Posts Tagged ‘Lien Errors’

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

On January 10, 2012        

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: , , ,   /   Leave a comment

California Case About Tiny Mistake In A Mechanic Lien Underscores Importance Of Attention To Detail

On September 29, 2011        

The first words of the California Court of Appeals written opinion in Ball v. Steadfast-BLK are: “What’s in a name?”  That’s because the case involves a challenge to a mechanics lien, arguing that a California mechanics lien is invalid and unenforceable because it was filed by David E. Ball dab “Clark Air Conditioning & Heating,” when the actual dba name registered by Mr. Ball with the Contractors State License Board (CSLB) is “Clark Heating and Air Conditioning.”

Let me break it out for you, because the name is so close it tricks your mind.

Lien filed as:  Clark Air Conditioning & Heating
Official Name:  Clark Heating and Air Conditioning

This may seem like a trivial difference, but the California trial court actually invalidated the mechanics lien filed with the wrong dba listed.  Luckily for the plaintiff Mr. Ball, the appeals court reversed.  However, its reasons for reversal is not comforting to lien claimants.

The appeals court determined the lien was valid because the lien claimant himself was Mr. Ball, and the “dba” is simply a trade name. While Mr. Ball may be subject to disciplinary action with the CSLB for acting as a contractor with an unregistered trade name, his lien was given the green light because it was ultimately filed by Mr. Ball (the lien claimant), and that name was accurately indicated on the mechanics lien.

It’s an interesting thought experiment to consider what the court would have done if Mr. Ball was not a sole proprietor with a dba name, but was instead an LLC.  And had filed the lien as Clark Air Conditioning & Heating LLC, when it was really Clark Heating and Air Conditioning, LLC.  The defendants arguments would have been tougher to sidestep under these circumstances.

Fortunately for Mr. Ball, he need not concern himself with that hypothetical.  But for lien claimants everywhere, it’s important to be very careful when preparing a mechanic’s lien.  Even those errors that seem trivial can have unintended consequences, and can leave you without a lien claim.

Thanks to an article published on JDSupra by Wendel, Rosen, Black & Dean, LLP for the heads up on this case.

Posted in:     Lien Law Alerts  /  Tags: , , , ,   /   1 Comment

Georgia Supreme Court Case Example Of How Small Typographical Errors Can Be Fatal To A Mechanics Lien Claim

On September 6, 2011        

Filing a mechanic’s lien can be a fantastic collections tool for your company…unless you file the lien incorrectly. Regardless of where you’re filing across the country, it’s of paramount importance that your lien form meet the strict requirements of your particular jurisdiction. There are hundreds of seemingly small mistakes that can invalidate your lien, and if you want a few examples, check out the “Lien Errors” tag here on the Construction Lien Blog.

The Cobb Law Group of Georgia just posted on their blog about the Georgia Supreme Court case of Handy Andy of Eastman, Inc. v. Evans (court of appeals full text opinion; supreme court upheld).  It’s an example in Georgia of courts requiring lien forms to strictly comply with the statutory requirements.  Also interesting about this opinion is that the Supreme Court interprets, for what appears to be the first time, the mechanic lien law changes that went into effect March 31, 2009.  (Remember those?  Read the blog post announcing those changes here).

According to OCGA § 44-14-367, liens filed after March 31, 2009, must contain the following statement “in at least 12 point bold font,” or the lien will be invalidated:

This claim of lien expires and is void 395 days from the filing of the claim of lien if no notice of commencement of lien action is filed in that time period.

The Handy Andy lien did contain a statement in 12-point bold type, and the statement was really close to the statutory statement.  However, because the statement wasn’t an exact replica, it was held invalid by the trial court, the court of appeals, and now the Georgia Supreme Court.  Compare the statutory statement above with the statement in the Handy Andy lien:

This claim of lien expires and is void 365 days from the filing of the claim of lien if no notice of commencement of lien is filed in that time period.

See the difference?  The only differences is the Handy Andy statement uses a 365, instead of a 395 day period, and it leaves out the word “action” after “notice of commencement of lien.”

The courts rejected Handy Andy’s arguments that the alterations were merely typographical errors, one of which even worked in the property owner’s favor.  The typographical errors were not harmless, the court held, for the following reason:

Although Handy Andy may have altered the notice language inadvertently, we conclude that these alterations cannot be viewed as mere typographical errors. Rather the Handy Andy language provides misinformation regarding the applicable law. The Handy Andy language incorrectly informed the property owners that the lien expired within 365 days, but such liens do not expire by operation of law until 395 days, or 30 additional days, have passed. And it is timely notice of the commencement of a lien action, not notice of the lien itself, that prevents the expiration of the lien.

