Category Archives: Notice to Owner

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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Notice of Unpaid Balance or Prelim?

Protecting your rights to claim a mechanics lien in Texas can get a little dicey.

Unlike many states which require a preliminary notice or notice to owner to be served at the beginning of the project. Texas takes a different approach by requiring those who are protected by the lien laws of Texas to serve what is known as a “Notice of Unpaid Balance”.

This “Notice of Unpaid Balance” can appear in many formats. It can be as simple as a statement of job account or as complex as a custom designed document. As long as it meets “ALL” of the requirements of the Texas Statute including “WHO” it is served upon and “WHEN” it is served, it should be adequate to establish your rights to move forward with a mechanic lien.

Now because it is a “Notice of Unpaid Balances” it has absolutely nothing to do with “Past Due Accounts Receivables”. The Notice of Unpaid Balances is impervious to the Terms of Payment you may have extended to your client. Let’s use the following example to expand upon this point:

Assume that you have this great client who has begun to work on improving a privately owned building in Houston, Texas. Your client needs some very lucrative terms in order to commit to you for suppling all of the materials he will be needing to complete this job. You decide that you can extend him 90 day terms in order to lock up the business. So far, so good.

On March 5, 2016 he orders $75,000 in supplies. You ship the materials to the job site on March 14, 2016 and you prepare your invoice on March 21, 2016. Of Course, your invoice has 90 day terms, So it won’t become due until June 20, 2016. So the question to ask is:

What must I do to secure my mechanics lien rights?

To be in compliance with the Texas Statute you must serve the “First Notice of Unpaid Balance” on or before May 15, 2016. Now realizing that the invoice is not due according to your 90 day terms, you will not be in compliance with the Texas Statue that will protect your right to lien. Unless this First Notice of Unpaid Balance is served by May 15, 2016. Furthermore, you will also need to serve a Second Notice of Unpaid Balance on or before June 15, 2016. Keeping in mind that most likely you have not been paid a dime before June 20, 2016 nor were you expected to be paid before June 20, 2016. You still must serve both the First and Second Notice of Unpaid Balance within the times as required by the Statute. Remember the Statute does not address “Past Due Accounts Receivables”  It is only concerned with “Unpaid Balances”. Therefore the minute that order leaves your warehouse and the invoice is created, you have “Unpaid Balances”. Granted they are not due according to your 90 day terms. But they are unpaid regardless if they are due or not.

So, if playing it safe and protecting your “Unpaid Balances” with a right to file a mechanics lien, is part of your sound credit policies. Then you don’t want to allow your generous terms strategy end in Unpaid Balance that may become an Uncollectible Receivable.

What if I issue more invoices in the same month?

What if I combine other orders, for different jobs, on the same invoice?

What happens if I do not serve the first notice?

 

Want to learn more about protecting your accounts receivables for Texas construction projects? We have the answers and the conversation is free.

Call or Contact CRM Lien Services, Inc. We are here to help!

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Attorney speaks out on the value of Prelims

Jim Wakefield, a seasoned mechanics lien law attorney, at Cummins & White LLP, has recently posted a “Reality Check” for those who may be overlooking the best collections tool for California businesses who supply the local construction industry.

Read what Jim reports on the value of the Preliminary Notice for 2016.

 

 

Notice to Owner – Answers to Preliminary Notice Questions

#1 WHAT IS A NOTICE TO OWNER (NTO)?

A Notice to Owner (often referred to as a Preliminary Notice or Prelim) is a document which informs the Owner of the property being improved that those who have been contracted by someone other than the Owner to work on the job have a RIGHT to place a lien on the Owners property if, for some reason, they are not paid for the services rendered or materials supplied.

By serving this notice to the property Owner, the Owner cannot claim that s/he was unaware of your participation and did not understand the consequences s/he may experience by not making sure that you are paid. By serving the Notice to Owner the entity serving notice is protected, the owner is well informed, and a legal right to lien is established.

To position your company to be paid and to help the owner minimize the risk of a lien being place on his property, the owner only needs to request from you a RELEASE of your LIEN RIGHTS when the owner is ready to issue payment to the Direct Contractor.

The entire process protects everyone involved and handicaps those who may want to delay or divert the monies due you for the work/labor you provided.

#2 WHO NEEDS TO BE SERVED?

Unless your customer is the General Contractor, you do not need to serve notice on your customer. However, you must serve notice on your customer’s customer and everyone else between your customer and the owner, including the owner. This applies for Private, Public and Federal Projects. The primary difference between the Notice to Owner on a Private Job is that the Notice to Owner references that state statute applicable to private projects and in some states does not display any estimated value (i.e.: FL). The Public Notice to Owner references the state statute for Public Projects and must display an estimated value.

With the exception of not serving your customers in Florida, everyone else should always be served.

#3 WHAT INFORMATION MUST BE INCLUDED IN THE NOTICE TO OWNER?

While some of this is covered in answers 2 and 3, it is important that the Owner, Lender, and Direct Contractor be served a Notice to Owner which includes a brief description of what you are providing and identification of the Project (i.e.: name of the job and address).

If the Notice to Owner is expected to stand up if taken to court in order to support a lien or bond claim, ALL the information included in the notice must be VERIFIED. Any inaccurate, or suspect information, may result in a defective lien or bond claim.

Too many mistakes are made by simply trusting the information given in good faith by a Client or General Contractor. Most are unintentional mistakes, but mistakes just the same, and will void the validity of the notice. The Research and Verification of the alleged notice information is the most critical component to protecting those who risk significant loss by serving unverified Notice to Owner.

One other thing is that the Notice to Owner is SERVED. It is not recorded. It is not a Lien. It does not impact anyone’s credit rating. And it does not encumber a property. It is a Notice and it is used to Notify and establish the lien rights of those not in direct contract with the property owner.

Prepared by Peter Kupratis
CFO – CRM Lien Services, Inc.
April 10, 2012