Service Area: Notice and Mechanic’s Lien Services

Project Type: Is the Construction Project Private, Public, or Federal?

Posted on March 15, 2021 by wpengine - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

It’s Important to Know the Project Type: whether a Project is Private, Public, or Federal

Construction projects generally fall into one of three categories: private, public, or federal. These categories identify the project type and help determine whether you would secure mechanic’s lien or bond claim rights. Project type is dictated by property ownership.

First There’s Private or Public Projects

A private project is a private improvement contracted by a private entity, a public project is an improvement of public works or building under formal contract made by any government authority (the state, county, city, or political subdivision), and a federal project is a contract for the construction, alteration or repair of any public building or public work of the United States.

Private projects may include office buildings, restaurants, stores/retail, or churches, whereas public projects could include public schools, city hall, or the Department of Transportation. Be careful not to confuse public projects with establishments that are open to the public. For example, just because a church is open to the public does not mean the property is publicly owned; similarly, restaurants are open to the public, but the entities that own the property are private entities.

Then There’s Federal Projects

Typically, federal projects may include construction at a United States Post Office, an improvement to a United States Airforce base, or repairs to a Federal Reserve building. However, there may be situations where a federal project is actually a private project or leasehold situation. Frequently, the government will lease building space from another entity, which could change the project type.

In fact, I mentioned the Federal Reserve as being a federal project, but the Federal Reserve Bank is a quasi-public (government entity with private components) banking system. Because of the “quasi” nature, it’s important to carefully review the contract and obtain a copy of any payment bond that may have been issued for the project. While you review the project documentation, I recommend you also review the statutory guidelines for both public and federal projects. If it’s a state where the public bond claim deadline is sooner than a federal bond claim deadline, you may want to track the project as though it is public, this way you are less likely to miss any deadlines.

Quasi Could Also Apply to Private and Public Projects

This notion of quasi projects isn’t limited to federal projects. Another common example is professional sports facilities. Typically, professional sports facilities are quasi-public-private projects, with a public entity owning the property and the sports team leasing the property.

Of Course, Remember Lien on Leasehold

When property is leased, whether it’s publicly or privately owned, you may encounter a lien on leasehold interest. A lien on leasehold interest is real property held by a lessee under lease. When liening a tenant improvement, the statutes vary by state as to whether a mechanic’s lien would be available against the property, the leasehold interest of the tenant, or both.

Projects on Sovereign Territory

If a project is owned by a tribal authority and/or on an Indian Reservation, the mechanic’s lien and bond claim statutes would not apply, as the land would be considered sovereign territory. In some instances, the tribal authority may require a payment bond. Always attempt to confirm whether a payment bond was required and obtain a copy.

Can I Lien a Riverboat?

This question is more common than you may think. Your rights to a mechanic’s lien may be questionable when furnishing materials or services to a riverboat casino. If the materials or services are provided to a “floating” riverboat, Maritime law may apply. If the materials or services are provided to the land at which site the riverboat is docked, mechanic’s lien rights may be available. Like riverboats, construction on oil rigs may fall under Admiralty and Maritime Law.

I Have No Idea the Project Type

Determining whether a project is private, public, or federal can sometimes be difficult. If you are unable to confirm property ownership and the project doesn’t seem to fit nicely in a designated category, you may want to consider additional investigation and review of information. If you need help, we are here for you!

UCC Terminated without Authorization

Posted on March 8, 2021 by wpengine - Credit Risk Management, UCC Financing Statements

UCC Terminated on Geringhoff NS 1230F Corn Head

UCC Terminated without Authorization, Do You Still Have a Perfected Security Interest?

To have your UCC filing terminated without authorization is unfortunate; to have it happen twice? Well, that’s downright frustrating and it’s exactly what happened to one secured party… er, unsecured party. Fortunately for this secured party, the US Bankruptcy Court stepped in. Let’s take a look at the case.

IN RE SMITH, Bankr. Court, WD Tennessee 2020

Farm Credit Services of America, PCA d/b/a AgDirect (AgDirect) financed farm equipment for debtor John H. Smith (Debtor) and AgDirect filed its UCC-1 with the Tennessee Secretary of State. The Security Agreement & UCC specifically identified the collateral as “Geringhoff NS 1230F Corn Head, bearing Serial Nos. 1011206151230F and 10435.”

Two years after Debtor purchased the equipment, the Debtor refinanced his credit through IberiaBank, and granted IberiaBank a security interest in its farm equipment, including the piece of equipment (the Corn Head referenced above) secured by AgDirect’s UCC-1.

About 10 days after IberiaBank filed its UCC-1, AgDirect’s UCC was terminated by an individual named Walter Smith. According to the court opinion, “This termination statement states that it was filed on behalf ‘Farm Credit Services of Mid-America, PCA’.”

