Category Archives: Mechanics Lien Rights

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?

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.

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.

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Four Pitfalls to Avoid When Filing Your Ohio Affidavit of Mechanics Lien

Today’s business owners know and understand the struggle of getting paid for work done or services provided all too well. As economic uncertainty mounts, the importance of protecting your ability to secure payment through a Mechanics Lien is more important than ever. To help you secure your Lien Rights in the state of Ohio, please examine this short list of the top four mistakes claimants make when attempting to secure a valid mechanics lien. Avoiding these pitfalls is a great start to collecting your job related accounts receivable:

  1. Failure to understand and preserve your Lien Rights.
    In order to secure your accounts receivable, you need to have a clear understanding of your Lien Rights under Ohio’s Lien Law and the steps you need to take to preserve those rights. In the state of Ohio, a construction project “starts” when the Property Owner Files and Records a Notice of Commencement. To be valid, an Ohio Notice of Commencement must include all of the necessary information, including a legal description of the Property, a brief description of the improvement, the name and address of the contractor and Property Owner, the date of the first contract, and the name and address of the lending institution(s).The Notice of Commencement must be Recorded in the county where the construction project takes place, posted in a visible location at the project site, and Served upon the original Contractor. The Owner has 10 days to provide the Notice of Commencement. Should the Property Owner supply incorrect information or fail to follow the process as outlined, he or she is liable for expenses related to obtaining the correct information, as well as for any loss of Mechanics Lien rights as a result of the incorrect information.Once the Notice of Commencement has been filed, the subcontractor or materialman should File and Serve a Notice of Furnishing within 21 days of the first furnishing of labor and/or materials to the project. While filing a Notice of Furnishing is not required in the state of Ohio (especially if a Notice of Commencement has not been filed), subcontractors and materialmen are always best served to make it a habit of promptly filing a Notice of Furnishing to ensure their full Lien Rights.
  2. Failure to meet the deadline for Filing, Serving and Recording an Affidavit of Mechanics Lien.
    It’s important to be aware of the deadlines involved in filing an Affidavit of Mechanics Lien and follow them accordingly. On all commercial projects, a claimant has 75 days from the last day of furnishing labor and/or materials to file an Affidavit of Mechanics Lien. For residential projects, a claimant has only 60 days from the last day of furnishing labor and/or materials to file the Affidavit of Mechanics Lien.
  3. Leaving out important information in the Affidavit of Mechanics Lien.
    Unknowingly leaving out information or providing misinformation in an Affidavit of Mechanics Lien will invalidate your claim and cause you to lose your Lien Rights. To be valid, an Affidavit of Mechanics Lien must include:

    • The amount owed to the claimant
    • A description of the property
    • The name and address of the Property Owner
    • The name and address of the person for whom the work or materials were provided
    • The name and address of the Lien claimant
    • The first and last dates that work was performed or materials were supplied to the project
  4. Allowing the Mechanics Lien to expire.
    In the state of Ohio, an Affidavit of Mechanics Lien may be valid for up to 6 years, unless a Notice of Commence Suit is served upon the Lien claimant. If a Notice of Commence Suit is served upon the claimant, Lien Rights will expire 60 days after service if a lawsuit has not been filed.

­­­­­­These provisions are not an exhaustive list of every detail included in Ohio’s Lien Law and should not be taken as such. To avoid the unforeseen complications in this process you may be best to use an experienced Preliminary Notice and Mechanics Lien Service to prepare and serve your Affidavit of Mechanics Lien, Notice of Furnishing, Notice of Commencement and other notices. Using an accomplished service will ensure that the proper research is performed so you do not run the risk of loosing your Ohio Lien Rights due to any missed deadlines or inaccurate information.

CRM Lien Services will thoroughly research and verify all of the information included in your Affidavit of Mechanics Lien, Notice of Furnishing and Notice of Commencement so your Lien Rights are fully protected. CRM keeps current with the changes to the Ohio Lien Law so your notices are prepared according to the latest statutes.

