If my customer serves a prelim will I be covered?

My customer, who is a local distributor of roofing materials, served a prelim on a job and I will be supplying the roofing materials to the job and invoicing my customer. Am I protected under his prelim?

Short answer is ABSOLUTELY NOT and there are many possible reasons why you are not protected.

To start, the property owner has the ultimate responsibility to become liable to all who participated in the project who have a Right to Lien as evidenced in the most current state statute. When the statute demands that all who may be able to claim a lien must first notify the owner with a properly prepared notice. Then this means you, not your customer.

It is also possible, as in this example,  that you may be providing materials to another supplier who in turn is supplying to the job. This would be viewed as a Transfer of Inventory even if you shipped the materials directly to the job.

Many other conditions could impact your ability to have a Right to Claim a lien on a project. It is always best to request a prelim from CRM on or before the day you ship materials or start to work on a project. Let CRM conduct the research and make certain that you have a properly prepared and served notice to secure your Right to Lien.

There are many examples of conditions, which could exist, which may impact your Right to Lien. From a suspended or delinquent Contractors License to a misrepresentation of your business entity by failing to properly state your legal business identity on your contract or your clients order for services.

Keep in mind. This whole process of serving notices is driven by strict compliance with the laws that govern improvements to real property. Something as simple as forgetting to use “Inc.” after your company name when your are in fact an incorporated business, may invalidate your notice. Don’t take chances. When you have an experienced company like CRM prepare your notices, you may expect them to “peel back the onion skin” and look for all of the details, which those who may want to invalidate your Right to Lien, are hoping you overlook.

Here is the bottom line! When you have true lien rights to protect, you do not want to make a simple mistake that could cost you your lien claim after you have spent a ton of money to enforce your claim. Silly things like

  • Claiming a lien right or a lien under a business name of which you have no right to lien. (That is why CRM request that you enter into a “Service Agreement” with CRM.  This allows CRM to confirm that the notices we serve for you will actually protect you because you proper business identity is listed in the notice)
  • Or trying to claim a mechanics lien for the sale of some services or materials that could not be substantiated as having improved Real Property. ( Example: If you rented a Forklift to a job, you may protect the “RENTAL INCOME” earned on the Forklift ONLY IF the Forklift was used to help improve the Real Property. If the Forklift was used to unload tractor trailers of materials or supplies used in the business operations of the company whose property was being improved, then the rental income was earned but DID NOT help to improve the value of the real property.
  • Staying with the Forklift example: What if the Forklift is DAMAGED on the job? What if the cost to repair the Forklift is $10,000.00? Should you include the cost to repair the Forklift in your Lien? Most likely not. Why? The damage to the Forklift should be covered by Liability Insurance. (The Rental Industry usually refers to this as “Damage Waiver” Insurance.) So an insurance claim for the damages should be filed and this transaction should not be part of your claim for a mechanics lien.
  • Another scenario is when a Materials Supplier is supplying materials to someone else who has contract “to supply materials” to the project and they claim their right to lien for materials that you supplied. They are protected, you are not protected! If you try to claim a lien right it will be disqualified even if you delivered the materials to the job as a service to your Materials Supplier Client who ordered the materials from you. (Perhaps you should have sold the materials under a “Joint Check” agreement. This would help your protection if your client must go to court to collect on the materials you supplied.

There are many conditions which could surface in any business transaction. To be safe, we encourage you to use a service who ask the right questions and understands what it will take to make sure your notices do the job you expect them to do. To learn more about preliminary notices and other methods for securing your job related accounts receivables.

ContactUS

Leave a Reply