Now, you may have not caught it, but the termination was filed on behalf of Farm Credit Services of Mid-America, PCA which is not the same entity as AgDirect (Farm Credit Services of America). The entities are technically related, but Farm Credit Services of Mid-America, PCA has no authority to act on behalf of AgDirect. AgDirect did not know who Walter Smith was and it certainly didn’t authorize the termination of its UCC.

AgDirect only uncovered this mayhem after it learned of Debtor’s bankruptcy filing. Ultimately, Debtor filed for bankruptcy twice, however, the first case was dismissed. In both cases, AgDirect was not listed as a creditor on the bankruptcy filings, and therefore wasn’t notified of either filing. Presumably, AgDirect was not notified because a UCC search would not have produced AgDirect as a secured creditor because its UCC had been terminated.

After the second bankruptcy filing, AgDirect filed a continuation of its original, albeit terminated, UCC-1. (Odd, right?) Shortly after the filing, Debtor and IberiaBank worked out a court-approved sale of various farm equipment (including the equipment AgDirect had interest in). Days later, Iberia Bank’s attorney filed a termination statement on AgDirect’s Continued UCC-1. So, if you’re still with me, although this “continuation” that was filed by AgDirect wasn’t really a continuation, it was still terminated without authorization.

Meanwhile, AgDirect is owed about $35,000 on the equipment and has NO idea that any of this is going on – the bankruptcies, the sale of equipment, the termination of its continued UCC, etc. In fact, the proceeds of $32,500 from the sale of the Corn Head were given to IberiaBank as the first lien creditor. Phew!

I’m going to fast forward past some additional issues in this case. Now AgDirect and IberiaBank are in front of the bankruptcy court. AgDirect argues it should be entitled to the $32,500 in proceeds because it was a priority lien holder in the equipment. IberiaBank argues AgDirect has no interest in the proceeds, because AgDirect’s UCC was terminated.

What Did the Court Say?

The court reviewed cases from other states, including the JP Morgan case from a few years back. (The JP Morgan case was different than the AgDirect case though, because in JP Morgan, several JP Morgan people had reviewed the termination before JP Morgan accidentally terminated its own filing.) After reviewing other cases, the bankruptcy court relied on a few sections of Tenn. Code Ann. including § 47-9-518(c) before rendering its verdict:

Tenn. Code Ann. § 47-9-518(c). The UCC Comments that accompany § 47-9-518 state: Sometimes a person files a termination statement or other record relating to a filed financing statement without being entitled to do so. A secured party of record with respect to the financing statement who believes that such a record has been filed may, but need not, file an information statement indicating that the person that filed the record was not entitled to do so. See subsection (c). An information statement has no legal effect. Its sole purpose is to provide some limited public notice that the efficacy of a filed record is disputed. If the person that filed the record was not entitled to do so, the filed record is ineffective, regardless of whether the secured party of record files an information statement. Likewise, if the person that filed the record was entitled to do so, the filed record is effective, even if the secured party of record files an information statement. See Section 9-510(a), 9-518(e). Because an information statement filed under subsection (c) has no legal effect, a secured party of record—even one who is aware of the unauthorized filing of a record—has no duty to file one. Just as searchers bear the burden of determining whether the filing of initial financing statement was authorized, searchers bear the burden of determining whether the filing of every subsequent record was authorized.

Further, the court stated “…pursuant to TCA §§ 47-9-509(d), 47-9-510(a), 47-9-511(a) and 47-9-513(d), an unauthorized UCC-3 termination statement does not terminate the underlying security interest. Therefore, the termination statements filed in this case were ineffective to terminate AgDirect’s secured interest in the Corn Head. In addition, the continuation statement AgDirect filed on June 19, 2019, sufficiently preserved its secured interest through October 2024.”

The verdict? AgDirect was the rightful recipient of the §363 sale proceeds and IberiaBank was ordered to remit the $32,500 in proceeds to AgDirect.

Could this Mess have been Avoided?

I believe some of this mess could have been avoided, in part. Now, I don’t know that AgDirect could have predicted someone would terminate its UCC filing. However, I do know that AgDirect could have been promptly notified of the termination if it had enrolled in a program like NCS Debtor Monitoring. This notification would have enabled AgDirect to take immediate action, likely saving it precious time and money.

Can You Revive a UCC Filing?

Posted on February 22, 2021 by wpengine - UCC Financing Statements

Can Your UCC Filing be Revived if You Knowingly Let It Become Unperfected?

Can a UCC be “revived” if you knowingly fail to timely file an amendment for a debtor’s name change? Minnesota Bankruptcy Court says no. Today’s post reviews an ongoing case of an unperfected security interest & the persistent unsecured creditor lobbying for secured status.

