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.

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.

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.

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.

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.

Now, I’m the first to tell you that filing a mechanics lien is one of the best methods of collecting construction debt, and it’s certainly important to think about filing a construction lien as soon as you’re faced with a non-paying customer. But, being prepared and qualified to file a lien takes discipline.

If we’ve said it once, we’ve said it a thousand times….lien laws are complex and hyper-technical.   Across the country, lien laws protect contractors and suppliers by providing them the right to lien non-paying projects.   Likewise, though, the laws protect property owners to prevent owners from paying for services twice, or having an improper lien filed against its property.

So, why is filing a mechanics lien a discipline?   Because it starts the moment you sign your contract.

• In many (not all) states, you can actually waive your right to lien before ever providing any services or materials.  If you’re in one of these states, it’s important to review your contract for this type of waiver language.

• Many states require contractors and/or suppliers to deliver a Preliminary Notice to the property owner (“NTO”) before furnishing labor or materials.  Failure to deliver notice, and to deliver it properly, may result in the forfeiting of lien rights.

• Many states require contractors and/or suppliers to deliver a “Notice of Intent to Lien” or similar instrument a certain number of days after accounts receivables become due, or a certain number of days before filing a lien.   Failure to deliver this notice, and to deliver it properly, may result in the forfeiting of lien rights.   (Read about the differences between Preliminary Notices and Notices of Intent here).

• Liens must be filed within a certain time period, and each state is absolutely different.   (Get state-by-state lien deadlines here).   Liens must be filed timely, or they are likely void.

Zlien Helps Your Company Be Disciplined About Liens

Zlien is more than a simple notice and lien filing company (although we’re darn good at this, too).  We were founded to help clear the air concerning the complex lien and notice requirements across the nation.

Here’s how we do it:

• Our Lien Wizard guides you through the notice and lien requirements associated with your role in the project, and the state the project is located.   You tell the Wizard some key information, and it pulls the notice and lien requirements from its database.   From there, you can order the products / documents that are relevant to what you and the law requires.  (Watch a Video on how our Lien Wizard Guides You Through Notice and Lien Requirements).

• We provide you with Free Lien Law Punchlists.   This is a summary of the basic notice and lien requirements of each state.

• The Lien Pilot helps you calculate project deadlines.   For free, you can manage your project data, contacts and important dates.   The Lien Pilot calculates applicable deadlines and filing requirements, and prompts you when they are approaching.

• We do the work for you.  If you don’t want to prepare and send the documents out yourself, or if you just have too many to send and want to focus on running your construction or supply business… Zlien will do all the work for you.  For notices, we’ll print them, mail them, track them, and store proof of their delivery on our secure servers.  For liens and other filed documents, we’ll prepare them, have them filed, and deliver notice to the project’s relevant contacts.

Let’s look at the matter theoretically.   Construction lien laws are normally drafted to protect contractors, who invest labor and expense into the improvement of a property.  However, since the laws also balance the property rights of persons or organizations, each state certainly does something to qualify what types of labor and expense can be represented in a lien, and which cannot.

The question here, therefore, is quite simple:   have you performed work or provided materials that can be the subject of a lien?

It’s one of the most important questions a contractor or supplier can ask when determining how to best collect on a non-paying account or project.   If you work does not qualify for a lien, for example, there is no need to even consider if notice is required and other lien filing requirements.

It’s important to consult the laws or your particular state to determine what type of materials and labor can be the subject of a lien, and which cannot.  However, two recently decided cases in Virginia and Kentucky are revealing of some general principals that are followed by most states.  The principal is essentially this:  you can only lien for labor and materials that actually go into improving the property.

What does this exclude?

In Virginia, Virginia Lawyers Weekly reports that a Hanover County Circuit Court invalidated a mechanic’s lien filed by a contractor that incurred costs in anticipation of construction of a steel building, but did not provide labor or materials actually employed in construction of the building.

The case is captioned Dallan Construction Co. v. Super Structures General Contractors, Inc, and can be downloaded here.

Similarly, in Kentucky, the Kentucky Court of Appeals held that “mowing, trimming, edging and street cleaning” did not “permanently improve the property,” and therefore, a mechanics lien was not allowed to be filed for the services provided.  That case is discussed at the South Carolina Community Association Law Blog, and is captioned Steeplechase Subdivision Homeowners Association, Inc. v. Thomas, Ky. Ct. App. 2008.

Those who perform construction services without proper registration or licensing, jeopardize their ability to file a construction lien.  This is the case in California, for example, which was discussed in a blog post a few weeks ago.

In Georgia, O.C.G. §48-13-30 et seq. provides that non-resident contractors who work on contracts with a price greater than $10,000.00 must register with the commissioner.   Failure to so register constitutes criminal activity.

In addition to its criminal implications, §48-13-37 provides that:

No contractor who fails to register with the commissioner as required by this article or who fails to comply with any provision of this article shall be entitled to maintain an action to recover payment for performance on the contract in the courts of this state.

