Archive for the ‘Lien Management’ Category

3 Things To Ask Your Mechanics Lien Company

On February 2, 2012

Zlien started doing business back in 2007, when there were barely any companies offering mechanic lien and preliminary notice filing services. Since then, a few folks took cues and now claim to offer professional lien and notice services. However, buyers should beware.

The mechanics lien and preliminary notice business is not without its complications. Just as it’s complicated for a construction business to manage all the nuances in mechanics lien compliance, the same difficulty presents itself to those lien and notice companies. Trusting your notices and liens to a service provider is not a decision to take lightly, as any small mistake can impact your rights. Here are three things to think about and ask your mechanics lien service before committing:

 1) How Do You Keep Up With Law Changes and Compliance Issues?

If a mechanic’s lien service provider doesn’t have a plan and a consistent policy to monitor law changes and compliance issues, consider this a huge red flag.  State legislatures make at least 5-10 changes to mechanic’s lien and bond claim laws somewhere in the United States, and court decisions are constantly making tiny alterations. Each decision and state legislative bill may impact the lien and notice forms to use, as well as service requirements, timing issues, and more (Check out our Lien Law Alerts category, which publishes lien law changes nationwide).

When you ask a provider about their compliance procedures, they may tell you that they have a “network of attorneys.”  Well, consider this a red flag too.

3 Things To Ask Your Mechanics Lien CompanyHaving a “network of attorneys” is just a fancy way of telling you they have a list of attorneys in every state.  Big deal.  I can give you hundreds of lists of attorneys who do construction law or construction lien work.  I promise you, having a “network of attorneys” is not going to notify that mechanic’s lien provider each time a lien law changes, or help them ensure that their forms and procedures are compliant.

There’s another problem with the “network of attorneys” claim. These type of mechanic lien providing companies usually act as a simple referral house for attorneys. Each time you order a preliminary notice or a mechanic’s lien, you’re going to be shuffled off to an “in-network attorney” to fulfill your order.  There are three negative implications to this type of business method:

  1. If you’re working in multiple states, you’re not likely to have the same attorney help you in each place, which is going to be confusing and inconsistent.  You want a single vendor you can work with to get these things processed.
  2. When you get shuffled off to an attorney, you’re going to get contacted by that attorney, you’re going to get charged attorney prices, and these attorney’s are going to followup with you to try and convert the lead into more legal work.
  3. Finally, the company itself doesn’t do anything for you, they are just a clearing house or referral manager for this attorney network.

An example of a vendor who has a “network of attorneys” type business model is NLB Access.  While they may not function exactly as I’ve outlined in the above section, they are certainly a type of service that will process your preliminary notice and mechanics lien orders by utilizing a network of attorneys across the country.

NLB Access tries to spin this as a positive.  On the “Solutions” page of their website, they say:

Some notice filing companies may be cheaper, but NLB provides you with a case load manager that is an experienced legal professional who will review and process your claims..Our General Counsel’s office, in collaboration with local counsel, will inform you of your rights and create an effective strategy to recover your money.

I may be wrong about this, but imagine trying to work with these people if you need 100 notices sent within a month in 5 states.  Will you be shuffling from local counsel to local counsel?  And who knows how much they would charge for this (they don’t have flat rates posted on their website)?

2) What Is Your System For Fulfilling Orders?

Managing preliminary notices, mechanic liens and bond claims on a number of projects is challenging. When an order comes into a mechanic lien service for a new lien or notice, what does the company use to fulfill that order? How do they know what form to use? How do they actually get the form filled, and what courier network do they have in place to get your document delivered or recorded?

All very important questions. When learning about a lien service provider’s system, listen in to see what they do to reduce the risk of errors. When handling hundreds of envelopes and pages of paper every day or week, being organized and having a system that reduces the risk of error is a key feature.

Unfortunately, if you peel back the onion, you may find out something scary:  A lot of these lien services don’t have any system at all.  Sometimes, they just have a staff with access to a server where there is a folder and bunch of document template forms. If you’re working with a lien service operating like this, you should hear “document templates” and equate it with “disorganized mess.”