Short on time? Here’s a quick synopsis from the court decision:

“When Unger Meat Company became Rancher’s Legacy Meat Co. in May 2014, Ratcliff had four months within which to correct his UCC-1 Financing Statement to reflect this change. When he failed to do so, by operation of the plain language of the UCC, as adopted in Minnesota, his lien became unperfected in September 2014. Although Ratcliff could have re-perfected his interest at any time by filing a new UCC-1 Financing Statement, he failed to do that as well. Instead, he filed two UCC-3 statements — a Continuation Statement in November 2015 and an Amendment to that Continuation Statement in January 2019. Basic rules of statutory construction prevent these documents — even when taken together as a whole — from serving as a substitute for the UCC-1 Financing Statement required to re-perfect the interest. Therefore, when this chapter 11 case was filed in September 2019, Ratcliff’s interests were unperfected; he had the status of an unsecured creditor. As such, he is not entitled to adequate protection payments or relief from the automatic stay, and his liens can be avoided for the benefit of the broader bankruptcy estate.”

The Tale of the Unperfected UCC Filing

In 2010, James Ratcliff (Ratcliff) & Joseph Unger started Unger Meat Company (UMC). Ratcliff purchased the building to be used by UMC and leased the building to UMC. Ratcliff and UMC entered into a Security Agreement, which granted Ratcliff a security interest in “all of the Debtor’s equipment, including but not limited to the equipment described on Exhibit “1” hereto, inventory, lease agreement, accounts receivable, furniture and fixtures, whether now owned or hereafter acquired, together with all proceeds and products thereof and replacements therefor.” In 2010, Ratcliff filed a UCC-1 to perfect the security interest and later filed a UCC-3 (amendment) in early 2011.

Early 2014, after UMC had spent years losing money, Ratcliff and the other original owners agreed to sell the company to SSJR, LLC. A new purchase agreement was executed, and the agreement identified SSJR, LLC as the sole purchaser of Ratcliff’s shares in UMC. After the sale was finalized, SSJR, LLC amended the Articles of Incorporation for UMC, changing the company name to Rancher’s Legacy Meat Company (RLMC).

Although Ratcliff was aware of the company name change, he did not file an amendment and four months after the name change, his security interest became unperfected. Remember, Article 9-507(c)? Article 9-507(c) provides a 4-month window to amend the filing for a debtor name change that may be considered seriously misleading. Guess what? A search on “Rancher’s Legacy Meat Company” is not going to reveal a UCC filed on “Unger Meat Company.” You know what that means: seriously misleading.

In 2015, 5 years after Ratcliff originally filed his UCC-1, he filed a continuation. Two problems with this continuation? Well, the first is he no longer had a perfected security interest because he didn’t amend his filing when the debtor name changed. The second problem is that even if Ratcliff had properly filed an amendment, he filed this continuation on the wrong debtor name; he filed the continuation listing the name as UMC, not RLMC.

Fast Forward to an Amendment with the Correct Name

Fast forward to 2019, nearly 10 years from the original filing and 5 years from the time he should have amended his filing with the correct debtor name, and 1 year from the alleged continuation filing, Ratcliff filed another amendment and this time he listed the debtor’s name as “Ranger’s Legacy Meat Co.” What is this, three wrongs make a right? I don’t think so.

Of course, we wouldn’t be talking about this case if there wasn’t a tipping point. That tipping point came at the end of 2019, when RLMC filed for bankruptcy protection. Ratcliff, by all accounts, was identified as an unsecured creditor, which he vehemently disagreed with. He told the court that although he didn’t amend it for the debtor name change, “his filings subsequent to that date “revived” the lapse of perfection and operated to “re-perfect” the Financing Statement.”

Yeah, that’s not how this works. You can’t revive your UCC; it’s not like the UCC passed out and you can wave smelling salts under its proverbial nose. When you know your security interest has become unperfected, because you failed to amend the filing timely, that’s it, game over.

The court supported “game over” when it referenced 9-515 of Minnesota’s UCC statute:

336.9-515 DURATION AND EFFECTIVENESS OF FINANCING STATEMENT; EFFECT OF LAPSED FINANCING STATEMENT.

(c) Lapse and continuation of Financing Statement. The effectiveness of a filed Financing Statement lapses on the expiration of the period of its effectiveness unless before the lapse a Continuation Statement is filed pursuant to subsection (d). Upon lapse, a Financing Statement ceases to be effective and any security interest or agricultural lien that was perfected by the Financing Statement becomes unperfected, unless the security interest is perfected otherwise. If the security interest or agricultural lien becomes unperfected upon lapse, it is deemed never to have been perfected as against a purchaser of the collateral for value.

Ratcliff persisted with his argument further by claiming the actions he did take were to “connect the dots” from his original UCC filed in 2010 to the amendment filed in 2019. The court didn’t buy it: “Just because Ratcliff ‘eventually’ got around to attempting to connect the disjointed and ineffective ‘dots’ he had filed does not mean that he was able to revive his interests or that either of his UCC-3 filings was effective.”

Relentless-Ratcliff (my new nickname for him) leveraged any argument he could come up with, and one by one the court shut him down.

