claimant’s Lien Lapse?

KPM Restoration (KPM) provided construction work for project owner 701 River Street Associates, LLC (Owner). Owner failed to pay KPM for materials/services provided, and KPM filed a mechanic’s lien December 9, 2019, for $229,105.25. According to the court opinion, in June 2020, a partial release of lien was filed, leaving the mechanic’s lien balance of $155,791.73.

Under normal circumstances, KPM should have filed an extension of lien or proceeded with suit to enforce its lien by December 9, 2020; it did not. Based on statute, Owner filed a motion to have KPM’s lien discharged stating KPM did not comply with the deadlines set forth in Lien Law § 17.

KPM argued the deadline was extended based on the Governor’s EO. Here’s KPM’s argument per the court opinion:

“[KPM] contends that the one-year statutory timetable for its compliance with the Lien Law requirements was tolled by Governor Andrew Cuomo’s Executive Order (“EO”) 202.8, issued on March 20, 2020, in response to the COVID-19 pandemic and which tolled commencement, filing or service deadlines of legal actions during the pandemic. Respondent notes that EO 202.8 was subsequently extended up to and until November 3, 2020, by a series of subsequent EOs… Pursuant to EO 202.72, tolling was no longer in effect as of November 4, 2020. [KPM] argues that between March 20, 2020 and November 3, 2020, 228 days passed and therefore, the tolling period extended [KPM’s] deadline to commence an action to foreclose its Lien or to further extend the Lien until July 25, 2021.”

OK, so really, what does “tolled” mean? Did the Governor’s EO actually extend KPM’s extension or suit deadline?

The court relied on a definition from an earlier legal decision “[a] toll suspends the running of the applicable period of limitation for a finite time period, in this instance, 30 days, and `[t]he period of the toll is excluded from the calculation of the time in which the [claimant] can commence an action.'”

Based on this definition, the extension deadline was not suspended, it was tolled. Because the time is tolled, it doesn’t count against the calculated deadline. This means KPM’s lien is valid.

Court Opinion: MATTER OF 701 RIV. ST. ASSOC. LLC, 2021 NY Slip Op 21116 – NY: Supreme Court, Rensselaer 2021

Tolling the Lien Line

2020 was… well, it was a year of challenges and questions. As we move through 2021, we are likely to see more questions about the validity of claims, because EOs were issued throughout the country and the EOs certainly weren’t uniform. Though this claimant lucked out, I wouldn’t bank on all states following suit. Review your deadlines, review your filed documents, make sure you have all documentation in order, and consult an attorney if you have questions about the validity of your claims.

Wyoming House Bill Further Defines a Digital Asset

Posted on April 26, 2021 by - UCC Financing Statements

Wyoming House Bill Further Defines a Digital Asset

In 2019, Wyoming was the first state to enact blockchain-enabling laws, and to clarify the treatment of digital assets under the UCC. Recently, Wyoming enacted HB0043 (effective July 2021) which further defines a digital asset and identifies a digital asset as an intangible under UCC Article 9.

What Is a Digital Asset?

According to W.S. 34-29-101, a digital asset “means a representation of economic, proprietary or access rights that is stored in a computer readable format and is either a digital consumer asset, digital security or virtual currency.” The last part – virtual currency – may sound familiar because bitcoin or NFT (non-fungible tokens) are forms of digital assets.

Security Interest in Digital Assets

Creditors seeking a security interest in collateral containing digital assets would file a Blanket UCC and the Security Agreement must include the category of “intangibles” and may include “proceeds thereof.” Below is the text from HB0043 (emphasis added).

34-29-103. Perfection of Security Interests in Digital Assets; Control; Possession; Security Agreements; Location.

  • Notwithstanding the financing statement requirement specified by W.S. 34.1-9-310(a) as otherwise applied to general intangibles or any other provision of law, perfection of a security interest in virtual currency may be achieved through possession and perfection of a security interest in digital securities may be achieved by control. A security interest held by a secured party having possession or control, as applicable, of virtual currency or digital securities has priority over a security interest held by a secured party that does not have possession or control, as applicable. Other provisions of law relating to perfection and priority of security interests, including W.S. 34.1-9-322(c) and priority of control over delivery, shall apply, except that W.S. 34.1-9-322(a)(i) and (b) shall not apply. W.S. 34.1-9-207 shall apply to this section.
  • Before a secured party may take possession or control under this section, the secured party shall enter into a security agreement with the debtor and, as necessary, other parties. The security agreement may set forth the terms under which a secured party may pledge its security interest as collateral for another transaction. Consistent with W.S. 34.1-9-201(a), the security agreement shall be effective according to its terms between parties, against purchasers of collateral and against creditors.
  • If a debtor is located in Wyoming, a secured party may file a financing statement with the secretary of state to perfect a security interest in digital consumer assets or digital securities, including to perfect a security interest in proceeds pursuant to W.S. 34.1-9-315(d).
  • Notwithstanding any other provision of law, including article 9 of the Uniform Commercial Code, title 34.1, Wyoming statutes, a transferee takes a digital asset free of any security interest two (2) years after the transferee takes the asset for value and does not have actual notice of an adverse claim at any time during the two (2) year period. This subsection only applies to a security interest perfected by filing.

