Nevada mechanics lien law can get complicated. This post will point you in the right direction with “5 things to know” about Nevada mechanics lien law.

Most Project Participants Have Nevada Mechanics Lien Rights

Nevada mechanics lien law is especially inclusive. As long as a party provided labor and/or materials worth $500 or more, they likely have Nevada mechanics lien rights. Parties provided protection include contractors, subcontractors, suppliers, equipment lessors, architects, engineers, surveyors, geologists are all allowed lien rights. Even consultants performing work at the project sire may be allowed rights!

The only project participants with a hoop to jump through are suppliers. Suppliers only have lien rights if the materials provided are actually used for the project. It is not enough for materials only to be delivered to the property – they must be used and/or consumed into the project.

Further, it is worth noting that if the potential lien claimant is required to be licensed by Nevada for the type of work performed, that party may only claim a Nevada mechanics lien if he is licensed as required.

Deadline to File a Nevada Mechanics Lien May Be Quick

A mechanics lien in Nevada must be filed with the county recorder (in the county where the property is located) within 90 days of the date the lien claimant last provided labor and/or materials to the project, or 90 days from the project’s completion or termination – whichever is later. However, if a Notice of Completion is filed, the time in which to file a Nevada mechanics lien is cut by more than half to only 40 days from the filing of the Notice of Completion.

On residential projects, a Notice of Intent to Lien must be sent to the property owner 15 days prior to filing the lien. Unlike many other states, the service of this notice in Nevada extends the time for filing the lien by 15 days.

Preliminary Notice is Generally Required

Typically all project participants are required to send a Notice of Right to Lien within 31 days of the date that labor and/or materials were first provided. Individuals exempt from this preliminary notice are parties who contracted directly with the property owner and wage laborers. The Notice of Right to Lien must be sent to both the property owner and the general contractor.

Residential project require an additional notice to be sent. As noted above, a Notice of Intent to Lien is required to be sent to the property owner 15 days prior to filing a lien on a residential project – and the service of this notice extends the lien filing period for 15 days.

Although general contractors are generally not required to send preliminary notice, the State Contractors Board may assess a penalty if a copy of the lien information notice has not been delivered to each subcontractor.

A Copy of the Nevada Mechanics Lien Must be Provided to Owner and General Contractor

In Nevada, not only it is required that a mechanics lien be recorded at the county recorder in the county where the property is located, a copy of the lien must also be sent to both the property owner and the general contractor via certified mail with return receipt requested within 30 days from the date the lien was filed. Failure to send a copy of the lien to the property owner may result in the lien being invalidated, and failure to send a copy of the lien to the general contractor may result in disciplinary proceedings against the subcontractor.

There May Be Opportunity for the Reimbursement of Some Fees

Generally, a lien includes the amount of an unpaid contract, subtracting any deductions or credits and adding any change orders. While fees such as attorney’s fees and filing costs are not to be included in the lien, sometimes they are awarded to a project participant in a successful foreclosure action. Reasonable overhead and lost profits might also be included by the court. It is important to note, however, that Nevada mechanics lien law specifically prohibits the recovery of consequential damages.

Written by Scott Wolfe Jr See original article at Nevada Mechanics Lien Law: 5 Things to Know Originally posted on the LIEN

Mechanics Liens and Pennsylvania’s HICPA

Pennsylvania’s Home Improvement Consumer Protection Act (HICPA) became effective on July 1, 2009.  Under the law, all parties, including contractors and subcontractors, who perform more than $5,000 of work per year, and whose company is worth less than $50 million dollars, must register with the Pennsylvania Office of Attorney General.  HICPA essentially has an all-encompassing effect: If the subcontractor is not registered with the Attorney General or the contract is not in conformity with the Act’s requirements, then it is simply unenforceable.  Interestingly, even valid contracts may be rescinded by the homeowner within three days of the signing date without any penalty.  Additionally, there are civil penalties for failing to register or violating the Act’s strict requirements of up to $1,000.  But how does HICPA square with mechanics liens?