If you would like a proposal for our services: Funds-Trapping-Notice-Texas

Releasing Mechanics Lien Rights

“When should I release my Mechanics Lien rights?” We receive this question quite often, and in this blog we will help you determine what releasing your mechanics lien rights means to you and your company. However, before we answer this question, we need to clear up a common misconception. Many people believe that releasing a mechanics lien and releasing mechanics lien rights are the same thing. They are not. Releasing a mechanics lien and releasing mechanics lien rights are two separate things. When you release a lien, you are essentially releasing the lien which has already been filed on the property. You are required to release a lien when payment  is received, or the lien is expired, or for any other applicable reason.

Releasing mechanics lien rights, however, is an entirely different matter (as we will explain below in detail).  Mechanics lien rights are earned in one of two ways: through the proper serving of a Preliminary Notice or through the language included in the state statute. You cannot earn your lien rights any other way. At the appropriate time you may want to release these lien rights. To do so you must follow the process set within the  specific state statute.

In California, for example, there are four types of waivers and releases designed to manage the way you release your lien rights. The first type of waiver is called the Conditional Progress Release (or Conditional Waiver and Release on Progress Payment). This release is conditional, and it is conditioned by the person who is physically issuing the release (also referred to as “waiver”) receiving a check for the amount listed in the waiver. Once a progress payment is received, the claimant (the person issuing the waiver) releases their rights to file a Mechanics Lien, Bond Claim, or Stop Payment Notice against the property for any lien rights they held prior to the date of the conditional releasse. The Conditional Waiver and Release on Progress Payment is usually given throughout the course of a job in exchange for progress payments.

Once a conditional progress release is completed and payment is received, it is common to issue an  Unconditional Progress Release (or Unconditional Waiver and Release on Progress Payment).  This waiver releases a company’s (or person’s) lien rights without any conditions. It is essentially confirming that the progress payment has been received. If you have not received payment, do not issue this waiver! When you issue this waiver you release your lien rights for that project or period of time. Once it is issued, it cannot be taken back so don’t make the mistake of issuing it unless you are absolutely certain it is the right choice for you and your company.

The Conditional Final waiver releases all of the rights you have to bring a lien against the property in return for one final payment. The Unconditional Final waiver gives up all of your lien rights unconditionally. A word of advice – never sign an unconditional waiver if you have any open accounts receivable on the job. You want to make sure that all of your payments have cleared before you sign an Unconditional Final waiver.

The four types of waivers listed above only apply to the state of California. If you are doing business in another state, you will need to look into the specific statutes for your particular state. Each state has its own process and variances on the number of forms or waivers they require. We have simply found over the years that the California system is the best strategy to protect a company and its lien rights. Keep in mind, however, that in July 2012 the California Waiver Forms were revised after the legislature found that they were still running into disputable issues even though the waivers and forms were clear. If you use one of the California waivers prior to the 2012 revisions, you are not in compliance with the state statute. Make sure you use an updated waiver form in order to maintain compliance.

The most important thing to know about these waivers is that they only release you from your rights to file a lien. Once you have filed a lien, these waivers become irrelevant. Giving up your lien rights for a specific job or time period means you have given up your rights to file a mechanics lien against that property.

TIP: What do you do when you have signed off on an “Unconditional Final” Release and your customer ask if you can supply additional materials or do some additional work on the same job?

Answer: Serve a new preliminary notice on the day after you signed your unconditional final release or the day you begin to supply the added materials or services to the project. Your Lien Rights will start all over and you stay protected.

If your business is conducted exclusively on California, CRM Lien Services has a package just for you. Our CA Waiver Release Package is available for purchase in CD form to help you complete your California waivers and releases. The package contains all of the four updated forms mentioned above, with and without Notary Public endorsements, and guides you through the entire release process. Gain access to the forms you need for releasing your mechanics lien rights. CA Waiver Release Package to purchase the CA Waiver Release Package.

If you do business in other states, or if your business files waivers in more than one state, eSystems is a more comprehensive solution for you. Our eSystems online software includes all of the waivers for all 50 states. The software automatically determines which form you need to use so you don’t have to worry about finding a specific form. If you are responsible for preparing a waiver in multiple states, eSystems will take all of the work out of the waiver preparation process. It automates the process by reducing 75% of your waiver preparation work. If you’d like to learn more about preparing waivers and releases in eSystems,

Release of Lien or Stop Notice  California Lien  Liens