Zlien has spent five years and hundreds of thousands of dollars in developing a state-of-the-art order fulfillment system. This works on two ends. On the front end, when you’re placing an order, the system guides the user through the various forms available to choose the right form for the job. On the back end, when a order is placed, our staff members automatically have everything they need to fulfill the order.Forms are automatically generated and filled-in with your client data, and there are a host of features that monitor our staff members work to mitigate the risk of error.

Another thing to keep in mind is order tracking.  You will want to know the progress of your order as it is being processed.  Is this something your lien service will perform automatically, or are you getting manual emails from your provider giving you an update when they get around to it?

If you’re getting manual emails, beware.  This means the lien service provider is probably managing all of their orders manually, and it is surprisingly easy for them to get busy and forget all about your project.

Zlien is proud of its automatic system progress emails, which was actually just updated and posted about here.

3) Are You A Licensed Legal Document Preparer and Insured?

Once you are comfortable about a lien service providers systems and compliance procedures, you next want to turn to something that is perhaps most important: Their credentials and security.

Here are some issues to keep in mind:

Are They Licensed?

The Legal Document Preparation and/or Software industry may not need a law license, but in some jurisdictions, there are laws that regulate these service providers.  The state of California, for example, does specifically recognize “Legal Document Assistants,” and requires that they have a license to prepare legal forms for that state. There are also some regulations on how these companies may advertise themselves.

Zlien is a licensed Legal Document Assistant in the State of California (LDA-352).  If your lien service company purports to prepare legal forms in the State of California without an LDA license, it is breaking the law.  And it’s easy to figure out if the lien service is actually licensed.  California statutes require LDAs to put their license number on their website in their footer.

I can give you an example of two companies who are purporting to prepare mechanic liens and preliminary notices in California without a license. LienItNow.com does not have their LDA license information in their website’s footer, and Tradition Notice Services (from Tradition Software) does not have their LDA license information in their website’s footer.  A construction company ought be careful in using these services.

Are They Insured?

Mistakes happen.  Period.  There’s no such thing as a perfect anything.  If you’re trusting your mechanic lien or bond claim rights to a lien service provider, you would be well served to see whether that company carriers errors and omissions insurance.  If they carry errors and omissions insurance, it means that company is serious about their business (they invest in E&O Coverage) and serious about serving their clients (they won’t leave you hanging).

Not only does Zlien carry errors & omissions insurance, but we also publish our insurance policy’s declarations page on our website.  Ask your lien service provider for their insurance information.

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The First Month of 2012 Is History – How Do Your Receivables Look?

On January 31, 2012

At the turn of the calendar year, I wrote some blog posts about starting the year off right, including:  (i) 2012 New Year’s Resolution: Protection Your Lien Rights and Stop Losing Money; and (ii) Use Zlien And The Lien Laws To Reduce Your Bad Debt in 2012.

Here is the summary:  Preserve your lien rights.  Avoid receivable problems. Stop Losing Money.

It’s a good idea to stop every now and again and see how you’re doing with your goals and business expectations. I may actually go overboard on this. I have breakfast by myself every Monday morning to go over my goals from the previous week and the week to come. At the beginning of each month I go over financials and budgets. It takes time, and it’s hard to do sometimes in the face of all the regular business fires, but making time for these things really does help.

As 2012′s first month draws to a close, it’s a good business exercise to take an hour or two away from the grind, and go over your successes and failures in the accounts receivables department.

You probably still remember that feeling you experienced at the end of December, when you thought about how burdensome bad debt was for your business. If things haven’t changed in January of this year, they’re not likely to change in the months to come, and that means you need to make a change.

In the construction industry, there is a simple and effective fix, and that’s Mechanic’s Lien Compliance.

The key word in that phrase is compliance. Just like your business must comply with Davis-Bacon prevailing wages, immigration laws and licensing regulations, you should start thinking of mechanic’s lien compliance in the same way.  You can do it, but its a discipline.

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Why Your Secretary Can’t Handle Mechanics Lien Compliance

On January 26, 2012

In consulting with companies around the nation about mechanic lien compliance, you’d be surprised how many companies (big and small) try to delegate their company’s mechanic lien compliance onto a secretary or office assistant. The thought is that this mechanic lien stuff is just paperwork, and that’s what the secretary or assistant is paid to do.

After all, the same assistant or staff member may be in charge of compliance with contractor licensing rules, Davis-Bacon and prevailing wage regulations, and immigration compliance. Perhaps the staff member needed a bit of training, or attended some seminar on the topic, but they were able to pick it up and keep the company in compliance.

