Top 4 Mechanics Lien Law Challenges For Material Suppliers and Materialmen

More than any other construction participant, complying with mechanic lien and bond claim laws is most burdensome for building material suppliers. This post examines the four primary challenges material suppliers face in the mechanics lien context.

It’s interesting that material suppliers are so consistently met with strict lien and bond claim laws in each state. When talking about mechanics lien and bond claim laws, consistently is a word usually not uttered. States do, however, pretty consistently regulate the materialman’s lien rights. One explanation for this is that unlike other construction participants, material suppliers can run up a large bill for materials from miles away, without ever stepping foot on the project.

Whatever the reason, material suppliers are met with unique challenges when trying to comply with mechanics lien and public bond claim requirements.  Here are what I consider to be the top 4:

Material Suppliers Almost Always Have Notice Requirements, Even When Others Don’t

I hate calling a state a “notice state” or a “non-notice state,” even though I’m frequently asked by clients to make this classification. There are some states who fit neatly within these categories. California and Florida, for example, are true notice states requiring a preliminary notice to owner at the start of work for just about everyone. New York is an example of a true non-notice state, never requiring preliminary notice.

The first challenge for those who supply building materials is knowing whether a state’s law contains any nuances applicable only to them that require preliminary notices.

But there are a lot of states like Louisiana, who are generally a non-notice state, but who still require certain parties send statutory notices.  Which parties are these?  You guessed it, material suppliers. (Read about Louisiana’s special notice requirements for material suppliers).

Even states that don’t generally require preliminary notices frequently sneak in notice requirements for material suppliers. Material suppliers need to understand this.  While word on the street might be that a particular state does or doesn’t require a preliminary notice to owner, that might be the general rule and an exception rule might require such notices for materialmen.

The first challenge for those who supply building materials, therefore, is knowing whether a state’s law contains any nuances applicable only to them that require preliminary notices.

Material Suppliers Usually Have A High Volume of Projects

There are exceptions to this statement, but it’s generally true that general contractors, architects, engineers and subcontractors all handle a lower volume of projects than material suppliers.

In the material supply business, companies typically supply to multiple projects in a single day. Supplies and materials go out of their yard or stockhouse all day long, and get dropped off at projects across the city, state or even nation. This business model stands in contrast to the typical tradesman or professional, who work in a designated area and, since their physical presence is required on the jobsite, can only handle a limited number of projects at a time.

Complying with mechanics lien and notice requirements is a lot more intensive for materialmen.

The practical result of this may be obvious: complying with mechanics lien and notice requirements is a lot more intensive for materialmen. There’s more paperwork, more logistics, and more room for error.

Sending preliminary notice out on every project is easier if you sign 1-5 new contracts per week.  However, when you’re getting multiple purchase orders each day, keeping up with the notices and lien deadlines becomes remarkably more difficult.

The second challenge for those supplying building materials, therefore, is managing the logistics, deadlines and requirements for a higher volume of projects.

Material Suppliers Operate In Multiple States

This isn’t always true; there are many materialmen who only supply to a designated and limited area. Unlike contractors and other construction professionals, however, material suppliers can easily expand into neighboring states because licensing regulations never apply to them, and thus, serving multiple states is an achievable business model.

While the licensing law complexities don’t apply to supply businesses, the lien law complexities do, and it becomes fifty times more difficult to comply with mechanics lien and preliminary notice requirements when you’re sending materials across state lines.

Becoming a master of one state’s rules is achievable.  It’s still difficult because the requirements are different depending on your tier in the project, the project’s type, the dollar value of your materials, and more…but, one state is achievable.  Take all those variables and accommodate for them in two, three, four, or more states, and you’re staring at a logistical nightmare.

More than any other construction industry participant, those in the material supply business deal with this issue most frequently. Accordingly, the third challenge for materialmen is managing the lien laws and deadlines as they change state-to-state.

Material Suppliers Don’t Know When A Project Ends, Or Much Else About The Project

It seems that being an off-site construction participant creates two problems in the mechanics lien context:  First, state laws are more strict to protect the property owner and general contractor from unknown claims.  Second, which is the subject of this challenge, the material supplier doesn’t know much about the project.

More than subcontractors and others who work on-site, material suppliers are left in the dark about the status of construction, construction delays, financing or financial problems, and the like. They send their materials, and then sometimes never hear about the project again. Sometimes that’s just because it’s the nature of the supply business, but other times, it relates to some of other challenges I’ve outlined, such as the high volume of projects materialmen are involved with, which makes keeping up with project details more difficult.

The challenges raised by this lack of information are really two-fold.  First, material suppliers are the last to know about money problems.  Second, material suppliers don’t know when a construction project ends.

The problem with the first issue is easy to figure out; without knowledge about the money problems, suppliers may be the last to file their liens (a lien priority issue), or may not get their liens filed in time. The second problem isn’t as obvious, but in many states, it’s even more important.

In places like California and Louisiana, the time to file a mechanics lien doesn’t start from when you last furnish material to a project, but rather, counts from the absolute end of construction on the project as a whole.  How do you know when that is?  There’s really no way, but because of the off-site nature of the supply business, material suppliers are working with less information than anyone else.

The fourth challenge for the supply business, therefore, is that they’re out of the information and rumor loop about a project, and as a result, are more vulnerable to missing lien opportunities.

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Scott Wolfe Jr

About Scott Wolfe Jr

Scott Wolfe Jr. is the CEO of zlien, a company that provides software and services to help building material supply and construction companies reduce their credit risk and default receivables through the management of mechanics lien and bond claim compliance. He is also the founding author of The Lien and Credit Journal, a leading online publication about liens, security instruments and getting paid on every account. Scott is a licensed attorney in six states with extensive experience in corporate credit management and collections law, with a specific emphasis on utilizing mechanic liens, UCC filings and other security instruments to protect and manage receivables. You can connect with him via Twitter, LinkedIn and Google+.

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