“Ratcliff’s interpretation of the UCC does not create a harmonious result. Instead, under his theory, a creditor could re-perfect a lapsed security interest by simply filing a Continuation Statement — and a “seriously misleading” one, at that — at essentially any time, as long as it later filed an Amendment to that statement. This would fly directly in the face of the clear directive of Minn. Stat. § 336.9-507(c)(2). Why include directions about a timeframe within which an Amendment to a “seriously misleading” filing statement must be filed if it could, in fact, be filed at any time?”

Sorry Relentless-Ratcliff, your security interest is avoidable. However, being that he is relentless, he is appealing the decision handed down by the Minnesota Bankruptcy Court.

And, since the above decision was handed down, Ratcliff has won a motion for stay on the sale of all assets of debtor.

“…[T]his Court concludes that Ratcliff met his burden to show that the sale should be halted while he seeks to reverse his unsecured status on appeal and grants Ratcliff’s motion to stay pending appeal so long as he posts a supersedeas bond.”

Guess we’ll have to wait and see what happens in the next episode of “Relentless-Ratcliff and His Rogue Security Interest.”

Loves Furniture Bankruptcy & Mechanic’s Liens

Posted on February 15, 2021 by wpengine - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Loves Furniture, Taking Mechanic’s Liens to the Mattresses

In January 2021, Loves Furniture, Inc. (Loves) filed for Chapter 11 bankruptcy protection. The bankruptcy petition indicates Loves has between 100-199 creditors, estimated assets between $10,000,001-$50M, estimated liabilities between $10,000,001-$50M, and it believes funds will be available for distribution to unsecured creditors once secured creditors and administrative expenses are paid.

Loves cited warehousing and delivery issues as a major factor in its financial demise. One report indicated the business was “under financial pressure since almost the day it opened.” According to court documents, in April of 2020, without stores, offices, phones, or equipment, not to mention it was the onset of a pandemic shutdown, “Loves was created at the kitchen table of its first employees.”

You may recall, Loves was a successor-of-sorts for Art Van Furniture (Art) which had filed bankruptcy in early 2020. To clarify, I use the term “successor” loosely – the Loves entity was not formed as a result of the Art bankruptcy, rather Loves stepped into the retail holes Art left behind. When Art filed for bankruptcy, it liquidated and vacated its stores, leaving millions in inventory.

In May 2020, Loves entered into an Asset Purchase Agreement for the inventory Art had left behind, which Loves sold for about $7M. Loves moved into many of the vacated Art stores. Unfortunately, several of the vacated stores were dated and required significant work to comply with building code and occupancy regulations.

Contractors, subcontractors, and material suppliers were hired to refurbish these stores. Refurbishments and renovations included everything from repair to buildings where fixtures had been torn out to the tear down and replacement of external store signage. The court document states the total cost of renovation and repair was $4,084,780, some of which remained unpaid at the time of Loves bankruptcy filing.

The Mechanic’s Liens & Getting Paid

Nearly a dozen mechanic’s liens were filed against Loves’ properties in Michigan in December 2020, according to LienFinder™, with claims in excess of $500,000. The top lien claimant was SFV LLGC LLC, a construction management firm. Now that Loves has filed for bankruptcy, how will the claimants recover the funds due to them?

Like many retailers, Loves is involved in tenant or lessee situations. When contracting with the fee simple owner of the real property, the mechanic’s lien attaches to the property itself. When a lessee/tenant contracts for an improvement on real property, the mechanic’s lien may be available against the property, the leasehold interest of the lessee/tenant, or both.

The debtor, Loves, has filed for bankruptcy protection, which means automatic stay orders are in place. The automatic stay prevents creditors, such as the lien claimants, from calling in debts owed.

If the bankrupt party is the tenant, like Loves frequently is, then, where allowed, suit can still be pursued against the fee simple aka the actual property owner. If the bankrupt party is the fee simple owner, not a tenant or lessee, then claimants may not be able to enforce the lien on the real property unless the automatic stay is lifted.

Michigan Mechanic’s Lien Rights

Generally, to secure mechanic’s lien rights on a Michigan private project, a Notice of Furnishing should be served upon the owner, lessee, designee, and prime contractor within 20 days from first furnishing. A late notice may be served, but the lien, when later filed, will be limited to the unpaid portion of the contract at the time the notice is served.

In the event you aren’t paid, you should file your lien with 90 days from last furnishing, then if necessary, and where allowed, proceed with suit to enforce the lien within 1 year from filing the lien.

If you have furnished to an improvement and haven’t been paid, don’t wait – file your mechanic’s lien as soon as possible.

Mechanic’s Liens & New Jersey’s American Dream

Posted on February 1, 2021 by wpengine - Mechanic's Liens & Bond Claims

Are Mechanic’s Liens New Jersey’s American Dream?

Some construction projects can take weeks, months, or years to complete, others like the American Dream in New Jersey, can take decades. American Dream is a Nickelodeon branded mega-mall and entertainment complex in New Jersey. It is reportedly 3 million square feet, with a combined 450+ restaurants and stores, and over a dozen acres of entertainment space, all on state owned land. It has been decades in the making and with millions in mechanic’s liens, it’s not done yet.

