FAQ: How Do I Send Preliminary Notice to the Owner If I Don’t Know Who The Owner Is?

On January 20, 2012

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If you’re the prime contractor and you contracted directly with the property owner, you’ll have a pretty good understand of who owns the property where work was performed. Prime contractors, however, very rarely have preliminary notice requirements.

Instead, its the subcontractors, the sub-subcontractors and material suppliers who usually have preliminary notice requirements to meet, and the exact identity of the property owner is less certain to those parties. This post explains why it’s important to know who the owner is, and how you can figure it out.

You Can’t Notify The Owner If You Don’t Know Who It Is

This post needs to begin with the obvious: knowing a property owner’s identity is important because most states require potential lien claimants to send notices to the property owner to preserve its lien rights. In fact, while this requirement is mostly referred to as a “preliminary notice” requirement, in many states they are simply referred to as “notices to owner” or “NTOs.”

We’ve written ad nauseam in the past about why it’s critical to send preliminary notices. By extension, therefore, it’s critical to know who the property owner is.

Sending notice (or filing a mechanics lien without properly identifying the true owner) can be fatal to your notice or lien claim. While there are limited exceptions, most states are not very forgiving when a notice or lien mistakenly misidentifies the property owner. The entire point of preliminary notice requirements and the filing requirement of a mechanics lien is essentially to put the property owner on notice about your claim, and its impossible to provide this notice without knowing the actual property owner.

State legislatures understand that you may not know who the property owner actually is…but, for this point, they don’t really care. They had to draw a line, and so they placed the burden on potential lien claimants to figure out who owns the property.

You Must Know The Actual and Exact Owner

Mistaken identity of a property owner is a common mistake, and it’s a critical mistake because preliminary notice and notice to owner requirements mandate that notice be sent to the actual property owner.

There are four common errors companies make regarding property owners, and I’ll discuss each.

1) Mistaken the tenant for the owner

Everyone theoretically understands the landlord / tenant relationship. Sometimes, the party occupying a property may not actually be the owner of the property. You can’t forget this in the preliminary notice and mechanics lien context, which essentially means this: Don’t assume that the property occupant is the property owner.

2) Attributing ownership to a person, when property is actually owned by a company (or vice versa)

Frequently, parties on a construction project are encountering the property owner – and that means they are encountering and working with a real live person. They come to know this person, and when asked who owns the property, they point to this person. This is a mistake made even by those who contract directly with the property owner on a construction project.

You shouldn’t forget, however, that it is very common for individual property owners to create a limited liability company, corporation or other type of business entity to own the property. So, while you may think John Doe owns the property, the property may actually be owned by John Doe, LLC. While you may think this is an unimportant detail, it is not. This mistake could ruin your lien claim.

3) Not knowing about a special property holding company used by the owner

This mistake is similar to the 2nd mistake, but addresses the situation when its known that a property is owned by a corporation or LLC. I came across this issue the other day. A client was filing a lien on a large company’s property (we’ll call it ABC Company). The client knew that the property was owned by ABC Company, but assumed it was that easy. However, it’s very common for companies to create property holding companies to hold its property separate from the rest of its assets.

So, in other words, while ABC Company occupied the property and owned it (in a sense), the actual property owner was “ABC Company Holdings, LLC.” Not knowing about this tiny differences can create a large lien or notice mistake.

4) Not understanding husband and wife relationship to property, and other co-tenants

The final common mistake relates to the relationships between co-owners of properties. Properties are not always owned by a single individual or company. In fact, they are very commonly owned by at least two people or companies, and when working on a residential construction project, the most common co-ownership is husband and wife.

When preparing notices and liens, claimants must be careful to contemplate that role of all owners. While the requirements vary from state to state, it’s frequently required (and a good practice) to list and notify all property owners on preliminary notices and mechanic liens. This means actually listing and notifying both the husband and the wife.

How To Research And Find The Identity Of A Property Owner

You now understand why it’s important to know the property owner’s identity, and you understand some of the mistakes people make when identifying the property owner on a mechanics lien or preliminary notice…but, you may be justifiably wondering, how do you know who owns a property?

This is the bad news.

