Category Archives: Lien Laws

Proof of Preliminary Notice Delivery

When will you need “PROOF” that your preliminary notice was not only served but also received, by an authorized representative of the entity named in the notice?

So it looks like the operative word here is “PROOF”. However, it is not. The truth be told, the operative word is “When”. When might you be asked to prove that the entities named in the preliminary notice actually received the notice? Because most preliminary notices completely satisfy the statute as long as the notice is served within the time frame and by a method, approved within the statute. Then why require “PROOF” of receipt? Because most Mechanics Lien Statutes ( which differ than the Preliminary Notice Statute) require that you not only prove that you served the preliminary notice, but also prove that the entity being served did in fact receive it.

Confused?

Here is the bottom line: Most, perhaps as many as 99%, of all preliminary notices, do not result in supporting a Mechanics Lien. The preliminary notice usually is released or reaches the end of it’s life when the job is completed and some time has passed (usually 90 or 120 days). If your company serves many preliminary notices during the course of a business year, and only a handful become needed to support a mechanics lien. Why spend a considerably higher amount for Certified Mail Return Receipt, or FedEx, or Process Server, or other delivery methods allowed within the statute. When less than 1% of your preliminary notices result in a Mechanics Lien?

Some may answer that the 1% risk far out ways the extra cost for being secured on each and every served preliminary notice. This is surely one way to evaluate the risk. However, when we return to the original operative word; ‘When”. We find that the “When” can easily, and very cost effectively, be satisfied by securing “Proof of receipt” anytime up until 24 months, after the notice was served.

So one may subject themselves to being penny wise and dollar foolish by paying 10% to 20% more for every preliminary notice served during the course of the year. Or you can afford the same level of risk, and obtain a “Proof of receipt” on any job, which is lasting longer than 20 months, and be ready to advance your Mechanics Lien with legal copies of all the signatures required to make your Mechanics Lien ready for court.

If you need a solution to maximize this process, we recommend the CRM “eAlert Unlimited” service along with our request for “Proof of receipt”.

To learn more, just click on the eAlert Unlimited image below:

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Confusing a Lien with a Prelim

So what’s the difference?

Here is a simple analogy:

Let assume that you want to see the latest summer blockbuster movie before it is out of the theater and only available on DVD or Streaming. You make plans to go to the theater on Saturday night. You arrive at the theater, parking is free and now you proceed to the box office. What happens next?

  1. You show them your prepaid ticket on your iPhone or
  2. You buy a ticket which is your admission into the theater to view the movie.

Here’s the analogy: The ticket (which you paid for) is your “Prelim” while the “Movie Viewing Experience” is your Lien.

So you need a ticket to see the movie the same way you need a prelim to have the right to file a lien.

Therefore, a prelim, or pre-lien is NOT the same as a lien.

Once you have clarity on the purpose and scope of these two very different documents, your ability to protect your job related accounts receivables will become a whole lot easier.

Another way to remember is:

  1. A prelim SECURES my RIGHT to file a lien
  2. A lien SECURES my job related unpaid accounts receivables.

Now the kicker: You must take one of the following three actions before either of these documents will result in collecting your job related accounts receivables:

  1. Sign a release of your lien in exchange for payment in full from the entity named in your lien.
  2. Negotiate payment terms and refile an extended lien.
  3. Have your attorney use the lien as a basis upon which to file a foreclosure lawsuit against the property named in your lien and collect the amount claimed in your lien from the proceeds of the sale of the property.

This is a very simple yet accurate summation of the prelim/lien process. However, there are variables that can affect any of these conditions:

  1. Timing (time to serve your prelim, time to record and serve your lien, and time to commence a foreclosure lawsuit).
  2. Not all states require a prelim (check the CRM 50 state guide)
  3. You must be legally eligible to claim a lien (A contractor with an expired license, may not be able to claim a lien)
  4. Not every state offers the option to extend a lien.

Need more information on these and other options for methods to secure your job related accounts receivables?

Stop Date – a moving target

When do your Lien Rights begin to wind down?

Most states, not all, have statutory conditions which offer a subcontractor or materials supplier 90 days from last supplying or last performing work on the project, to record and serve a mechanics lien. This should be easy to track. However, for many it is not. Why? Because stuff happens. You know what I am talking about: High order days, Exchanges, New Accounts, Sick Days, the whole enchilada. It’s called business. Thank God we have it. But at times it can be overwhelming.

