Category Archives: Preliminary Notice Service

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?

What do we mean by “going the extra mile?”

How? How is CRM doing more without raising their rates or adding for extra charges?

Be certain of one thing, when the research is completed on your preliminary notice, and two or more reputable sources have been used to confirm the location of the Lender, or the Owner, or the General Contractor, and after your preliminary notice is served on the entity at the verified location, and USPS returns the service to CRM stating the address is invalid, Now What?

Should we just ignore it? Should we take the position that an attempt was made according to the requirements of the state statute so nothing further needs to be done? Perhaps just take the returned service and attached it to the original file in order to prove service was attempted but not completed because: “The Owner, Lender, or GC” moved and their new address was not available at the time the research was conducted.

We could just come back to you and report that service was attempted and should be valid to support your lien rights, perhaps request that we attempt a second service at an add on fee. But that would not, in our business model, qualify as “Going the extra mile”. It would be more of an excuse and a compromising delay of time.

So when this occurs, and it surely can, CRM will automatically perform a second search and locate any new mailing address, and RE-SERVE the notice at NO ADDITIONAL CHARGE to you.

Why?

Because simply complying with the statute does not put the notice infront of the entity that will ultimately be preparing your payment, or at the very least, influencing your payment. You are using our service to protect your lien rights and to GET PAID FASTER!

At CRM this is a commitment. It is part of our culture. Time is of the essence, and delays in processing may not only compromise your lien rights, but they can also slow up your payments.

Not acceptable at CRM and for that reason alone, We do

GO THE EXTRA MILE!

Ask others about their experiences using CRM. You will not find a more dedicated business partner who really cares about protecting your accounts receivable.

For more information:

Is using a notice service worth it?

The choices you make to protect your open “construction job related” accounts receivable are yours and yours alone.

Naturally you could choose to rely on standard “Risk” policies. ie: (to extend or not extend credit). This usually ends in one of two ways:

  1. Your client is “ROCK SOLID” and pays like clockwork, each and every time. If this is your experience and you sell to the same client day in and day out. Why add another layer of security?
  2. You are growing your business and constantly bringing on new clients. The laws of average dictate that sooner or later you will get burned. Not deliberately, but simply as a result of Murphy’s Law. So adding a layer of accounts receivable protection with the level of security anchored by a series of legal documents which will allow you to actually collect your open balances, makes for some solid business sense.

Now to the subject at hand: “Is using a notice service worth it?”

Naturally we would like you to conclude that this is a no brainer: Of course it is! However, it does take some serious consideration. Concerns like:

  • Would it be less expensive to do it myself?
  • Do I want to trust someone I don’t know with access to my client information?
  • Is this service just slapping some basic information on a form and mailing it?
  • What qualities and characteristics do I look for when choosing a service?

These are only the tip of the decision making process. However, this is a reasonable starting point and should help you to reach a final decision or at least narrow it down. Here are some answers to this due diligence:

#1  Would it be less expensive to do it myself?

Unless you are serious about using the notice system for all orders and are willing to commit the time needed to do it right. Don’t attempt this in house. Researching and preparing these documents takes knowledge and dedication to completing the research that results in a “Bullet Proof” notice. Too many try to do this on a whim and end up with all types of errors. From listing the wrong owner to using outdated forms. We have seen it all. Once again, they never intended for it to be wrong or invalid. And in most cases those who did the preparation believed it was solid and ready to stand firm against any Court or Lawyer’s Review. Sad thing is that many who are served an invalid notice don’t recognize the errors and just treat it as just another client who will now be required to issue releases for a right to lien which they may have never actually secured. So if you do consider an “In House” process. You would be well served to make it someones primary responsibility and not just an add-on to a clerical function.

#2  Do I want to trust someone I don’t know with access to my client information?

Only if they

  1. have published “Privacy Policies”.
  2. Present no conflict of interest with other services they may provide.
  3. Have been in Notice Preparation and Service business long enough where other clients can testify as to their integrity.
  4. And they are not hiding behind a website which is elusive and makes it very difficult to physically find the service. Be careful about PO Boxes, generic non descriptive email addresses, or those who may be peddling marketing list loaded with all of your customers information. Choose someone who will never be in a position of compromise.