Despite the success or failure with having staff in charge of compliance with other regulations, this post discusses why it’s a grave mistake to rely on in-house staff to handle mechanic’s lien compliance.

Patchwork of Requirements and Forms Are Hard to Master

I’m familiar with a lot of regulatory compliance matters that construction businesses face every day, and those discussed in the introduction to this post (Davis-Bacon, immigration, licensing, etc.).  You must understand, the complexity of these regulations pale in comparison to the complexity of mechanic’s lien laws.

There are two challenges your staff members will face in trying to master mechanic’s lien issues.

First, it’s the laws themselves.  It’s an absolute patchwork, not only from state-to-state, but from project-to-project and scenario-to-scenario within a single state. Depending on where you’re working and what you’re doing, your preliminary notice and mechanic’s lien requirements and deadlines will differ. If you want to assign complaince to a staff member, there’s a lot of research required to keep up with these legal intracacies.

Second, it’s the forms.  Once you figure out what to file and when, then you have to put the form together, and there’s a thousand things that can go wrong with preparing, sending and tracking these forms.  Take a look at a post I wrote previously about the perils of using Do-It-Yourself Mechanic’s Lien forms.

Paperwork Burden is High For Part-Time Dedication to Lien and Notice Compliance

Sending out a notice or filing a lien can be logistically demanding.

On the preliminary notice front, most notices must be sent to multiple parties, and must be sent in a particular way.  After a preliminary notice is sent, you must draft and save a document to prove the notice was mailed, and you must track the mailing to ensure delivery. The result of these requirements is that each notice must be copied multiple times, collated, and then delivered to different parties, and each mailing must be tracked to verify delivery.

On the mechanic’s lien front, things can get stickier. The mechanic’s lien – like the preliminary notice – must usually be mailed to multiple parties and tracked. This, however, is besides the real task, which is getting the lien recorded in the correct recording office in the correct county, which involves verifying margin and font-size requirements, getting a filing fee quote, arranging for courier to deliver the lien, and more.

The point here being that there is a heavy paperwork burden in sending notices or filing mechanic liens, and the use of a staff member to handle these monotonous tasks can be a weight on their other duties.

Property Records and Ownership Records Needed, and Not Available

When you prepare a preliminary notice or a mechanics lien, you often (always) need information you may not have.  For example, how do you send a preliminary notice to an owner if you don’t know who the exact owner is?  Or, how do you identify a property with a legal property description if you don’t know the legal property description?

Your staff members will not have access to updated property records to check the information available to your company, or to find information you don’t have.  Plus, researching into this information is another drain on your staff member’s time.

It Costs You More In The Long Run

The last reason why you don’t want to offload mechanic’s lien complaince on your secretary or staff member is…why would you?  It just doesn’t make any fiscal sense to do so.

You can outsource this work for much less than you think, and really, when you factor in postage rates, the time spent doing the work, and the time not spent on other more profitable work, you can outsource this work for less than it will cost you to do it yourself.

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Round-up of Material Supplier Blog Series Posts

On January 24, 2012

You may have noticed we’ve spent the past two weeks doing a pretty comprehensive series on material suppliers and the mechanic lien laws. Here’s a roundup of all those posts, which acts as a nice resource for material suppliers interested in learning more about their mechanic lien rights.

Top 4 Mechanic Lien Law Challenges For Material Suppliers
More than any other construction participant, complying with mechanic lien and bond claim laws is most burdensome for building material suppliers. This post examines the lien and notice challenges specific to those in the building material supply business.

Should Material Suppliers Wait Until An Account Is Overdue Before Sending Preliminary Notice?
Since material suppliers furnish to so many projects, they often inquire if there’s an easy strategy to sending preliminary notices:  just send it when the account is overdue.  The approach has problems, because by the time an account is overdue, preliminary notice is frequently too late. This post examines when this may work, and when it won’t.

Special Mechanic Lien Rules for Specially Fabricated Materials
When materials are fabricated specifically for a job, the manufacturer or supplier may be interested in filing a mechanics lien even if the materials are never actually incorporated into the project (i.e. the order is cancelled).  While liens are generally not allowed for materials not used in a project, this post examines why specially fabricated materials are frequently an exception to this rule.