You may ship materials to a project on day 1 and be finished. Naturally this means that you have 90 days from day 1 to record and serve your mechanics lien. But what happens when on day 32 the same customer orders another shipment for the same job? The simple math is:  you now have 122 days from day 1 to record and serve your mechanics lien. And should the same customer place another order on day 67 . . . I think you get the picture.

Your Stop Date or Last Furnishing Date is always subject to being a “Moving Target”

As long as that target continues to advance, you have a longer time to concern yourself about filing a lien. Bottom line is that you will always have 90 days from the date you last supplied or performed work. (Of course we are referring to states were the statute allows 90 days) So the challenge with the Moving Target is: How do you track it?

One of the best answers we can provide is:

 

 

 

Using eAlerts Unlimited and the eAlerts Reporting Process, you will have one of the most efficient tools for keeping track of this moving target. It does require a little work on your behalf. (Upon receiving your eAlert Report, you will need to check your clients job accounting file and note any new shipments, or workorders.) However, the report will guide you through every open Preliminary Notice, sorted by job site and your customer, and allows you to simply jot down the most current ship/work order dates on the report, then email the eAlert Report along with your updated status, back to CRM.

Once your review with updates of the eAlert Report is received, your moving targets will be indexed and your ongoing reports will be one of the most useful accounts receivables management tools in your credit and collections toolbox.

For more on eAlert Unlimited, select the image above.

Completion? Last Furnished? Stop Date?

Many ways to reference what most consider to be the same thing. However, everyone of these terms have completely different meanings and various concerns on those planning to secure their outstanding receivables on any given job.

Lets take some time to give each of these the respect they deserve and hopefully avoid compromising your lien rights due to misunderstanding.

First and foremost is the COMPLETION date. This is usually manifested by a formal filing of a “Notice of Completion” with the recorders office in the county where the property is located. But it may also be confirmed by the owner and the general contractor agreeing that the contract is completed, final payment is made, and no further work is required. In other words the COMPLETION is driven by the finalization of the original construction contract between the owner or owner’s agent and the general contractor.

So why is this important?

Why is it any different than the date you last furnished to the project or the date your company stopped working on the job?

One thing to consider is the lien law statute for the state where the property is located. If the statute declares that the time for anyone holding a right to bring a mechanics lien against the job will expire 90 days after the Notice of Completion is recorded. Then on the 91st day after recordation, your lien rights are gone.

Now there are states which declare that a subcontractor or materials supplier is allowed up to 90 days after last furnishing to record and serve a mechanics lien.

How does this differ from the above?

When you consider any project which may last many months or perhaps years. Many different trades could participate in the project long before the original construction contract between the owner and the general contractor is completed. However, if the state statute requires them to record and serve their mechanics lien, not later than 90 days after their STOP DATE or after they last supplied to the project. Then their mechanics lien rights will also disappear 91 days after they finish.

So how do you protect your open accounts receivables when there are so many variables which could impact your time to take action?

At CRM we offer a clients a service called “eAlerts Unlimited” This Lien Rights Tracking Program is driven by the STOP DATE, or anticipated STOP DATE, which is recorded on the date your request for a notice to establish your lien rights is received. Most clients do not know when they will stop supplying to the job. For some it may be a one time shipment, while others may continue to supply for months or perhaps for the duration of the project. One key point to keep in mind is: “It is not solely based on the shipments you may supply to the job site” It is also governed by each of your customers who may have ordered from you for the same project. Each customer will need to be named in separate initial notices that will protect your lien rights on this project.

The sweet feature of the CRM Unlimited eAlerts program is that it E X T E N D S your time to take action by the continuation of your “Last Shipped Orders”. The CRM eAlert Reports (Weekly, Monthly, or As Requested) will allow you the opportunity to compare the

“STOP DATE” on the report with your last SHIP DATE in your accounts receivables file.

When they are the same, you will need to consider the recommended action as listed in the report. When these dates differ, you may note your last ship date on the report and return, via email, to CRM. We will then extend your original STOP DATE to the new LAST SHIP date and your time to consider a mechanics lien will be extended accordingly.

For additional information please select:

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Why can’t I lien my customer?

Seems like a logical assumption. You provided materials or services to your client and they have the ultimate responsibility to pay you. So why can’t you put a lien on them?

The answer is a little complex but I will do my best to clarify. The primary concept you will need to wrap your mind around is:

Mechanics Liens may only be placed on REAL PROPERTY

 

Now chances are that your agreement with your customer is that they pay you by cash, check, or some sort of transfer of money into your account. You cannot put a lien on money* so there is no mechanism for you to put a lien on your customer.