#3  Is this service just slapping some basic information on a form and mailing it?

A sure way to investigate this behavior is “Advertised Pricing”. If it looks like a duck, sounds like a duck, you know the rest: It’s a Duck and that is exactly what you should do. As a matter of fact don’t just duck – run in the other direction. These “Low Ballers” could care less about the quality or integrity of your notice. They are all about the fast buck and the next trick. Watch out for the “One large fee for a volume of notices – paid up front. Ask yourself- do they want my business? or my money?Anyone offering to properly prepare and serve a notice must have qualified processors, who are willing to stay with the research until all critical information has been verified and the notice is properly served. You should be able to call, email, and visit, the service you are trusting with your proprietary business information.

#4  What qualities and characteristics do I look for when choosing a service?

How long have they been in the business? How long have they been servicing the same clients? Are they Insured? Licensed? What do their clients say about their service? Are they comparable with your business structure? IE: Do you need a service who can service all of the states where you conduct business? How do they accommodate your accounts payable processes? What hoops must you jump through to submit your request? Are they available when you need them? Do they know and understand the laws which govern the notice process? This list can go on and on. The key is that you are choosing a service which is not a “Fly by Night”. A service that takes this business serious, and people who you can respect.

Need to explore a proven leader in this field?

 

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.

If my customer serves a prelim will I be covered?

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

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

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

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

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

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

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

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

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

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

ContactUS

One Job, One Client, One Preliminary Notice

Seems like a pretty straight forward concept. However, the “One Client” piece is often the cause for oversight when attempting to protect your lien rights on a very large project with lots of construction activity.

So let’s break it down by displaying a few possibilities that can exist which will require that you serve multiple preliminary notices on the same construction project.

First and foremost is the fact that by protecting your job related accounts receivables for a client who is working on a specific project, you must uncover “ALL” of the entities between your client and the owner of the project. This could be as simple as:

Situation A: Your Client is contracted by the General Contractor who is contracted by the Property Owner A single preliminary notice will handle this situation very nicely and be in complete compliance with the laws.

However, what if;

Situation B: Your Client is contracted by a Subcontractor who is contracted by the General Contractor who is contracted by the Property Owner? Again, the answer is the same; A single preliminary notice which list these entities and is served on the those who are required by statute, will be all that is needed to protect you.

But what if;

Situation C: Your client is contracted by TWO Sub Contractors, each having contracts with the SAME General Contractor who has a contract with the Property Owner? This is where it can get a little dicey. Reason the Two Subcontractors named in preliminary notices will make request of your client for Releases of Lien Rights in order for them to receive their payments on this project. Now your client will come to you asking for

TWO releases: One for Subcontractor A and One for Subcontractor B.

 

If you had served separate preliminary notices at the start, this presents no problem. If you did not, then you can only provide a release for the Subcontractor named on the preliminary notice you served. The dicey part is when you are trying to file a lien on this project and the amount you want to protect includes the amount provided to Subcontractor B. As this Subcontractor was never served a preliminary notice, you have now negated your right to bring a mechanics lien against this property for the value of the materials or services that your customer provided to Subcontractor B.

So now the question becomes: “How do I avoid this situation?”

The best answer is to have your client disclose their customer on the project. This will trigger you to always request a new preliminary notice every time your customer’s customer changes on the same project.

Another solution is to request that your prelim be “Amended”. This will force your preliminary notice service to execute new research for the job. If no new Subcontractors are uncovered, your Amended Prelim will be served on the same entities only it will now have a revised “Estimated Value”. If NEW SUBCONTRACTORS are discovered during the research process. Your preliminary notice service should alert you that a new Preliminary Notice will be required to protect your lien rights for the services or materials provided to your one client for both subcontractors who are contracted by the same General Contractor who is working for the Property Owner.

YES – IT CAN GET COMPLICATED. But your lien rights may also be lost in the shuffle if your preliminary notice service does not properly research the preliminary notice request.

It can even get more dicey when more than ONE GENERAL CONTRACTOR is discovered on the same project. Think this doesn’t happen? Think again. Large jobs are notorious for being separated into multiple projects and many phases.

