Category Archives: Mechanics Lien Laws

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.

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Making sense of Texas Retainage Notices

So the law reads that your “Notice of Retainage Agreement” must be served not later than the earlier of:

The 30th day after the claimant’s agreement providing for retainage is completed, abandoned or terminated. or the 30th day after the date the original contract is terminated or abandoned.

So what is being implied:

  1. The owner of the property will comply with the law and retain 10% of the monies as proposed in the General Contractor’s Contract.
  2. If you are the original contractor and possible a first or second tier subcontractor or materials supplier, you are automatically subject to this retainage condition.
    1. To further protect your earnings, it may be wise to have your client sign a contract which includes a retainage agreement which stipulates the exact amount you are agreeing to have withheld until retainage is due and payable.
  3. To be in compliance with the time allowed for you to serve a “Notice of Contractual Retainage” you must be aware of when you finish on the job and also when the general contractor finishes on the job. If you finish before the general, then you have 30 days from the date you finish to serve your notice. However, should the general contractor complete the project before you. (This may be theoretically impossible. But there could be a situation where your work may include some punch list items being addressed after the general has already signed off on the job.)

In either case the best strategy is to serve your “Notice of Contractual Retainage” as soon as you start. In Texas, the amount to be retained is 10% and you should be able to determine this amount on the day you start. So why wait, and run the risk of missing the opportunity to protect your Retainage? This could be your whole profit or a large part of it. To have it victimized by missing a due date is ridiculous. Keep in mind, the timelines listed above are deadlines. There is nothing to prevent you from serving earlier.

Keep in mind! The unpaid balance due you for the 90% of the work is separate from the 10% withheld retainage amount. You may NOT include retainage in a mechanics lien for the unpaid balances earned through the base contract, unless you are able to file a mechanics lien after all terms have been satisfied and all or part of your contract remains unpaid. However, should the terms for the retainage be unsatisfied at the time to bring your mechanics lien forward, you will need to file a mechanics lien for the unpaid contract and upon satisfaction of the terms for the retainage agreement, perhaps a second mechanics lien for the unpaid retainage

Don’t let your Retainage be compromised. You will need to serve this notice to protect your Retainage. So better to act sooner than later.

Order Notice

 

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.

Understanding Retainage

While the concept is no mystery to those who participate in the construction industry. The means by which you protect these job related accounts receivables can be a little tricky.

Lets take a look at Texas.

Texas statutes actually require that the property owner hold 10% retainage from the total due the Original Contractor until the project has completed, and 30 days have elapsed. Why? Why does the State make this requirement upon the Property Owner? There may be several answers to this question. But the one that jumps out is: “To help defend against mechanics liens which those, other then the original contractor, are preparing to bring against the project due to unpaid contracts”.

By requiring the Property Owner to hold back (RETAIN) 10% of the amount due the Original Contractor for up to 30 days after the job is completed. Those with unpaid contracts can properly notice the property owner while funds are still available to satisfy these claims and protect the property owner from possibly paying twice for the materials, supplies or labor which was provided to the project under subcontracts.

Now the key to protecting all of your unpaid balances for this project is to have a crystal clear understanding as to what is retainage and what is not!

Best way to explain is by illustration:

Lets say that you are the Plumbing Contractor for an improvement being made to Texas Corporate Park. You have subcontracted with the Original Contractor to install all of the plumbing fixtures for a total price of $650,000.00. You agree to a Retainage Agreement of 10%.

So from the very beginning of the project you know that $65,000.00 of the total due to you are not collectable until the TERMS of the RETAINAGE AGREEMENT has been satisfied. Lets also say that your work of this job will last 5 months and that you actually finish on time. To sweeten this illustration, you have 100% approval of your work by the Original Contractor and the Owner. I know, sounds like utopia. Bear with me for this illustration. Your contract of $650,000.00 should be paid in full. However, you agreed to allow 10% ($65,000.00) be subject to the retainage agreement. Your subcontract also most likely included terms for you to submit invoices as you completed select portions of your contract. Those invoices cannot total more than $585,000.00 and are due and payable to you during the course of the contract in accordance with your agreed terms.