Suppliers to Suppliers Usually Can’t File A Mechanics Lien
In a world where there are few universal rules, the rule that suppliers to suppliers cannot file a mechanics lien is pretty universal. When supplying to a prime contractor, a subcontractor, or just about anyone who furnishes some type of service other than the strict delivery of materials, the supplying party has mechanic lien rights.  If furnishing materials to someone else who just furnishes materials, however, laws consider the supplier’s supplier as too far removed to qualify. This post examines why, and how prevalent the rule actually is.

The Material Suppliers Guide To Creating A Mechanic’s Lien Policy
The mechanics lien is really just a credit and collections tool, and just like companies need a credit / collections policy, they also need what we’ve termed a “mechanics lien policy.”  This post defines the concept of a mechanics lien policy, and discusses the things to contemplate when constructing such a policy so that the material supply company consistently protects and perfects its mechanic lien rights.

How Material Suppliers Prove Its Materials Were Incorporated Into The Property When Filing A Lien
Material suppliers only qualify to file a mechanics lien if their materials were incorporated into the project (except for specially fabricated materials, see above). That begs the question: how does one prove its materials were actually incorporated into the jobsite.  This post examines how courts address this issue, and what a material supplier needs to do to ensure it can meet its burden.

How Zlien Can Help Material Suppliers
The Supplier Series posts conclude with an article about how a mechanics lien and preliminary notice service like Zlien can help material supply companies and materialmen with the challenges and issues discussed in the preceding posts.  This post actually refers back to the first post (about material supplier challenges), and discusses how Zlien can help with each one.

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The Material Supplier’s Guide To Creating A Mechanics Lien Policy

On January 16, 2012

Here I present a short guide to material suppliers on creating a Mechanics Lien Policy for your company, ending with a sample policy for free download.

What Is A Credit Policy? A Mechanics Lien Policy?

According to businessdictionary.com, a credit policy is:

Clear, written guidelines that set (1) the terms and conditions for supplying goods on credit, (2) customer qualification criteria, (3) procedure for making collections, and (3) steps to be taken in case of customer delinquency. Also called collection policy.

So, if that’s a credit policy, what in the world is a mechanics lien policy?

This is actually a term-of-art I recently invented (I think) in response to inquiries from our clients about implementing procedures to help them utilize Zlien’s services and generally protect their lien rights on projects across the country.

This is something I alluded to in a previous post, “How To Incorporate Lien Protection Into Your Credit Policy – For Material Suppliers and Equipment Lessors.“  The idea is that in the construction industry, there’s a huge incentive to not only stay on top of standard credit and collection procedures, but to incorporate procedures to insure your lien rights are always protected.

A Mechanics Lien Policy is just that, an overview of what procedures your company will follow to preserve, perfect and enforce its mechanic lien rights.

Elements of a Mechanics Lien Policy for Material Suppliers

When crafting a Mechanics Lien Policy, material suppliers must keep in mind the credit and collection challenges specific to their industry.  We have a post about this from last week titled: Top 4 Mechanics Lien Law Challenges For Material Suppliers and Materialmen.

With these challenges in mind, here are some issues the building material supply company must keep in mind when writing a Mechanics Lien Policy:

What Is The Commitment To Sending Preliminary Notices?

Material suppliers are almost always required to send preliminary notice to preserve their mechanic lien rights. The backbone of your company’s mechanics lien policy, therefore, is to dictate the company’s commitment to sending preliminary notices.

In the sample mechanics lien and preliminary notice policy that I make available with this post, I address this commitment in a section titled “Mechanics Lien Philosphy.”  What goes here is a short statement about how aggressive your company intends to be with mechanic liens.  Are you looking to tip-toe around sending notices and filing liens because you’re scared of making waves with your clients (see Preliminary Notices Will Not Scare Your Customer!), or are you all-in and willing to send notices every time to ensure you have the maximum protection in the event of non-payment?

Here’s a quote from our sample lien policy’s mechanic lien philosophy:

[Example for Protection on Every Project:] The company furnishes materials on a high volume of projects, with the average value of those materials being between $50,000 and $75,000. Most of the time, these materials are sent to the job site on credit. Even though the credit worthiness of our clients are investigated pursuant to the company’s credit policy, because of the high dollar value of each shipment, the company values the option of filing a mechanics lien and desires sending all required preliminary notices to preserve those rights on every project. If an account remains unpaid, the company will file a mechanics lien before the state’s mechanic lien deadline. The company does so, despite the possibility of interfering with its relationships to project participants, because its willing to compromise elements of those relationships to protect its financial interests when payments are overdue.