Underwhelming Crowds, Staggered Schedules, and a Good Old-Fashioned Curse

Forbes reported the pandemic isn’t the sole factor in the distress of NJ’s American Dream, citing problems with getting various retailers to commit to opening stores within the complex, lower than anticipated crowds, and an odd, staggered opening schedule.

“The amusement park opened when some of the rides still didn’t have approval to operate, and the food and beverage operations were limited to airport kiosk-style refrigerated cases. Visitors couldn’t get a cup of coffee at the complex until a food cart was set up near the entrance to the amusement park. Sections of the parking decks still were under construction and roped off on opening day.

The haste to open piecemeal could have been the result of pressure from lenders, or from retailers who wanted to see concrete signs that the project was moving forward before committing, or financing or construction problems.”

One source commented this project has been cursed from the beginning. “This place has been jinxed since day one, but then again it’s the curse of New Jersey” and “In the 22-23 years I’ve been dealing with the different machinations of this mall, every time there’s a problem we throw more public money in it and it gets bigger.”

Oh, and to circle back to the pandemic a moment. Part of the funding for this project came from a $2.8B Mall of America (in MN) mortgage. As we know, malls have virtually no traffic due to the pandemic – tenants aren’t paying their rents, rents pay the mortgage bills, mortgage bills aren’t paid… you see where I’m going here, right? It’s been reported that Triple Five (American Dream & Mall of America Owner) is now back on track with its mortgage, but who knows what will happen as the pandemic lingers and retailers continue to struggle.

The Lien Ride

Construction Dive reported there had been a revolving door of general contractors on this project. GC’s included Whiting-Turner, Skanska, and the current GC is PCL Construction. This massive project was broken out into 9 smaller projects. “It was a little like eating an elephant one bite at a time,” said PCL General Superintendent Tim Davenport. “It was nine separate $300 million projects.” Which means there were a LOT of (over 150) subcontractors and material suppliers on the project.

Earlier in this post I mentioned this project has been built on state land, begging the question: is the project private or public? The leaseholder is Ameream LLC and New Jersey Sports and Exposition Authority is the reputed property owner. The Authority holds the land lease for the property, which means mechanic’s liens are the appropriate security, and are likely lien on leasehold.

Unlike the fun amusement rides the facility boasts, there has been no shortage of liens on this project. LienFinder™ reports 85 liens have been filed since 2019, with a dozen in the last few months, and over $5M in claims in January 2021 alone. January’s lien claimants include Dant Clayton Corporation which furnished materials & equipment for installation of glass and metal railings.

Other parties who filed liens in January: Bonland Industries, Inc. which furnished ductwork and mechanical work, Construction Resources Corp. which furnished elevator & forklift services, Meadowlands Fire Protection Corp. which furnished fire protection systems, and Johnson Controls Fire Protection LP which furnished life safety and labor.

In New Jersey, lien claimants have an opportunity to file a Notice of Unpaid Balance and Right to File Lien prior to recording the lien. If this notice is filed, the lien would have priority over conveyances subsequent to the filing of the notice. Further, (not that I want any project to go belly up but…) serving a Notice of Unpaid Balance may greatly improve the chance of successfully filing a valid lien after a project owner or other party files a petition in bankruptcy, allowing the lien to relate back to the Notice of Unpaid Balance. The mechanic’s lien should be filed within 90 days from last furnishing, and suit should be enforced within 1 year from last furnishing or within 30 days from receipt of a notice to commence suit.

Will It Be Completed, Or Is there Really a Curse?

It’s unknown when the facility will officially be completed and unknown whether it will survive the tumultuous economic times we are in, but one thing is for sure: don’t wait on payment, file your mechanic’s lien asap.

Notices of Commencement: Top 7 Questions Answered

Posted on January 25, 2021 by wpengine - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

7 of Your Notices of Commencement Questions Answered

What is a Notice of Commencement? Do all states have Notices of Commencement? Why are these documents important? In today’s post we’ll review 7 of your Notice of Commencement questions.

What Is a Notice of Commencement?

A Notice of Commencement is a notice typically recorded by the owner of a construction project, in the county where the project is located, prior to materials or services being provided to the project. The information provided in the notice of commencement assists in the preparation and service of the preliminary notice.

What Information Is Included within Notices of Commencement?

The Notice of Commencement generally provides the property description, the name and address of the owner, the name and address of the prime contractor, any parties that need to be served with a preliminary notice (i.e., designee), and surety information if the project is bonded.

Do All States Have Notices of Commencement?

No, not all states have a Notice of Commencement. In the states of Florida, Georgia, Ohio, and South Carolina, Notices of Commencement may be issued on public or private projects. In the states of Michigan, Nebraska, Pennsylvania, and South Dakota, Notices of Commencement may be issued on private projects, and in the state of Utah, a Notice of Commencement may be issued on public projects.

The requirements for the Notice of Commencement vary by state, and the recording of the document sometimes triggers the requirement for those working on the project to serve a preliminary notice.