The best advice we can offer is to use a Preliminary Notice Service that is designed to be ON TOP on these anomalies and performs the research process on each and every preliminary notice. For piece of mind with your preliminary notice choose:

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

ContactUS

Treating your customers with RESPECT!

Once we receive your request for a new preliminary notice we start by verifying the critical information. This may include a phone call to the General Contractor to confirm that they are in fact the Contractor who is contracted with the property owner or tenant, for the referenced project. We also will confirm that the General has your customer listed as a valid sub for the referenced project.
Prior to calling the General we confirm the property information for the project and verify the property owner by performing a title search. Upon our call with the General we verify that they are the General for the project and that they are contracted by the property owner as listed on title for the property. We also confirm the Lender or Bonding Agent if one is declared for the project.

The scope of our research is driven by several objectives:

#1   To secure at least two references, which validate the information needed to make sure the notice is complete and valid.

#2   To verify the order of the relationships between the property owner and you so that all who need to be served are in fact served.

#3   To confirm that the addresses listed in the notice are valid and will allow us to facilitate a successful service.

When we call anyone regarding the notice being processed we identify our self as “CRM calling on behalf of:” or “That we have been requested to prepare the construction related notices for the specific project on behalf of:”

We never make statements or use words that could mislead the person being contacted, to believe that we are you or any of our clients. We are always courteous and professional. Our tone is one of appreciation and sincerity. We are never rude, demanding, or inconsiderate of the contact. Should someone we are calling become upset at the caller for unfounded reason, we immediately offer apologies and explain that it is not our intent to cause any problems for them or our clients. We will always explain to those who may be skeptical that the purpose of the call is to make sure that all documents are served in accordance with the laws of the state and that they are completed accurately and sent to all who must receive a copy. We also will offer to share with the contact ways that they may protect themselves if they are concerned about the potential effect of the notice.

Of course, there is always the possibility of contacting someone who refuses to hear what is being said, does not care about the tone or professionalism of the caller, and just decides to take exception. In this situation we politely excuse ourselves, apologize for any misconceptions as to the purpose for our call, and disengage.

CRM has been providing this service to over 4000 clients nationally, for 30 years and we have learned how to listen to the people we contact. We know that we are your service and that our behavior may be a reflection upon you. For that reason alone we train our people on respect, courtesy, and professionalism.

Trust is something that must be earned. We take great care to earn trust from our customers and from all whom we contact. When you choose CRM you are choosing a partner that will always display a very high level of professionalism at all times.

Want to learn more?        ContactUS

 

Are You Paying Too Much for a Preliminary Notice?

The cost to research, prepare, and serve a preliminary notice (also referred to as a “prelim”) is based upon some very simple principles.

  1. Time to conduct research and verify the information so the prelim will in fact be valid once it is served.
  2. Time to enter this information into the most current prelim form, which complies with the current state statute.
  3. The cost of the method you choose for the actual serving of the prelim. This is based on many variables. Example:
    a.) Do you want to secure “Proof of Receipt” by the entity being served at the time of service? Or
    b.) Do you want to lessen your cost and serve the notice by securing “Proof of Service”? (both methods satisfy the requirements of the state statute for serving a prelim)

So, how much should this cost?

Let’s break it down:

  1. Time to research and verify. As this is usually the most time consuming part of prelim process. It is safe to use an estimate of 30 minutes on average to complete the research and verification.
  2. Assuming that the data entry is completed using some pre existing template inside of a Word Processing or Database program. The data entry, printing, and proofing, should not take much more the 15 minutes.
  3. The method most will choose to serve a prelim is: “First Class Certified Mail”. This is the same for everyone who must serve a prelim. This cost is only $3.92 per service.

So if you have an employee who may earn $14.00 per hour, perform this service. And the prelim you serve needs to be served on only one entity (the property owner). Then your hard cost to have a prelim served may be only $17.92.

So now you should ask two questions:

First Question is: Why should I be charged $30.00 or $40.00 to have a service, serve a prelim for me?