Other States Following Suit?

In a recent article Update on Nonuniform UCC Legislation for Emerging Technologies, the author reviews proposed amendments before Nebraska’s legislature. And, according to the National conference of State Legislatures (NCSL), 25 states have pending cryptocurrency legislation for the 2021 season. You can view NCSL’s list here.

Minnesota Prelien Deadline is 45 Days, Not 72 Days

Posted on April 5, 2021 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

prelien

Minnesota’s Prelien Notice Deadline is 45 Days, Not 72

What happens when your preliminary notice is late? In Minnesota, you may lose your mechanic’s lien rights. One lien claimant served its Minnesota prelien notice 27 days too late and the court invalidated its mechanic’s lien.

Preserving Mechanic’s Lien Rights in Minnesota Starts with a Prelien

If you are a subcontractor or material supplier furnishing to a private project in Minnesota, you should serve the prelien notice upon the owner as soon as possible to trap funds, but within 45 days from first furnishing materials or services.

If you are a contractor who contracts with subcontractors or material suppliers to provide labor or materials, you should include the notice within the written contract with the owner and serve a copy of the contract upon the owner. If no written contract exists, you should serve notice upon the owner within 10 days of agreeing to work on the project.

It’s possible a notice may not be required in Minnesota. For example, the notice may not be required if the project is on non-agricultural land and the project is not wholly residential and is more than 5,000 usable square feet or is to provide or add more than 5,000 total usable square feet of floor space, or a wholly residential project has more than four family units.

The lien deadline in Minnesota is within 120 days from your last furnishing and if you need to proceed with suit, you should need to do so within 1 year from your last furnishing. Did you know Minnesota can be a full paid balance lien state or an unpaid balance lien state? If the 45-day notice is not required, the lien is enforceable for the full amount owed, regardless of payments made by the owner.  If the 45-day notice is required, the lien is enforceable for the unpaid portion of the contract at the time the 45-day notice is served.

You can review Minnesota’s statute in full here.

Timberwall Landscape & Masonry Products, Inc. v. DRMP Concrete Limited Liability Co.

Timberwall Landscape & Masonry Products, Inc. (Timberwall) was hired by DRMP Concrete LLC (DRMP) to provide materials for a retaining wall at the Klochkos’ residence. Timberwall began furnishing April 26, 2018.  Between March 2018 & May 2018, the Klochkos issued payments to DRMP, and DRMP issued payments to Timberwall; unfortunately, the DRMP payments to Timberwall were returned for insufficient funds.

On July 7, 2018, Timberwall served a prelien notice upon the Klochkos and within the notice, Timberwall stated “[t]o the best of [Timberwall’s] knowledge, [Timberwall] estimate[s] our charges will be $1 plus other good and valuable consideration.” Then, on July 17, 2018, Timberwall filed a mechanic’s lien for $26,161.30 and by September 2018, Timberwall had proceeded with its foreclosure action.

Raise your hand if you know where Timberwall went wrong.

To be fair, if you read the first paragraph, you know what Timberwall did wrong, but for the sake of the story: Timberwall served a prelien notice 72 days from first furnishing, which was untimely in accordance with statute.

The Klochkos argued Timberwall’s lien was invalid because Timberwall failed to timely serve its notice. Timberwall then argued its lien was valid because it made a “good faith effort” to comply with Minnesota’s statute. The court sided with Klochkos.

“Timberwall provided its notice 72 days after its first delivery of materials, and Timberwall does not claim that it tried to provide pre-lien notice within the statutorily mandated 45-day period. Nor does the record reflect any effort on the part of Timberwall to comply with this mandate. The lack of any record evidence reflecting that Timberwall sought to provide pre-lien notice within the statutorily mandated 45-day period supports the district court’s determination that Timberwall failed to make a good-faith effort to comply with the statutory pre-lien notice requirements.”