How Can I Find Notices of Commencement?

You can contact parties within the ladder of supply, review county records (if document is recorded), search state specific registries or directories, search LienFinder and/or send a formal request when you serve your preliminary notice.

As a best practice, request a copy of the Notice of Commencement as soon as possible. A copy of the Notice of Commencement is to be made available upon request or a copy may be posted at the jobsite.

Can a Project Have More than One Notice of Commencement?

Yes, it is quite possible for a project to have multiple notices and even amended notices. For example, some projects work in phases, so a Notice of Commencement may be issued for each phase of the construction. Or, there may be different general contractors for different portions of the project, in which case there would be multiple notices.

Can Notices of Commencement Be Terminated?

Yes, it’s possible. For example, in the state of Florida, a Notice of Termination of Notice of Commencement can be filed. The Notice of Termination of Notice of Commencement is a recorded affidavit that terminates/extinguishes an existing Notice of Commencement.

Any Tips on Traps?

You should always look at the date the notice was recorded to ensure it matches up to the time frame the project began, confirm it isn’t expired, and make sure it is for the scope of work you are performing. You should also confirm whether an amended Notice of Commencement has been recorded. Lastly, if the Notice of Commencement indicates the project is bonded, save yourself the struggle & request a copy of the payment bond right away – it’s much easier to get copies at the beginning of a project.

NCS Insights for Credit Management in 2021

Posted on January 11, 2021 by Kiwi - In Other Commercial Credit News

Bankruptcy Climate of 2020, Predictions for 2021, and What You Need to Do to Ensure Your Company is a Secured Creditor

The events of 2020 will not soon be forgotten. A year that began with hope and optimism was quickly darkened by a pandemic that locked down economies for weeks and months. Businesses that had been sluggish prior to the pandemic crumbled as consumers hunkered down at home, many losing their jobs and millions facing a healthcare crisis. Commercial bankruptcy filings increased 29% in 2020, leaving unsecured creditors scrambling to recover pennies on the dollar. In this article we will review the bankruptcy climate of 2020, predictions for 2021, and what you need to do to ensure your company is a protected creditor.

Bankruptcy Current Affairs

Epiq recently reported bankruptcy filings across all chapters are at their lowest point since 1986. However, commercial Chapter 11 bankruptcies continued to rise year over year, with a 29% increase in 2020, for a total of 7,128 filings.

“The peak in Chapter 11 filings for Q2 and Q3 is due to preexisting distressed companies coupled with the onset of a zero-revenue environment. The federal backstop proved a vital lifeline for the stabilization of corporations to protect the US economy,” said Deirdre O’Connor, managing director of corporate restructuring at Epiq. Unsurprisingly, the foodservice industry was on track to lose $240 billion in sales by the end of 2020. Between March & July, the foodservice industry had lost $165 billion, and consumer spending in restaurants was down more than 30%. Restaurant chains that filed bankruptcy in 2020 included Sizzler, Ruby Tuesday, Friendly’s, Souplantation, Chuck E. Cheese, NPC International (parent company for 100s of Pizza Hut and Wendy’s locations), and California Pizza Kitchen. The energy, retail, and consumer services sectors with liabilities exceeding $50M had the most filings since 2009 according to Bloomberg. Amid the pandemic, well known retailers like J.C. Penney Co. Inc., Neiman Marcus Group Inc., Lord & Taylor LLC, Stein Mart Inc., True Religion, Modell’s Sporting Goods, J. Crew Group, Sur La Table, GNC, Ascena Retail Group, RTW Retailwinds, Guitar Center, and Pier 1 Imports filed bankruptcy in 2020. These bankruptcies not only impacted the retail employees, they also trickled up to landlords. As retailers missed rent payments, landlords found themselves suffering losses which sent them into bankruptcy as well. And as oil prices plummeted, energy companies collapsed at an alarming rate. From Latham & Watkins LLP: “In the first 10 months of the year, 101 oil companies with a total of $94 billion in debt filed for bankruptcy. More than 95% of these bankruptcies fell under the upstream exploration and production and oil field services segment with the largest filings being Diamond Offshore Drilling Inc., $11.8 billion, Chesapeake Energy Corp., $11.8 billion, and McDermott International Inc., $9.9 billion.” Then there is the healthcare industry. As if healthcare systems aren’t buried under an immense strain, poor financial health pushed dozens of large health systems to bankruptcy. According to the American Hospital Association “Hospitals face catastrophic financial challenges in light of the COVID-19 pandemic. The AHA estimates a total four-month financial impact of $202.6 billion in losses for America’s hospitals and health systems, or an average of $50.7 billion per month.” Unfortunately, the financial distress pummeling these industries is likely to get worse long before it gets better. Despite the optimism surrounding vaccine rollouts, experts and analysts estimate a large wave of consumer and commercial bankruptcies in the first two quarters of 2021. Commercial bankruptcies are likely to include retail, healthcare, energy and additional industries like gyms, movie theaters, leisure services, and real estate firms.