Some companies like to separate their projects into risk categories, and then commit to sending preliminary notices to only those designated as high or medium risk. Risk categories can be based on any number of factors including the dollar value of the account (the more you can lose, the more risk) or the credit worthiness of the client.  What separates a high risk account from a low risk account is a call your company needs to make.

Outline A Plan for Execution

Once you decide who will get a preliminary notice and who won’t, it’s time to outline a plan to execute the policy.  The execution plan should not only contemplate how you’re going to send the preliminary notices, but also how and when you will file a mechanics lien, send the account to collections, and escalate the account to a foreclosure lawsuit.

Just as you would dictate within a credit policy when demand letters are sent and collection calls are made on overdue accounts, you’ll want to establish firm procedures on when notices, liens, collection efforts, and foreclosure lawsuits go forward.

Notices:  The thing about preliminary notices is that they are preliminary documents. You can’t wait until the account is overdue before sending these construction notices. You must send the notice to owner at the very start of furnishing to a project.  As such, the execution plan should call on your company to send a preliminary notice immediately upon signing a new contract or purchase order, or furnishing to a new project.

Mechanic Liens:  Unlike preliminary notices, mechanic liens are sent only after an account is overdue or some money is owed (with the exception of retainage).  While mechanic lien deadlines are important, you shouldn’t make a practice of waiting until just before the deadline to file your lien.  Not only does this subject you to error of a late filing, but you also miss opportunities to file your lien when the project is full of funding.  Earlier liens perform better, just like early collection efforts are more successful.

Your company should have a set number of days you wait until filing a lien, and it should be somewhat short.  Something like 30-45 days after last furnishing materials. This insures that (i) You get the lien filed while the account is still fresh, making collection more likely; and (ii) You don’t wait too long, as most lien deadlines are longer than 30-45 days.

Collections:  You may have between 90 days and 6 years to have your mechanics lien foreclosed upon.  Don’t wait that long. Give the mechanics lien 30-45 days to work by itself, and if it doesn’t work, escalate the situation and start collection efforts.

Foreclosure Lawsuit: Stay on top of the claim, so that if collection efforts don’t work within another 30-60 days, move the account up and require a lawsuit get filed to foreclose on the lien.

The specific number of days I propose here are just suggestions.  The important thing is to find something that works for your company, and to have a systematic, consistent execution. Also, when setting your execution policy, be sure to pay attention to the next point:  your deadlines.

Monitor Your Deadlines and File Your Documents Right

There are a lot of similarities between a credit policy and a mechanics lien policy. One key difference, however, is that when dealing with mechanic liens, preliminary notices and bond claims, compliance with complex legal nuances is required.  There are two primary components to this legal compliance:  (1) Getting everything filed before the deadline; and (2) Getting everything filed right.

First, everything in the mechanics lien world has a deadline.  There’s a deadline to send preliminary notices, to file the lien, to foreclose on the lien, and more. These deadlines change from project to project and state to state, and it’s going to be impossible for your company to track these deadlines.  You need a system, or to outsource your mechanics lien deadline monitoring.

Second, the notice, lien and bond claim forms and laws are hyper-technical. If you don’t complete the form exactly right, and send or file it in the exact right way, you’re going to forfeit your lien rights.  You want to make sure you understand all of the requirements (which is hard, because again, they change state-to-state and project-to-project).  Consider outsourcing this work.  See: 4 Reasons It’s Smart to Outsource Your Preliminary Notice Work.

Sample Policy

Finally, as promised, you can download a sample mechanics lien policy I’ve put together.  It can be used by anyone in the construction industry, but I wrote it with material suppliers specifically in mind.  You will notice that some items are in gray, as they present to you some choices in language.  Plus, you should edit the policy to fit to your company’s goals and philosophy.

Download the Sample Mechanics Lien Policy Here:
Sample Mechanics Lien Policy And Procedures – Word Version
Sample Mechanics Lien Policy And Procedures – PDF Version

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