However, your customer does have an obligation to pay you. So when your customer decides not to pay you, the best option is to consider filing a “Breach of Contract” Lawsuit. or if the amount owed is within the limits allowed by the local “Small Claims” Courts, then consider filing a “Small Claims” action. This is surely a method available to you to secure your unpaid balance. However, these options may cost much more than the cost to place a mechanics lien on the REAL PROPERTY you helped to improve.

So, while a mechanics lien may not be used against your client. It can, and should be used, to secure the amount due to you from your client because the “FINAL BENEFICIARY” of the materials or services you provided is the Owner of the Real Property.

So the next most asked question is: Can I do both?

Can I lien the job and file a Breach of Contract Suit against my customer? Yes you can. BUT!

There is always a “but”. You may only collect once for the amount due to you. You cannot collect twice for the same balance due.

So we get down to asking: What is the wisest business decision?

My thinking is to file the mechanics lien. Why? because chances are that your customer is not paying you because they have not been paid for the work they performed on the same project in which they hired you. So if they were paid, the breach of contract suit becomes more strategic. But if they are still waiting to be paid, then the mechanics lien may be your most efficient method.

This subject can get a lot deeper depending on many different conditions which may exist. But to answer the question: Why can’t I lien my customer? this should provide you with a good understanding.

One last point. The mechanics lien can be a little tricky. It must be done properly to have any real impact. Make a small mistake and the time and money you invested in your mechanics lien may be easily squandered. Unless you are experienced in the preparation of mechanics liens, we recommend you consider using CRM Lien Services as your professional resource for this process.

(* you cannot lien the money your customer owes you. However, in some cases it is possible to put a lien on the money which is being used to fund the project – see Stop Notice or Lien on Funds)

I filed my lien . . . now what?

This is a very common question once a mechanics lien has been filed and served. The most important thing to consider is that your recorded mechanics lien: “Is not an end in itself”.

Most states offer two distinct options for a recorded mechanics lien. Some offer a third option which will be covered later. The first thing to be aware of is the “Life Cycle” for your mechanics lien. In many states the mechanics lien will become invalid 90 days after it has been recorded. Meaning that all of the time and expense you incurred to protect your lien rights and file your lien, will go down the drain on the 91st day. Why?  . . . because you must take action to advance your mechanics lien.

The most common action is to release your mechanics lien. This is the least expensive and is required if within the 90 day life cycle of your mechanics lien, the property owner has paid you for the full amount, or an amount which you have agreed to settle your claim of mechanics lien. Of course this action, releasing the lien, is only a viable action if you are paid. Should you not be paid, you must present your mechanics lien to a licensed attorney and have them begin a “Foreclosure Lawsuit” before your mechanics lien expires. This can be expensive. However, you may be able to capture your expenses should you win your case in court and request the judge allow recovery of your expenses in addition to the amount claimed in the mechanics lien.

Remember Option #1 Release of Lien (inexpensive), Option #2 Foreclosure Lawsuit (expensive)

Now there are some states, California for example, which offer a third option.

Option #3 Extend your mechanics lien.

This option buys you time (as much as 270 additional days) before you must start foreclosure. But the Lien Extension will cost you the price of a new mechanics lien. While the lien extension is designed to lengthen the time allowed to settle the claim, it must be agreed to and signed by both the claimant and the owner. Set terms for payment of the claim must be declared in the lien extension. And the claimant may advance the mechanics lien to foreclosure anytime during the extension if the terms of repayment are breached.

Not all states have this option but for those that do, it presents a very affordable and secured method to collect on your mechanics lien claim while holding the property in a collateral position.

Now with all of that said, be aware of the 91st day! Your mechanics lien, if left without action for 90 days, will become invalid and a cloud against the title of the property will be created. Your mechanics lien must be removed, with prejudice, when requested by the owner. It makes no difference if you have been paid or not. You are only allowed a limited period to take action with your mechanics lien. Should you let this time slip by. You will be literally up the creek without a paddle.

Have questions? Call us. We can help.

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.

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Are you protected by the Lien Laws? – part four

 

Once you have wrapped your mind around the first three parts of this series on mechanics liens, it will be time to bring it down to the primary concern:

“How Much” may I claim in my lien?

The short answer is: “The amount which remains past due from your client, on the project referenced in the mechanics lien.” Now this is quite simple, and should be your focus if you want to make certain the amount being claimed in your mechanics lien is unchallenged, when it is presented to a Judge. However, most who have gone this far in the collections process, are concerned about recovering the cost they have incurred above and beyond that which remains unpaid. Things like late fees, document fees, filing fees, courier, recording, the list goes on. How can I get re-imbursed for all of these added cost to collect the money that was due to me in the first place?

