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.

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.

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.

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.

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.

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

• How to File a Mechanics Lien in Washington State
• How to File a Mechanic’s Lien in Oregon
• How to File a Mechanic’s Lien in Louisiana
• How to File a Miller Act Claim

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.

On a residential construction project, a homeowner would pay their contractor over progress payments, with each draw being due at a certain project milestone.   The homeowner and contractor disagreed as to whether a particular milestone was met (and thus, whether a progress payment was due), and this caused the project to shut down.   Each party cried breach of contract.

In the Minter case, the New York Supreme Court confirmed a summary judgment decision that the contractor was not entitled to the progress payment, and thus terminated the contract prematurely.

What is interesting for those who follow mechanic lien laws, is that the homeowner also sued the contractor for a “willful exaggeration” of the lien claim.

The “willful exaggeration” claim is a New York term, but nearly every state allows a property owner to sue a contractor if the contractor willfully exaggerated their lien claim.   The key word here is “willfully,” as these types of claims very typically require proof that the claim was exaggerated with actual malicious intent.

As Pallaci mentions in his post, while the court in Minter determined that the contractor was not entitled to the last progress payment, it did not rule on summary judgment that the lien for this last progress payment was “willfully exaggerated.”   This doesn’t kill the homeowner’s claim, but it does highlight the distinction between liens that are incorrectly claimed, and those that are “willfully exaggerated.”

A lien claimant should always carefully file its lien claims.   Oftentimes, a claimant owed money will try to increase a claim out of anger.   It’s important to keep a cool head and make a claim for the amounts you’re entitled to only.

Through the years on the Construction Lien Blog, we’ve published a lot of blog posts about errors folks make with the mechanic lien process.   There’s even a tag for it on our blog, the Lien Errors tag.   Click on that, and you’ll see discussion on the many things that can go wrong.

It’s been a little while since we’ve written a “round-up” of some common lien mistakes.   That’s not to say we haven’t done that in the past, you can take a look at these two articles for examples:   “Top 10 Construction Lien Errors” and “Common Collection Mistakes and Pitfalls.”

I was inspired to write this post by the New York Mechanic’s Lien blog, which has been publishing some excellent material lately.   Earlier in October, Vincent Pallaci published a post titled the “Seven Deadly Sins of Mechanic’s Liens.“   A highly recommended read, he goes into the problems that frequently arise with mechanic lien claims.

Hopefully, this post presents a new perspective from his, but of course, when you’re talking about “common” mistakes….well, they’re common.   So, here goes.

Lien is Missing Information

Vincent’s “Seven Deadly Sins” post actually touches on this, but focuses on New York mechanic lien law only, and focuses on a few particular lien requirements.   But, let’s talk big picture here.  Every state has its own technical requirements for the construction lien, meaning that your mechanic lien should have certain information in it.   No ands, ifs or buts…it’s got to be in the lien, or the lien is invalid.

What kind of stuff may be missing?   Here are some of the most common culprits:  (i) The property is not adequately described; (ii) You didn’t identify the last date you performed labor, or the date you sent a specific notice, or some other date required by statute; or (iii) You didn’t itemize the work you performed or the materials you furnished with enough particularity.

Any of this stuff, while it may seem harmless, can be fatal to the claim.

Lien Not Filed On Time

When determining when your lien claim is due you have to know two important things:   (1)  How long you have to file a lien; and (2) When that period STARTS.

So, let’s say you’re working in a state where you have 90 days from the last date of furnishing labor and materials to file a lien claim.   And let’s say you know that rule.   You’re on your way…

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.

Not Understanding Your Notice Requirements

Some states require notices, some states don’t.   When notice is required by the state, determining if its required for your particular job can be quite a feat.  One of the most common errors with a mechanics lien is that the claimant may have lost its right to file the lien weeks or months before they ever thought about filing the lien in the first place.

Understand when you need to send notice, and send it if needed.  If the notice is needed and you didn’t send it…don’t file your lien.

Letting The Lien Expire

Let’s say you delivered all of your notices, filed the lien on time and got it filed without leaving out any critical information.   In other words, you have an enforceable lien claim!

That’s great news…but your claim doesn’t last forever.   And in most states, you can’t “extend” it.    To continue with the enforcement of your lien claim, you must file a lawsuit to foreclose the claim.   This is required within a certain amount of time, and if your period expires by just one day…your lien claim can disappear entirely.

Related articles

As soon as a lien claimant has their lien challenged as improper, the first thing they want to do is file an amendment.    And this brings us to a very important question:  Can you amend a defective lien?

In most states, claimants are only allowed to amend the lien to include missing information only if the amendment is made before the original lien period expires.

I stumbled upon a case out of North Carolina addressing this issue.    In Gaston Grading v. Young, the NC Court of Appeals explained this general rule:

…if plaintiff wished to correct the mistakes of its second lien, plaintiff was required to cancel the second lien and substitute a new claim of lien containing the correct information. Plaintiff failed to do so within the prescribed time and thus, its claim of lien is void.

While each state’s treatment of this issue may differ, it does seem the be the dominant rule in the United States.   I practice law in Washington, Oregon and Louisiana, and those three states treat amended liens similarly to North Carolina.

This is why I’ve titled this post, “You May Only Get One Shot To File Your Mechanics Lien.”  While you can – in theory – amend the lien if you make a mistake, you’re still stuck with the time restrictions of your state.   When you file the lien the first time, you should get it right.

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.

The Court of Appeals, Division 1, out in Washington state, has refused to deem a construction lien as frivolous based upon the complexity of the construction contract at dispute. The court in SD Deacon Corp. of Washington v. Gaston Bros. Excavating, Inc., decided back in May of this year, that the state’s “frivilous lien” statute, coded under RCW 60.04.081, requires a more in-depth analysis of factual circumstances surrounding the substance of the contract and the lien.

The court in SD Deacon further reasoned that a court can only evaluate in a frivolous lien proceeding are, by way of example, whether the lien was properly filed, signed by the proper party, properly served, and meets the statutory form requirements. Issues of substance of the lien (i.e. the contract amount, amount due or change orders) are issues which require more substantive proceedings to analyze factual circumstances.

Because the frivolous lien procedure codified in RCW 60.04.081 does not provide for such proceedings, a party seeking to extinguish a lien filing will be unsuccessful in attempting to show to the court that the lien was frivolous.

Essentially, the court’s new rule is that the “lien must be so devoid of merit that the claim has no possibility of succeeding” and that “there must be findings supporting the conclusion that the lien is invalid beyond legitimate dispute.”

The Court’s ruling provides some hope for “fringe” contractors who’s claims hold some element of uncertainty, but who desperately need the security provided by a lien in order to collect payment from an uphill contractor or owner.

The frivolous lien statute was enacted to prevent fraudulent claims against contractors, by awarding successful parties attorneys fees. The ruling in the case shows that the award of fees will not be granted unless your lien fails to meet statutory form requirements.

Zlien, Inc. has the knowledge and experience to meet these stringent requirements. Let us help you ensure your lien’s success!