11 Steps to Take Right Now

Fortunately, there is a silver lining in these grey financial times. Economic uncertainty offers many opportunities to improve your competitive position. Here are steps you can take right now:

Re-examine your existing credit policies.
Make your credit granting process more rigorous.
Ensure your operational systems and customer agreements are in place with accurate and complete credit information.
Research and verify your customers’ legal business names.
Review The National Lien Digest for time and information requirements to protect your lien and bond claim rights.
Monitor and review mechanic’s lien activity in LienFinder.
If your department has been downsized and resources are limited, contact your credit vendors to obtain and verify credit history, credit scoring, UCC or lien searches.
Implement Bankruptcy Monitoring to ensure you are timely notified of any debtor bankruptcy.
Prepare Security Agreements as well as Personal and Corporate Guaranties, which are powerful tools to determine and/or minimize your risk.
Talk to your trade groups and exchange financial information on mutual customers.
Most importantly, secure your collateral.

Laws in Place to Protect Your Company

The U.S. government provides two bodies of law to help you with securing collateral: Article 9 – Secured Transactions of the Uniform Commercial Code (UCC) and The Mechanic’s Lien Laws. Who you are selling to determines which solution will put you in the best position to get paid. Here are several options to consider:

Article 9 provides the venue to secure personal property such as accounts receivable, inventory, equipment, general intangibles, goods, and software.
The UCC benefits your company when a customer defaults or files bankruptcy. If a customer defaults on payment terms and you have a signed Security Agreement that clearly defines default, you now have a breach of contract and can use this tool to repossess your goods or sue for payment.
In a bankruptcy, all creditors are split into two classes: secured and unsecured. In a Chapter 7 bankruptcy, secured creditors are paid first in the date order of the recorded financing statement. Unsecured creditors split what remains on a pro-rated basis, often receiving pennies on the dollar. The UCC filing elevates the status of your receivable to that of a secured creditor.
In a Chapter 11 bankruptcy, all secured creditors have the same status, which provides them with substantial leverage over the unsecured creditors as it relates to liquidation. Now is the time to incorporate the UCC process into your credit policies.
If you restructure past due receivables through installment notes, be sure to secure those notes.

UCC Article 9

Meeting the requirements of Article 9 requires you to collect information to better know and understand your new and existing customers. It is important that you:

Have an updated signed Credit Application.
Know the organization’s legal name and if it is registered with the Secretary of State, as well as its corporate address and shipping locations.
Confirm the names of owners and officers.
Understand your customer’s business and how it is using the products and services you provide.
Verify whether your customer is in a community property state. If so, it is necessary that all liable parties sign all documents.

If you don’t have the time to gather this information, get your sales team involved. Offer a bonus to your team for accurately completed Credit Applications. And encourage them to be creative! For instance, rather than referring to the required but potentially threatening term “Security Agreement,” consider calling it a “Partnership Advantage Program.” Remember when customers turn to you for help, whether they are requesting extended payment terms, are currently past due or are seeking a credit limit increase, you’re in the perfect position to leverage this opportunity to become a secured creditor and reduce your credit risk.

Preliminary Notices, Mechanic’s Liens & Bond Claims

If you work in the construction industry you know that construction credit has its own unique process. To ensure that you’re making good credit decisions, take the time to update customer data and review your procedures. Start with researching your clients’ corporate information. Insist that job sheets be completed for every project, better yet, gather the information electronically with systems like the NCS Job App. Know the project address of where your materials or services are being furnished. Confirm who owns the property and who the general contractor is. You also have the opportunity to tie yourself into the trust fund of monies set aside for the project. To do so you must consistently serve preliminary notices and file Mechanic’s Liens or Bond Claims to secure your accounts receivables. These laws were created to protect owners of construction projects and ensure all contractors, subcontractors, and material suppliers receive the money owed them. Carefully follow the statutory guidelines within each state because small missteps could jeopardize your security. Protect your rights and benefit from your secured interest in case your customer or someone else in the contractual chain defaults or files for bankruptcy. If you are concerned a customer may file for bankruptcy, consider exchanging a carefully worded lien waiver for payment. Currently, that payment may not be considered preferential because the debtor received something in consideration for the payment. Attorneys have successfully used this argument in defense to preference claims. Setting up a defense by using a lien waiver is a smart move, although it doesn’t provide a guarantee.

Credit & Compassion

Every credit professional needs a well-planned credit process with a side of reasonable compassion. Keep in mind that how you treat your customers today will reap great benefits tomorrow. Take a balanced approach and try not to be too aggressive towards a good customer who has recently fallen on hard times. The economy will rebound, and your customer will remember your tempered approach to their situation. After all, it is both what you do and how you do it that earns a client’s loyalty. And a loyal customer is the best hedge to ensure your company’s long-term health.