Most states do not require that the prime contractor disclose the property owner’s identity, nor is there any requirement that the property owner disclose his identity to potential lien claimants in any way. This means that if you don’t have personal knowledge about the property owner (and confident in it!), you need to do some research. Unfortunately, this research can be hard or expensive.

To determine who owns a property, you can go to the mortgage or recording office where the property is located and research their records for the current owner. Some of these recording offices have an online presence with access to their records, but really, these are still in the minority. Another online source for finding property owners is accessor websites, which have online access a bit more frequently than the court and recorder offices. Try searching for these offices in the applicable county and examine their online offerings. You can even call these offices and ask the employees there whether off-site research of any sort is possible

There are also some online property record services that will allow you to research property records nationwide. Examples of these services are DocEdge and PropertyShark.

Another thing to consider is using a preliminary notice and mechanics lien service like Zlien. When your company orders a notice to owner from Zlien or files a mechanics lien with Zlien, researching the property owner and legal property description is included in the price. It’s another reason why it’s Smart to Outsource Your Preliminary Notice (and Lien) Work.

Posted in: FAQs, Preliminary Notices, The Legal Corner / Tags: Common Mistakes, Notice to Owner, NTO, Preliminary Notice / Leave a comment

Should Material Suppliers Wait Until An Account Is Overdue Before Sending Preliminary Notice?

On January 10, 2012

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This is a question frequently asked by those in the material supply business. In fact, it’s a common practice by suppliers to worry about preliminary notices only when an account goes unpaid. This makes mechanic lien compliance remarkably easier, because the company need not worry about sending notices to owner correctly every time or being informed about every state’s nuances. Instead, concern for preliminary notice and lien laws only arises on those few accounts that go unpaid.

Oh, if only it were that easy.

Unfortunately, when I encounter a business with a preliminary notice procedure like this or am asked about such a procedure, I warn them that this is flying pretty close to the sun. There are two primary reasons why this doesn’t work:

There’s Not Enough Time

The primary problem here is that there’s simply not enough time.

Let’s take a look why. Most supplier accounts are on a NET 10 or NET 30 basis. If you were to pull the trigger and send a notice immediately after an account becomes overdue, therefore, you’re sending the notice at least 11 or 31 days after furnishing it to the project. In many states, your notice would be too late.

Oregon, for example, requires preliminary notice be sent within 8 days of first furnishing materials. Those supplying equipment in Louisiana must send their notice within 10 days of the same date. Most states (California and Florida included) require notices to owner wtihin 20 days of first furnishing.

Waiting until an account is overdue is problematic because the time frame just doesn’t work. Plus, implementing a procedure like this is a slippery slope, because while I assume for this discussion that the notice will go out the day after an account is overdue, we all know that won’t happen in practice. There are business fires, delays, holidays, weekends, and just plain procrastination. The gap between when your notice was required, and when it’s due, will widen.

Segmented Compliance Is Prone To Errors

The other problem with this idea of sending notices only after an account is overdue isn’t as obvious, but it’s as prevalent. That problem is that segmented compliance like this is prone to errors.

Instead of implementing a mechanics lien and preliminary notice procedure that gets the correct notice sent out every time, sending notices and filing liens on an “as-needed” basis means that you and your staff are going to scramble every time there’s a non-payment situation to learn the applicable rules and rush out a form.

It’s almost a guarantee that this approach will result in error, not only because it’s being rushed and that results in error, but also because state laws are complex and contain nuances that get overlooked unless comprehensively understood.

Posted in: Lien Management, Preliminary Notices / Tags: Common Mistakes, Lien Errors, Material Supplier, Supplier Series / Leave a comment

3 Things That Go Wrong When You Try to File A Mechanics Lien At The Last Minute

On October 13, 2011

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If you’re furnishing labor or materials to a construction project someplace in the United States, you will likely have the right to file a mechanics lien if you’re unpaid. And regardless of where you are in the country, your right to lien will expire at some specific time.

In some states, like California, the lien deadline starts from when all construction on the project is completed (in CA, it’s 90 days from the end of the project); in others, like New York, the deadline counts from your completion of work or furnishing of materials (in NY, it’s 8 months from last furnishing on non-residential projects, 4 months on residential projects).

Too often, folks start capitalizing on the lien rights at the eleventh hour, just a few days before the lien deadline expiration. While you can sometimes squeeze through and file before your deadline, waiting until the last minute can have consequences. Here are three things that frequently go wrong when you wait too long to file your mechanics lien.