The natural reaction is to add all of these cost to the mechanics lien. Granted that the owner is ultimately responsible for satisfying a mechanics lien which is litigated in your favor. However, it may not be his responsibility to repay all of your residual costs.

To be on the safe side, take the path which will afford you the greatest degree of success.

  • First and foremost, go after the owner for the amount which is unquestionably supported by the lien laws. By claiming only this amount you significantly improve your opportunity to be successful in court.
  • Second, make sure your attorney is aware of all of the cost you have incurred and insist that he ask the Judge to award these in addition to the amount claimed in the mechanics lien.

Yes, you did absorb many unexpected expenses to advance your mechanic lien to this stage. However, making the mistake of not understanding how the mechanics lien laws work and adding these expenses to the amount of the lien, may result with a discharged lien and no legal right to refile your claim. This means you loose all the benefits you initially secured by seeking the protection of the mechanics lien laws.

To play it safe you should consider:

  1. File a proper mechanics lien for the amount you may legally claim.
  2. You may also file a breach of contract action against your customer who originally agreed to pay you for the materials or services you provided. (It is not your fault the job went bad. You may not collect twice for the lien. However, you may win a judgement for ancillary cost from the party who inadvertently caused you to select a mechanics lien as a means of collecting this unpaid balance.)
  3. Make sure that the signed contract or sales agreement, you enter into with your customer, has a clause that will allow you to seek payment for all and any collections expenses you may incur to collect the amounts due.

Now that you have an understanding as to how to be on the safe side of the mechanics lien process, we invite you to always start with a throughly researched preliminary notice. Choosing CRM Lien Services, Inc. to be your notice preparation service is one sure way to make this process affordable and effective.

For more information please select the “Contact Us” button below.

Are you protected by the Lien Laws? – part three

 

 

 

So we have covered: Real Property, Work of Improvement, and Eligibility in the first two parts of this series. These are all critical to understanding mechanics liens in almost every state. Now we will dive into the next critical area.

Time

 

Every state has specific requirements with regards to the time allowed to seek protection under the mechanics lien law. One hard fact to embrace from the start is: Forget the concept of holidays, weekends, snow days, closed due to construction, all of these normal and natural periods are completely ignored when it comes to complying with the lien laws.

So, if the lien law allows 20 days from the day you begin to work on the project and you start to work on December 23, 2016 You have until January 11, 2017 to have your notice served. 20 calendar days. Of course you could always have your notice served on day one (December 23, 2016 in this example) but you cannot wait until January 12, 2017 and receive total protection. Now this example is based on California Lien Law and it applies to those who must, by law, serve a preliminary notice in order to secure their rights to claim a mechanics lien. Other states have different time requirements; Florida allows 45 days, Oregon 8 days, some allow -0- ( you must serve notice before you start). Best tool for keeping up with these timelines is the CRM 50 State Guide.

 

 

 

This guide is complementary and can assist you with determining the action required to secure and protect your rights to claim a lien. When you need to seek protection under the lien laws you must respect the scope of the timelines.

Using the above example; 20 days to serve your preliminary notice, then what? If you have been paid, you will need to Release your Right to Claim a Mechanics Lien. If you have not been paid, you MAY serve and record a mechanics lien. This will protect the Lien Rights granted to you by the serving of a preliminary notice. Most states allow 90 days from the day you stopped working on the project. However, our California example allows 90 days from the completion of the project or 30 days from the filing of a “Notice of Completion” providing you are served an advisement which informs you of the Notice of Completion being filed. In either case 30 days, 90 days from completion, or 90 days from last working on the job. These days are HARD Calendar Days. Forget any weekends or other “reasons to delay”. The courts do not care why you filed late. You and everyone else who are eligible and secured their right to claim a lien, are subject to the same timeframe.

Here’s a small tip: Allow at least 50% of the timeframe listed within the state statute to begin your claim of lien process. Example: if the statute allows you 90 days from the completion of the project, then by day 46 begin the process of claiming your lien. Reason; some of the process is left to Public Agencies to facilitate your claim. This could be something as simple as submitting your lien for recordation in the County Recorders Office or having your lien served by a Sheriff. These processes are subject to unforeseen delays. Any of which may cause your lien to be delayed to a point where it is no longer eligible for serving as a valid claim.

Once again, the scope of this article has not included all that should be understood so keep an eye out for: Are you protected by the Lien Laws? – part four “How much can I claim?”

 

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”.