The answer is: Almost every prelim served is served upon:

  1. The Property Owner
  2. The General Contractor
  3. The Construction Lender

That’s right (3) separate services and (3) different locations with (3) different proof of service.

So the base cost is more like: $14.00 + $11.76 (3 x $3.92) or $25.76

Keep in mind, we have not considered paper, printing, the trip to the post office, payroll taxes, etc., etc. Therefore the real cost could be somewhere around $28 – $33 per average prelim.

Second Question is: How can a Preliminary Notice Service offer to do the process for only $15.00?

Good question. Think about it. The answer is: They cannot. Even when you only have one entity to serve. The cost should exceed $15.00.

So how can anyone advertise a served prelim for $15.00?

One way is to skip the research and just serve the owner and hope that it works to protect your lien rights. The other may be to let you know after the fact that they will be charging you $15.00 each for everyone served. That could end up costing you $45.00 for one completed prelim.

Bottom line is: Use someone you can trust. Anyone offering a “Too good to be true price” is the type of document processing partner you may want to think about before exposing your customers. Once you have done the math, the true cost is easy to estimate. Anyone offering price below realistic cost must be cutting corners someplace. Is that the company you want calling your customers and serving your prelims?

For fair and reasonable pricing, turn to CRM Lien Services. ContactUS today for a proposal for our Preliminary Notice services. You will be glad you did and so will your customers.

Preliminary Notices: Unique Questions And Answers That May Surprise You, Part 2

Part 2 of a 2 part series

In the previous blog we talked about what the true estimate amount you should include in your preliminary notice and what to do if you over supply what you estimated. Next we will look at serving the Lender, protection after payment has been made and undelivered certified mailings.

#3 If a Lender is added to the project after I serve my preliminary notice, do I need to serve the Lender?

Adding a Lender to a Construction Project after the preliminary notice has been served is a major hassle for those who want to protect their lien rights on the project. This is a testimony to the need for amended preliminary notices. Should you be informed, or become aware, that a construction lender has been added to the project. Contact your notice service company immediately and request that they amend the original preliminary notice to include the lender. Then be sure the lender is served. The serving of the preliminary notice has become such a severe concern that California now requires General or Direct Contractors to serve a preliminary notice on the Lender for every project in excess of $400.00. In the past the California General Contractor by virtue of their contract with the property owner was granted mechanics lien rights. However, since July of 2012, the Lender must be served by the General in order to secure the lien rights of the General Contractor.

Lets face it. If the Lender is funding the job and you are expecting to be paid through that funding, it makes sense that you want the lender completely aware of your participation in the construction project.

#4 If I sign a Final Waiver and Release, get paid, then asked to provide additional work or materials to the same project, am I still protected?

This is a slightly different spin on question #3. You finish your part of the job. You sign a Final Release. You get paid in full. So far so good. Now your customer asks you to handle a few additional items to help him finalize the job for his client. Great! More work for you, more income, how bad can it be? The answer is not bad at all, if you get paid for the additional work. However, what if the added work is equal to or in excess of your original profit on the job and you don’t get paid as agreed? You could be holding a very empty bag.

Protecting yourself is very easy. Once you sign a Final Release and you start on the add ons for the project, have a new preliminary notice served. Treat the whole process just as if you had a brand new project. By taking this very inexpensive step to protect your newfound income, you can prevent a very profitable project from going south.

#5 What happens if the owner is sent a first class certified mailing of my preliminary notice and the mailing is returned undelivered?

This is a very common occurrence although most engaged in the construction process pay it very little mind. It is not unusual for you or your preliminary notice service company to research and verify the address of the Owner or some other entity that is required to be served a preliminary notice. You send them their copy of the notice by the approved serving method and low and behold it comes back to you as undelivered. There are multiple reasons as to why this happens.

  1. The mailing address may be different than the physical address.
  2. The entity has moved since they began to work on the project.
  3. The entity just refuses to take delivery of Certified mail.