1) The Lien Gets Rejected By The Recorder

Recording offices can be very, very sensitive about what they will record. While they are technically required to record everything, some recorders feel they are the legal gate-keepers for deciding what is appropriate to record and what is not. And they are very frequently incorrect in their determinations.

I’ve had recorders refuse to file mechanic lien documents for reasons that had no legal support whatsoever. After receiving these rejections, I had to submit a request into the recorder’s legal department to “overrule” the recording clerk’s decision. I almost always get the over-ruling requested, but in some states, it doesn’t help with the filing date. The filing date is the date we get the over-ruling decision, and not the date the document was originally presented.

As a result, if I’m trying to file a lien against a deadline and encounter a recording problem, that lien could miss its deadline.

While this may seem unfair (it is unfair), it’s the way that some county recorders operate, and you have to be prepared to confront this type of situation.

2) It’s Harder (And More Expensive) To Collect

The cardinal rule about collection a debt is this: The longer you wait, the harder it is to collect. That’s simple percentages talking, and it’s difficult to refute the cold data on this.

We’ve written extensively about how the mechanic’s lien remedy is one of the most effective collection tools available to the construction industry when confronting an unpaid account (see our tag: Why Lien). And since it’s a collections tool, it is susceptible to the cardinal rule of collections: The longer you wait, the harder it is to collect.

It’s really just that simple. Those who file mechanic liens earlier are more likely to recover, and one of the primary reasons this is true is because the lien has the effect of freezing funds on the job. The longer you wait to file the lien, the less funds will be available to subject to your lien.

All of this is not to mention that filing early will save you money in two ways: (1) You won’t have to pay a rush filing fee of any type; and (2) You’ll have the chance to submit the matter to collections before it needs to have an attorney associated (and thus, a smaller collections commission).

3) Your Lien Is Late Because Of Legal Interpretation Differences

You may get your lien filed without any problem at the recorder’s office, and you may think it was filed on time. Because the lien laws in each state are so complex, however, you may later learn that your lien was actually too late. Why? Because it’s sometimes really difficult and ambiguous to pinpoint exactly when the lien periods begin.

We addressed this in a post from last year titled “Most Common Lien Mistakes,” as follows:

But consider this question: when is the last day that you’ve furnished labor and/or materials. Is it when the materials left your yard, or when it was delivered to the jobsite? Is it when you substantially completed the work, or after the punchlist items were complete? Or does it include that warranty work you did 2 months after final completion?

Each state answers these questions differently, and so knowing when the period starts can be just as important as knowing how long it is.

While you may think you know when the lien period starts, you may find yourself in a battle of interpretation about what constituted the “last furnishing of materials or labor” or the project’s “substantial completion.” While the answer to these issues may seem obvious to you, lawyers can clutter and complicate the answer. Getting your lien filed early avoids these legal arguments.

Posted in: Mechanic Liens, The Legal Corner / Tags: Common Mistakes, County Recorders / 2 Comments

What If Company Name On Lien Is Different Than Name On Construction Contract?

On May 23, 2011

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A situation recently arose in Alberta, Canada requiring the Canadian courts to analyze a basic and usually non-controversial component of every mechanics lien: the name of the claimant.

Since the claimant is filing the lien, the identification of the claimant should really be a no-brainier. For this reason, there’s very little jurisprudence in the United States and elsewhere about what happens when the lien mis-identifies the claimant. Case law does exist when other parties are mis-identified — the owner, for example — and the effect of the mistake varies depending on state law and circumstance.

The circumstances before the court in Alberta is discussed by Thomas Heintzman on his Construction Law Canada blog in this post: Can A Construction Lien Be Based On A Pre-Incorporation Contract?

In the case Canbar West Projects Ltd v. Sure Shot Sandblasting & Painting Ltd., the court was confronted with a situation where the lien claimant – Can-West Projects Ltd – entered into a construction contract before it was incorporated. So, while the postfix “Ltd” was used in the contract, that company didn’t actually exist at that time. Therefore, the company who entered into the contract was simple “Can-West Projects.”

When the lien was filed in the name of Can-West Projects, Ltd., the adverse parties simply argued that this wasn’t the name of the company who entered into the contract.