NCS Is Here for You

In today’s tough economy, working with a responsive, flexible strategic partner is critical. As you spend more time each week extinguishing proverbial credit fires, having an expert to react quickly when special problems arise can make an immense difference. Our expertise in UCCs, mechanic’s liens, and commercial collections, will help you minimize your risk and improve your profitability, and our investments in cutting edge technology found in LienFinder, The National Lien Digest, and LienTracker Online will save you time.

Serve Your Pennsylvania Mechanic’s Lien as Statute Dictates

Posted on January 4, 2021 by wpengine - Mechanic's Liens & Bond Claims

Serve Your Pennsylvania Mechanic’s Lien as Statute Dictates Or Risk Losing Your Lien

What happens if the Sheriff’s Office is unsuccessful in personally serving your mechanic’s lien upon the project owner? In Pennsylvania, failing to meet the service requirements dictated by the mechanic’s lien statute could result in lost lien rights. A fate that one lien claimant knows all too well.

Pennsylvania Mechanic’s Lien Rights

For projects costing $1,500,000 or more, the owner or an agent for the owner may file a Notice of Commencement on the State Construction Notices Directory, prior to the commencement of any labor, work or materials being furnished for the searchable project. If filed, the Notice of Commencement shall be posted at the jobsite.

You should file a Notice of Furnishing on the State Construction Notices Directory within 45 days after first furnishing labor or materials. No Notice of Furnishing is required when contracting directly with the owner or when a notice of Commencement has not been properly filed and posted. A Notice of Non-Payment may be filed on the State Construction Notices Directory, for informational purposes, but is not required to preserve lien rights.

Serve a Formal Notice upon the owner after last furnishing and at least 30 days before filing the mechanic’s lien. File the mechanic’s lien within 6 months after last furnishing. You should serve notice of filing the lien upon the owner within 1 month from filing the lien and file an affidavit of service within 20 days from serving notice of the lien upon the owner.

And that’s where Pennsylvania statute got the better of the lien claimant… serve the lien upon the owner.

Case: Americo Construction Company v. Four Ten, LLC

Americo Construction Company (Americo) timely filed a mechanic’s lien for $26,000 for work it performed to the improvement of property owned by Four Ten, LLC (Four Ten). After filing the mechanic’s lien, Americo hired the Sherriff to personally serve the lien upon Four Ten, which is precisely how statute instructs:

Title 49 P.S. Chapter 6, Sec. 1502 (c) Manner of service. Service of the notice of filing of claim shall be made by an adult in the same manner as a writ of summons in assumpsit, or if service cannot be so made then by posting upon a conspicuous public part of the improvement.

Americo advised the Sheriff that if personal service was unsuccessful, the Sheriff should post the lien to the property by a specified date to comply with statutory deadline of “1 month from filing the lien.” Seems OK, right?

According to the court of appeals’ opinion, the Sheriff’s first & second attempts at service were unsuccessful. The attempts were noted in the docket, but there was no indication whether a copy of the lien was posted at the property.

More than a month after the deadline to serve the lien, Americo received notification from the Sheriff on the failed attempts at service. Americo contacted the Sheriff and it was discovered the Sheriff had not posted the lien to the property as previously requested. Subsequently, the Sheriff went back to the property & posted the lien, then Americo filed an affidavit stating it served its lien.

The lien was filed 6/21/2018.
The lien needed to be served upon the owner by 7/21/2018.
The lien was eventually posted at the job site 8/15/2018.

Americo’s lien was officially served… 25 days late.

Of course, property owner Four Ten contested the validity of the lien. “Four Ten filed preliminary objections contending that Americo ran afoul of the thirty-day service requirement contained in the Mechanics’ Lien Law.”

But is it Americo’s fault if the Sheriff didn’t follow the instructions Americo provided? Americo argued it did everything it was required to do in accordance with statute. The court agreed with Americo:

“Americo did everything it was required to do effect service under the statute and our case law. Indeed, we would find that Americo did everything it reasonably could do to ensure timely service.”

So, what’s the problem?

Regardless of Americo following statutory requirements, the lien itself was not served in compliance with statute. The court said:

“Nevertheless, it remains undisputed that Americo did not timely serve Four Ten under the Law despite all of Americo’s efforts. We cannot ignore the unanimous authorities providing that the Mechanics’ Lien Law must be strictly construed. Further, our authorities are unanimous in holding that a claimant cannot substantially comply with the timeliness requirements: either service was timely or it was not.… service was not timely made on Four Ten, Americo is not entitled to the enhanced benefits of the Mechanics’ Lien Law. Strict compliance with the time limits in the act serve the purpose of providing a date certain for owners and third parties to be assured of the absence of such claims. Americo still retains a possible remedy at law, but in the absence of timely service, Americo’s mechanics’ lien claim was properly stricken.”

You may be thinking “…man, Pennsylvania isn’t messing around.” And you’d be right; this isn’t the first (or last, I’m sure) time a lien claimant has been burned by failing to comply with statute. Pennsylvania statute is clear, and courts take no issue with enforcing it. Lesson? Follow the statute to the letter – always.