The list goes on but I am sure you get the drift. The end result is that the notice comes back to you as un-served. To be honest, you have completed your preliminary notice service obligation (for most states).  The date that you deposited the preliminary notice with the USPS is the date that service is considered to be complete. However, where is your good faith effort to make sure the entity needing to be made aware of your lien rights is informed? If the notice, upon being returned is discovered that for some reason it was sent to an older or invalid address, you or your service should step up their research. If necessary call the entity to verify their mailing address is correct. On the other hand, if you served to the correct address, we suggest that you send another copy of the notice by first class mail and keep the original served notice with your preliminary notice. This will put you in a position to support your service and your good faith effort to making sure everyone was served and your additional efforts should be looked upon favorably should your preliminary notice every need to go to court.

By the way. The above processes is what you may expect when using CRM Lien Services, Inc. to be your preliminary notice processing service. For more information or to request a proposal for your notice service needs click here.

Preliminary Notices: Unique Questions And Answers That May Surprise You

Part 1 of a 2 part series

During the past 25 years of preparing preliminary notices for our clients, our team has been asked a variety of questions that while we considered different or unique, they have proven to be invaluable and helpful for our clients. The following list features some of the most unusual questions along with the answers below including:

  1. Should the amount appear on all copies of the Preliminary Notice?
  2. What happens if we supply more than we originally estimated?
  3. If a Lender is added to the project after I serve my preliminary notice, do I need to serve the Lender?
  4. If I sign a Final Waiver and Release, get paid, then asked to provide additional work or materials to the same project, am I still protected?
  5. What happens if the owner is sent a first class certified mailing of my preliminary notice and the mailing is returned undelivered?

These are just a few of the questions we are asked about preliminary notices. Knowing how to answer these properly is something you should expect from your preliminary notice service. If you’re not receiving immediate and intelligent responses, hold on to your bootstraps. You could be in for a long and rough ride through the construction project accounts receivables protection maze.

So let’s break these down one at a time.

#1 Should the amount appear on all copies of the Preliminary Notice?

This first question concerns the amount listed on the preliminary notice. Your preliminary notice service company must comply with the State Statute to properly prepare your preliminary notice. Some states require that an estimated amount of your charges for the services or materials being provided are included while other states are not concerned about the amount and have no requirement at all for a declared value.

For example, Arizona is a state with unique requirements as it insists that the estimate is declared and should it exceed 20% of the original value you must serve an amended preliminary notice.

The bottom line is that the estimate component of the Preliminary Notice is all over the ballpark. If your notice service company is not on top of these requirements you may easily end up with a compromised preliminary notice.

Please keep the following in mind when declaring a value.

  • The estimate is for the amount the real property will be improved by your participation in the construction project.
  • If you are extreme when you declare this value you can compromise the notice.

For example, a company renting a tractor to help clear land is expecting to receive 3 weeks of rental income for an estimated value of $3,000.00. However on their preliminary notice they list their estimated value as $73,000.00. This is done because they want to protect the value of the tractor in the event it is damaged or stolen. This is an extreme over estimate because the tractor will not become part of the improvement. Only the rental income should be declared because that is what it will cost the owner for the equipment being used.

When you over estimate the preliminary notice value all sorts of chaos can evolve and could ultimately throw the entire project into a construction lenders nightmare. Our best advice is to include exactly what is required by the state statute. Adding abstract amounts will not protect the value of the tractor and could cause you lots of grief with your customer.

#2 What happens if we supply more than we originally estimated?

Supplying more than you originally contracted can be tricky when it comes to protecting your lien rights. If the increased amount is just to cover unexpected overrides on the project you can usually rest upon the “good faith” estimate you included in the original notice. (Arizona is the only exception should the overrides exceed 20%.) However, if your overrides start to become substantial and beyond the scope of the original proposal, you are wise to have an amended preliminary notice served. You will want to notify all of the parties who were served the original notice that your amount has increased substantially and that you want them to be aware of their liability for the expanded amount of your potential lien claim.

One key point when serving an amended preliminary notice is that you never want to compromise the date the original notice was served. Therefore, your amended notice must declare that you are amending a preliminary notice that was originally served at a prior time.

We will cover the next four questions in part 2 of this series. Remember, if you have any questions regarding your Preliminary Notice, please let us know. We would be glad to help you! For more information about our services or to receive a proposal for your notice preparation needs, click here.