While this does not specifically state that the unregistered nonresident contractor cannot file a construction lien, it can be safely assumed that the non-resident unregistered contractor’s lien will leave room for a bona fide challenge.

Here they are:

1)    If you didn’t contract with the property owner, within 20 days after first providing materials or services to a project, you must deliver a Preliminary 20-Day Notice to their customer, the property owner, the general contractor and the construction lender.

2)    Failing to provide the Preliminary 20-Day Notice is grounds for disciplinary action by the Registrar of Contractors.

3)    Mechanics Liens must be recorded either:  (a) within 90 days from completion of project if Notice of Completion or Cessation is not recorded; or (b) within 30 days from completion of project if Notice of Completion or Cessation is recorded.  Prime contractors have 60 days.

4)    Your construction lien does not last forever.  You must file an action to foreclose on your lien within 90 days of its filing.

5)    If you don’t file an action to foreclose on your lien, the contractor must record a Mechanic’s Lien Release.   Failure to do so could subject the claimant to statutory penalties of up to $2000 for property owner’s legal costs in getting the lien removed.

The “payment chain” rules can be quite complex, but its theory is simple:  The property owner must pay for the project only once.

In other words, if the owner pays the general contractor for work before a lien is filed, the lien against the property owner will fail.

So while the Virginia statues provide contractors with 90 days to file their liens, the practical deadline for filing a subcontractor’s mechanic’s lien is before the GC is paid.

What This Means
In previous posts (here, here and here), we’ve written about some mistakes contractors make when collecting on non-paying projects.  Over and over again, it seems contractors wait too long to file their liens, accept promises of future payments, and fear filing a mechanic’s lien to avoid staining relationships.

While in some states a small amount of delay is bearable, the “payment chain” in Virginia makes it deadly.

Across the United States, the best way to protect yourself from a non-paying project is to lien, and lien early.  The “payment chain” in Virginia makes this more the case.

Understanding the Payment Chain
While the theory behind the “payment chain” is simple, as with any other legal concept, the details are more complex.

Here are some questions that are often asked concerning this concept:  What if the property owner partially pays the GC?  How does this actually function in practice?   How do I know whether the owner paid the GC?  What rights do I have if I lien too late?

Fullerton & Knowles, a construction law firm in Virginia, Maryland, Pennsylvania and Wash. D.C. published a Construction Law Survival Manual on its website with answers to these questions.  You can find the particular discussion of the “Payment Chain” at this link.

Things You Can Do To Prevent Payment Chain Problems
The “payment chain” rules apply by default on every construction project.  However, there are features within the Virginia Code that subcontractors can use to bypass these rules.

The Code of Virginia’s Section 43-11 provides that by sending certain notices to the property owner and/or general contractor, the subcontractor can protect itself from a “defense of payment.”   In other words, by notifying the owner and contractor that certain materials or services were provided, the subcontractor or supplier puts the upper tier parties on notice that they deserve payment.

The require notices do require some administrative expense, however, as the code requires that 2 notices are actually sent.  Fuller & Knowles describe the notices and their benefits on its website, as follows:

First, a “Pre-registration” notice is sent to the owner and/or the general contractor before labor and materials are supplied to the project. After labor or materials are supplied, the claimant must provide a second notice with a statement of account and affidavit. The claimant supplying a subcontractor can elect to send the notice only to the general contractor. This will not obligate the owner, but will still obligate the general contractor. The potential benefits are:

1. The Section 43-11 notice can partially take the claimant out of the defense of payment system.  The owner and upstream contractors become directly obligated for payment, to the extent they are holding money at the time they receive the second notice and statement of account. The owner and general contractor essentially provide an involuntary guarantee or joint check agreement after receipt of the second notice.
2. A Section 43-11 notice will probably also provide priority over other mechanic’s lien claimants. In a “partial defense of payment” situation, the 43-11 notice claimant can take the entire fund held by the owner and general contractor. Other mechanic’s lien claimants will receive nothing until the 43-11 claimant is paid in full.
3. There is also an extended deadline for the Section 43-11 claim second notice. A claimant may still have Section 43-11 rights, even after the deadline for mechanic’s lien filing. A claimant probably also still has Section 43-11 rights, even if the claimant has waived lien rights.
4. It is way to avoid problems and legal fees altogether. If the owner and general contractor know they may become obligated, the claimant is likely to receive payment without legal assistance. The owner and general contractor are aware of the players on the project and are motivated to see payments properly applied.

Zlien Can Help
Zlien files mechanics liens in the State of Virginia, as we also prepare and send all Virginia construction lien notices.

Fuller & Knowles state that the 43-11 notices are underutilized by contractors because of administrative expense.   Quite frankly, its also because the notices are confusing, and in the middle of operating your construction company it’s difficult to keep up with sending, tracking and managing these notices.

Zlien solves this problem.

You give us the project data, and our propriety web-based software recommends certain notices and documents, and with the click on a button we’ll prepare these documents, send them for you, track them, and manage them through your client login panel.

Give us a shot, and let us show you how to Lien Smarter.