Mr. Heintzman very nicely summarizes the nuts and bolts of the appeal court’s decision upholding the lien’s validity with the following:

[T]he Court of Appeal held that, so far as the lien was concerned, it did not matter that the contract was not in the name of Canbar. The entitlement to a lien arises from three elements:

- the owner requests the work

- the claimant does the work

- and the work improves the value of the land

I think it’s a good decision, and one that would very likely be copied by courts in the United States. A mechanic’s lien does not arise when the claimant files a document with the recorder. Under the law, the lien forms immediately when the work or materials is incorporated into the project. The filing of the lien with a recorder merely “perfects” the rights. It’s required, of course, but it is merely a notice and perfection issue.

When the claimant is named incorrectly, it doesn’t change whether the lien itself ever actually arose. It certainly did. The question is whether the lien was perfected, and with such a tiny difference in naming the claimant, the court would essentially need to dismiss the lien based on an insignificant and harmless technicality. This, the courts are hesitant to do, even with mechanic lien statutes that require strict construction.

Posted in: Lien Law Alerts, The Legal Corner / Tags: Alberta, Canada, Canbar West Products Ltd v Sure Shot Sandblasting and Painting Ltd, Common Mistakes, Construction Law Canada, Lien Errors, Thomas Heintzman / Leave a comment

Filing Mistake Invalidates $12.4 Million Mechanics Lien

On July 6, 2010

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Mechanic lien laws are highly technical, and they frequently change in unpredictable ways (see recent controversial example from Washington). We’ve expressed the sentiment a hundred times on this mechanics lien blog – it’s very easy to make a common lien mistake.

Unfortunately for JE Dunn Construction Co., it seems someone may have really dropped the ball filing its $12.4 Million mechanics lien. The developer of a stalled West Edge project in Kansas City now claims the construction company’s mega-lien has a mistake that invalidates it.

When it comes to filing a mechanics lien, sometimes you only get one chance to get it right. Depending on the merit of the developer’s claim, JE Dunn Construction Co. may have gotten a very frustrating and expensive lesson about the technical nature of mechanics liens.

From the press, it looks like the lien would have converted the debt from an unsecured claim into a secured claim in the bankruptcy proceedings pending on the West Edge project. Without the lien, the claim falls to an unsecured one, making collection a lot less likely. That makes this lien mistake one of the country’s most expensive.

What Could Have Went Wrong?

What could have went wrong with the mechanics lien, you ask? What kind of mistake could invalidate such a big claim?

Funny enough, the biggest claims in the world can be invalidated by just the simplest and most technical oversight. Here are examples of common filing errors that could have cost JE Dunn Construction Co. its secured claim:

Poorly Identifying the Property: Most states require the use of a legal property description, and others require specific descriptions of the property. In every state, the requirement is technical, and a lien can be invalidated because of an inadequate description. (See article about describing properties on mechanic liens).
Signing Mistakes: Mechanic liens must be signed in a particular way. Some states require they be notarized, some states require a verification with specific and statutory language. The smallest waiver from these requirements can result in the mechanics lien being invalidated. (See article on Washington lien invalidated because of verification error)
Not Sending Notice: Some states require notice when you begin work. Some states require notice immediately before filing a mechanics lien. Some states require notice immediately after filing a lien. Failing to deliver this notice, can forfeit your mechanic lien rights. (See blog posts about preliminary and other notices)

Who is Filing Your Mechanics Lien?

Zlien is not a law firm, and let us be the first to tell you that if you are about to file a $12.4 Million mechanics lien, you have no business filing it without the counsel of a qualified and experienced construction attorney. That is big money, and it’s certainly worth spending a few thousand dollars on counseling.

However, there are occasions when it doesn’t make financial or practical sense to hire an attorney to file a mechanic’s lien. That’s when we really shine. And some law firms - like this one in Georgia – have even recommended using a lien service to file a construction lien in the right circumstances.

What’s great about our service? Take a look at this page which explains why you trust choose us to file your mechanics lien.

Our service is licensed, insured, bonded and experienced.

Posted in: Construction News, Mechanic Liens / Tags: Common Mistakes, JE Dunn Construction Co, Mechanics Lien, Why Us / Leave a comment

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