It is curious to wonder if the Supreme Court’s decision would be different if the typographical errors were completely harmless.  For example, what if Handy Andy simply referred to the “claim of lien” as the “lien,” or what if it had simply left off the last word “period.”  In other words, did the Supreme Court just rule that the statutory statement must be an exact word-for-word duplicate with no room for inadvertent error, or did they rule that inadvertent error is okay so long as the error is a “mere typographical error” and not “misinformation.”

Only time will tell…but in the case of Georgia lien claimants, there’s no reason to test the waters.  The statutory statement is clearly laid out by § 44-14-367.  When filing a mechanics lien in Georgia, claimants must be careful to include the exact statement, in 12 point bold font.

Posted in:     Lien Law Alerts  /  Tags: , , , , ,   /   1 Comment

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

On May 23, 2011        

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: , , , , , ,   /   Leave a comment

How To File A Mechanic’s Lien – A Comprehensive Overview That Applies to Any State

On December 8, 2010        

If you provided labor, materials, equipment, professional services or just about anything else to a construction project, you may be entitled to file a mechanics lien against the property to secure payment for your services.

On private construction projects, the mechanics lien attaches to the land itself, and restricts the owner from selling, refinancing or transferring the property without accommodating the lien.   On public construction projects (projects on state or federal lands), the lien typically attaches to the project’s bond, which acts to insure payment of subcontractors and suppliers.

So, how do you actually file a mechanic’s lien?   The devil is always in the details, and if you’re a reader of this blog you likely know that mechanic lien laws in the United States have an extraordinary amount of detail.    See, for example, all the posts we have describing the many mistakes one can make in filing a lien.

To make matters more complex, the requirements for filing a lien differs depending on the project’s location.    This post does not intend to describe in detail how you can file a lien in your particular state or county.  Instead, we’ll provide you with an overview of the resources available to you online, and a comprehensive general discussion of what to do to file a claim.

Consult These Resources

This blog post is not going to exhaust the legal requirements associated with mechanics liens (i.e. when they must be filed, when notices are required, etc.).   However, the web is full of resources on mechanic liens that answer these questions.

In fact, we publish one of these resources at mechaniclien.com (screenshot below).    Go to this site, select your state and project type, and you’ll see a chart explaining the lien and notice requirement.   A lien law summary sheet is also available, as well as forms you can use (i.e. lien forms, notice forms, etc.).   It’s all free.

How To File A Mechanics Lien A Comprehensive Overview That Applies to Any State

In addition to this, Avvo.com has some really great state-specific publications, such as:

Step 1:  Do You Have The Right?

The first step to filing a mechanic’s lien is to determine whether you have the right to file the lien.   This typically involves asking yourself these three questions:

  1. Are you in the class of persons allowed to lien by the law?   Each state has different laws that allow certain classes of construction participants to file construction liens.  Some are very liberal allowing virtually anyone to file.  Others are more conservative.   One frequent restriction is on suppliers to suppliers (i.e. Miller Act Claims not allowed to suppliers of suppliers), and another is on equipment lessors (i.e. Mississippi just began allowing equipment lessors to lien).
  2. Was notice required, and if so…did you send it?   If you were required to send preliminary notice, and you didn’t…you may have forfeited your lien rights.   So, it’s important to figure out whether your state required a preliminary notice.  We posted this listing of notice states on this blog here.
  3. Would your lien be timely?    Mechanic liens must be filed within a certain amount of time following completion of your work.   You must determine how long you have, and whether you still have time to lien.

Step 2: Draft Lien With Care

If you have the right to lien, the next step is to produce the lien. Lien laws are quirky. You must be careful, and include every piece of information required by the statute.

We’ve written about strict requirements of mechanic lien forms previously (read it here). One of the most frequent mistakes is that the lien claimant fails to properly identify a the liened property. Most states require a legal property description, as opposed to a simple address.

Step 3:  File with Recording Office

There are two areas of danger here.

First, make sure you file with the correct recording office.   Each state will designate an office that accepts mechanic lien filings.  Make sure you know the correct office, and that you file in the correct county.

Second, follow the filing requirements listed by the county.   For example, many counties have strict font, margin and paper size requirements.   Failing to follow these standards may cost you additional filings fees, or result in having your lien rejected.   Also, note warnings from counties that mailed filings can take days or weeks to process!   We reported a 6 week backlog in Los Angeles County in 2008…and this is not unusual.   Make sure you get the lien into the county recorder’s hands…and get it filed upon presentation.

Step 4: Notify Parties and Enforce

After you file the lien, make sure you notify the appropriate parties.  In most states, the lien claimant must sent immediate notice to the property owner.  In some states, like Oregon, notice must also go to other parties.  Make sure you know who gets notices, and you send the required notices.

And finally, don’t let your lien expire.   Your mechanic lien is only valid for a definite period of time.  Make sure you file a lawsuit to enforce the lien before it expires if you don’t get paid…or, if you are in a state that allows it, file to extend the lien.

Posted in:     Mechanic Liens  /  Tags: , , ,   /   1 Comment
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