Because Timberwall failed to serve its notice timely, it lost rights to the mechanic’s lien and was unable to recover payment through the lien process.

The lesson here? Serve your preliminary notices on time, every time.

Warranty Work Doesn’t Extend Washington Lien Deadline

Posted on March 22, 2021 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Warranty Work

Does Warranty Work Extend the Mechanic’s Lien Deadline? Not in Washington

We are frequently asked whether punch list or warranty work will extend the mechanic’s lien deadline. Generally, punch list items and warranty work aren’t considered substantial last furnishings which could extend a mechanic’s lien deadline. However, it is a state-by-state determination, and in some cases, it’s a court determination. Recently, a lien claimant in Washington discovered warranty work did not extend its mechanic’s lien deadline.

Short on Time? Here’s Word from the Court

“The question we answer today is whether the 90 days to record a claim of lien is extended by a contractor performing warranty work—that is, work performed after substantial completion to correct nonconforming work. We strictly construe “repairing” to exclude a contractor’s correction of its own work and conclude that performing warranty work does not extend the 90 days to record a claim of lien.”

BRASHEAR ELEC., INC. v. NORCAL PROPS., LLC, Wash: Court of Appeals, 3rd Div. 2021

Backstory: Brashear Electric, Inc. (Brashear) is a subcontractor hired by general contractor, Vandervert Construction, Inc. (Vandervert) for two commercial retail construction projects on adjacent properties: the Norcal and Blue Ridge projects.

According to the Court of Appeals opinion and based on Vandervert’s contract with the project owners, Vandervert’s contract with Brashear required Brashear to “assume all warranty obligations applicable to its works under Vandervert’s contracts with the owners.” Vandervert’s contract with the owners included the provision “for a period of one year after substantial completion, to promptly correct work not conforming to the contract requirements.” In other words, Vandervert agreed to warranty work for one year after completion of the project.

Now, here are some key dates:

  • June 28, 2017: Brashear completed work on Norcal project
  • September 29, 2017: Brashear completed work on Blue Bridge project
  • January 17, 2018: Brashear was called back to fix a leak at Norcal project
  • January 30, 2018: Brashear filed mechanic’s liens for $12,830.81 on Norcal project and $36, 278.50 for Blue Ridge project
  • February 2, 2018: Vandervert filed for receivership
  • June 2018: Brashear proceed with suit to enforce its liens

Washington’s mechanic’s lien statute states the lien should be filed within 90 days from last furnishing materials or services. Brashear’s last furnishing date on the Norcal project was 6/28/2017 and its last furnishing date on the Blue Bridge project was 9/29/2017. This means the mechanic’s lien deadlines were 9/26/2017 and 12/28/2017 respectively. Brashear didn’t file its liens until 01/30/2018 – way beyond the statutory deadlines.

On appeal, Brashear argued its lien deadlines should be calculated from the last date it was on the project for warranty and repair work, which was 01/17/2018. Calculating from this date, of course, would mean Brashear’s mechanic’s liens were filed timely. According to Brashear, the statute was incorrectly interpreted.

The plain language of statute is:

“Every person claiming a lien under RCW 60.04.021 shall file for recording… a notice of claim of lien not later than ninety days after the person has ceased to furnish labor, professional services, materials, or equipment…”

Further, under RCW 60.04.011(5)

“Constructing, altering, repairing, remodeling, demolishing, clearing, grading, or filling in, of, to, or upon any real property or street or road in front of or adjoining the same…”

I bolded two words: labor and repairing. Technically, when Brashear returned to the job site, it did provide labor to repair the leak. OK, so what does the Court of Appeals have to say?

First the Appeals Court reviewed the standard definition of “repair”, then stated it cannot interpret one word, it has to interpret the series of words (i.e. constructing, altering, repairing, remodeling…), and finally determined:

“With respect to repairing, contractors are hired and paid to restore something that is broken. They are not hired and paid to correct their own nonconforming work. Rather, their own work is warrantied, and they are contractually obligated to correct it at no cost to the owner… A lien is intended to secure payment for money owed. A contractor is not paid to correct its own nonconforming work. Warranty work, therefore, is not lienable.”

Warranty Work ≠ Lienable Work

Yes, unfortunately for Brashear, warranty work is not lienable work under Washington statute. Take time to carefully review your contract and as a best practice, conservatively track your lien and bond claim deadlines – it’s better to be too early than too late.