Monthly Archives: November 2016

Are you protected by the Lien Laws? – part two

From Part 1 of this series we learned that you must wrap your head around two basic concepts:

Real Property and Work of Improvement.

If you may still be unsure of these, please read part one of this series before going any further.

Once you have Real Property and Work of Improvement under your belt. The next item to consider is: Eligibility

Just wanting to file a mechanics lien because you are convinced that you performed a work of improvement to Real Property isn’t quite enough to proceed. Don’t misunderstand, almost anyone who wants to file a mechanics lien can by all means do so. However, if you file a mechanics lien and did not legally have a right to claim a mechanics lien, you could be opening Pandora’s Box.

Claiming a mechanics lien without first securing a lien right is illegal and could make you liable for any damages your invalid lien may cause the owner of the property. The mechanics lien is a great tool used to secure your money, and a solid vehicle for collecting it. But the mechanics lien is only available to those who have earned a “Right to Lien”

The Right to Lien may be secured by a variety of processes. These differ from state to state. So don’t assume that because you claimed a valid mechanics lien in New York, that you can proceed the same way in Florida. The State Lien Laws are completely different in these states as they are in other states.

So how can you be safe to proceed with claiming a mechanics lien?

One basic principle exists in almost every state. That is that the lien laws are designed to protect those who are in compliance with the laws in general. Example: If you are a Contractor and the state in which you conduct business requires you to hold a specific “Contractor’s License”. Then you must not only have that license, but it also must be valid. You may not expect the state to grant you a mechanics lien right if you have allowed your contractors license to expire or you are attempting to work under a suspended license. Same holds true for any requirements demanded by the Secretary of State for legally conducting business in their state. If you don’t respect the state laws, then don’t expect protection under their laws.

As a side note to the above, do not enter into a business transaction which may result in the claiming of a mechanics lien under a name that differs from your license. If you were granted a license as: “Jack Ready Framing Services” then don’t issue an invoice to your client as “Jack’s Framing”. This is all about keeping it legal, not convenient, legal.

Another caution about having a “right to lien” is the serving of a proper and timely “Preliminary Notice”. Over half the states in our country require those in construction, or suppling materials to a construction project, to serve a preliminary notice which “grants them the right to claim a lien”

IE: No Prelim = No Lien

 

Now this does not hold true for everyone and surely not for every state. However, when the state requires you to serve a preliminary notice; within 8, or 20, or 45 days from the day you being to work of the job, then you best do so if you want to protect 100% of your anticipated revenue from the project. Sure there are some loopholes which may grant you partial protection by serving a late notice, but the smart players will opt to embrace a policy which allows them to be protected on every job.

I would like to now say: “That’s it”. however, there is still more to consider about protecting your right to lien. So keep a eye out for our next blog:

Are you protected by the Lien Laws? – part three: “a day late and you will be more than a dollar short”.

Bonding around a Mechanics Lien – Let ’em do it!

Some clients get all concerned when their customer or customer’s customer threatens to bond around their mechanics lien. Not quite sure what all the fuss is about. When someone choses to replace the Title of the Real Property being named in a Mechanics Lien with a Surety Bond, they in essence have made the collection process a little easier and more secured.

The truth is that the bond is similar in ways to an insurance policy. It secures the value of the claim of lien by the cash value that is supported by a Bond.

Look at this way:

Option #1 You have helped to improve a building and are owed $100,000.00 for the improvements you made. You filed a Mechanics Lien and now you need to file a foreclosure lawsuit in order to be awarded a judgment that will force the building to be sold and you will be paid upon the close of escrow. This works, and is done all of the time. However, you must first be successful prefecting your Mechanics Lien to be awarded a judgment from the courts. And once you have the judgment. The building still has to be sold and escrow closed before you get any money.

 

Option #2 You have helped to improve a building and are owed $100,000.00 for the improvements you made. You filed a Mechanics Lien and now the title holder of the building wants to substitute the title of the building with a payment bond that has a cash value equal to the amount being claimed in the lien. You still need to file an action to commence a suit on the bond. However, once you are successful in substantiating your claim, the judgment you will receive is for immediate payment from the surety or bonding company. You will not have to wait until the building is sold and escrow is closed.

 

The reality is that the bond becomes more liquid than the real estate and your chances of receiving the cash have been improved. In addition, you are no worse off than when you just had a mechanics lien. The key concern should be: “Can I be successful in court presenting my claim against this bond?” You will still need to have an attorney argue your case in order to be awarded a judgment for the full amount of your claim. The good news is that the bond used to substitute the mechanics lien must be in the amount of the mechanics lien claim you filed. Even if the judge elects to make adjustments that lower the value of your award.

 

So you should not have any concerns when someone opts to “Bond around your Mechanics Lien”. Your biggest challenge will always be to be in complete compliance with the statute. Never miss a deadline. And have an attorney who knows their way around the mechanics lien perfection process.

 

For more, please read the lien related articles found in the CRM Blog.

Are you protected by the Lien Laws? – part one

First answer this question:

 

Did I provide materials, services, equipment or labor to a “Work of Improvement” on REAL PROPERTY? This questions begs for a basic understanding as to why the mechanics lien laws exist. The keywords in this sentence are #1 REAL PROPERTY and #2 WORK OF IMPROVEMENT

#1 Real Property is the same as saying Real Estate. i.e.: Land, Building, House, Road, Physical Structure. Many ways to say the same thing. It must be Real Property to be eligible for protection under the Lien Laws.

#2 Work of Improvement. Not work to maintain the condition of Real Property. But work that will actually add value to the Real Property.

  • Examples: A Concrete Patio with a Wood Shade Structure which is “Built On” to the House or Building.
  • Another Example: Converting an unimproved lot by adding plants, grass, underground sprinkler systems, etc. These examples convey improving the value of the Real Property by adding physical improvements which did not previously exist.

So what about replacing a damaged or worn roof? Does this add value? The answer is: Yes. The worn or damaged items diminish the value of the Real Property. So replacing them with new products not only maintains the value but may also increase the value of Real Property.

An example of this is as follows: Suppose that you are considering the purchase of a 25 year old house and you can choose from two identical or similarly priced houses. Only one has the original roof which is now 25 years old and the other has a recently replaced roof that is only three years old. Which house may have greater value? While both may have functioning roofs, the house with the newer roof will most likely last longer than the house with the aging roof. Therefore, this replacement roof both maintains and adds value to the Real Property.

So the key here is to understand what improves or adds value to a real property and also what may simply maintain the value of real property.

Example: Lawn Maintenance, Window Cleaning, Replacing Lightbulbs, These examples and many like them fall under a category known as maintenance. There are NO LIEN LAWS which will allow you to claim a mechanics lien for providing maintenance to real property.

Now it is also easy to add onto any of these examples and create a right to claim a lien.

You may plant some new shrubs on the same day you maintain the lawn. Naturally you will charge more for the shrubs and the labor to plant them. So now you may be able to protect the part of the invoice which identifies the shrubs as eligible for protection under the lien laws. Same for window cleaning if you should replace some damaged glass or provide tinting for the windows. Perhaps the light bulb replacement may include upgrading to low energy bulbs or adding new or replacement fixtures. The key is to understand what can be protected under the lien laws and what cannot.

There is a lot more to this discussion. However, it is to much to cover in this blog article. If you want to learn more. Watch for “Are you protected by the Lien Laws – Part Two”