To protect the $585,000.00 (amount of subcontract less retainage) you must submit all first and second notices of unpaid balances as they become due during the 5 month project, in order to secure your right to file a mechanics lien for unpaid balances. If you were 100% in compliance with the Texas notice of unpaid balances requirements, and unpaid balances which represent $75,000.00 of the $585,000.00 are owed to you.   An affidavit of lien for $75,000.00 may be claimed. If your affidavit of lien is being claimed at a time which is also in agreement with the terms for retainage, and the retainage of $65,000.00 is also unpaid,  you may file a single affidavit of lien for $140,000.00.

However, should the terms of the retainage agreement allow additional time for disbursement of the $65,000.00 you allowed to be withheld as retainage, you must limit your affidavit of lien to the $75,000.00 unpaid balances portion and consider an additional affivdait of lien for the retainage portion once the retainage agreement has matured and you have not been paid the $65,000.00 Retainage.

So the lessons to consider from this illustration are:

  1. Avoid mixing unpaid balances with retainage (Unless all amounts are due or past due)
  2. Make sure that you have complied with ALL Texas notices for retainage and unpaid balances. (Most will get the unpaid balance portion under control. It is the retainage protection which tends to get lost in the paperwork)
  3. Using a professional lien service, with years of experience with Texas notices, should greatly reduce the worry and keep all of your unpaid job related accounts receivable in compliance with the requirements that allow you to seek protection under the statutes.

Contact CRM for all of your notices in all 50 states.

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”.

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”

Proprietary Release Forms

When using the Mechanics Lien Laws one must be concerned about the method or form they use to “Release their RIGHT to a Lien”. Many states have adopted PROPRIETARY LANGUAGE in the structuring of these forms and have laws which insist that these Proprietary Forms, or at the very least, the incorporation of proprietary language to be inserted into any non standard form.

So the most logical tactic to employ is to use the Release of Lien RIGHTS forms as depicted in the State Statue. When using the Release Forms as illustrated in the State Statute you are most assured to be in full compliance with the laws. Why would you want to do anything else?

Well there are those who participate in the Construction Industry who prefer to work strictly under the guidance of their council even if it means to ignore that which is set forth within the statutes.

Not to imply that any Release of Lien RIGHTS form crafted by an attorney is not compliant with the state statute. However, when additional language is added, you may run the risk of subjecting your company to conditions which have been deliberately eliminated from the language as offered with the Statute. The simple fact is that most who have special release of lien rights forms crafted, usually do so to add layers of protection of their interest or to remove any liability they may be required to accept when using State Statue structured Release of Lien Rights forms.

Here are the states which have published specific language within their lien laws, which apply to the Release of Lien RIGHTS.

  • Arizona
  • California
  • Florida
  • Georgia
  • Massachusetts
  • Michigan
  • Mississippi
  • North Carolina
  • Nevada
  • Texas
  • Utah
  • Wyoming

Other States, while not declaring proprietary release of lien rights language or specific forms, will most generally accept the structure of the Release of Lien Rights language as represented in the above list for like situations. The most common are:

  • Conditional Progress Release
  • Unconditional Progress Release
  • Conditional Final Release
  • Unconditional Final Release

To be safe, please exercise extreme caution when signing an Unconditional Final Release. This document will declare that you have already been paid everything you earned on the referenced project. If you are still waiting for a check, wire transfer, or voucher, make sure you receive the payment and that the payment is valid before surrendering an Unconditional Final Release.

To avoid any of the confusion, or searching for the specific state release forms. CRM Lien Services offers a comprehensive Construction Notice Management Application for our Open Account clients. The CRM eSystems online service includes all of the specific state release of lien rights forms, including versions with Notary Public endorsement and a complete pallet of generic forms for those states without proprietary language requirements.
To learn more, please use the following link:

50 State Guide

CRM Lien Services, Inc. “Serving Industries that build America” for over 30 years.