Violating HICPA and Mechanics Liens

Just last week a Pennsylvania appeals court, the Superior Court of Pennsylvania, ruled on a very important dispute in Shafer Electric & Construction v. Mantia.  The issue in that case boiled down to whether a subcontractor who was in violation of the Home Improvement Consumer Protection Act could still recover unpaid amounts under the quantum meruit doctrine and a mechanics lien.

The defendants, Raymond and Donna Mantia, hired Shafer to complete a 34′ x 24′ addition to their home.  Although Shafer is a licensed contractor in neighboring West Virginia, Shafer was not, at the time of the contract, registered with the Pennsylvania Attorney General.  Since Shafer’s work was worth more than $5,000, Shafer was required but failed to register.

After completing the work, Shafer’s invoice in the amount of nearly $38,000 went unpaid.  Shafer filed a mechanics lien on the Mantia’s property on April 29, 2011, and on December 6, 2011, Shafer sued to recover the $38,000 under either breach of contract or quantum meruit.  (Quantum meruit essentially allows a party to recover for work already performed even when a valid contract does not exist.)

On February 21, 2012, the Mantias filed an objection to Shafer’s lawsuit and asked the court to dismiss Shafer’s claims.  Specifically, the defendants argued that since Shafer was not registered with the Attorney General, as required by HICPA, the home addition contract was invalid and thus unenforceable in Pennsylvania.  After oral arguments were held on the objection, the court agreed with the Mantias and held that Shafer was precluded from recovery under both breach of contract and quantum meruit.  Unhappy with the prospect that it would be completely unable to recover any of the $38,000 it was still owed, Shafer appealed.

Fortunately for Shafer (and unfortunately for the Mantias) the Superior Court of Pennsylvania reversed the trial court’s dismissal of the plaintiff’s claims.  The court pointed out that, even under HICPA’s strict requirements and consequences:

Nothing in this section shall preclude a contractor who has complied with subsection (a) from the recovery of payment for work performed based on the reasonable value of services which were requested by the owner if a court determines that it would be inequitable to deny such recovery.

Subsection (a) lists all the requirements of a valid contract, including that it must be in writing, signed by all the appropriate parties, contains “the date of the transaction,” and describes the work to be performed, amongst many others.  In essence, so long as the contract itself is valid, an unlicensed subcontractor may still have other avenues of recovery despite violating HICPA.

The court held that even without a “valid and enforceable contract” under Pennsylvania law Shafer could still recover under the section quoted above using the doctrine of quantum meruit.

The Superior Court cited its own opinion released a year ago in Durst v. Milroy General Contracting, Inc. to bolster its holding.  In Durst an unpaid contractor was able to recover under the quantum meruit doctrine even though the work it performed was based on an oral contract.

Lessons from Mantia

While the court’s holding in Mantia may be a relief to unpaid subcontractors and contractors in Pennsylvania who are in violation of HICPA, one must wonder what the point of the Act is if unpaid parties still have other avenues to recovery even if they have not followed the law.  In other words, do the holdings in Mantia and Durst defeat the purpose of the HICPA entirely if unpaid parties can still recover even with an invalid and unenforceable contract.

Perhaps the blame for such an illogical conclusion isn’t with the courts but rather with the legislators that included the “savings clause” (“nothing in [HICPA] precludes a contractor … from the recovery of payment for work … if a court determines that it would be inequitable to deny such recovery”) to begin with.  Certainly HICPA provides other protections to homeowners – such as the right to rescind a valid contract within three days of signing – but if the major purpose is to prevent unlawful contractors from getting paid, this extra provision makes no sense.

Until Durst and Mantia are overturned, if ever, even without a valid contract under Pennsylvania’s Home Improvement Consumer Protection Act, unpaid subcontractors and contractors can still recover using quantum meruit.

Written by Elliot Singer See original article at Mechanics Liens and Pennsylvania’s Home Improvement Act Originally posted on the LIEN

Just a few weeks ago we wrote about how the Georgia legislature had passed several amendments to its mechanics lien law that were only waiting on the government’s signature.  We’ve been following the bill’s progress closely and are happy to report that on May 7, 2013, Governor Nathan Deal signed House Bill 434 into law.

The Law’s Background

As is often the case, lobbyists have been advocating for an explicit change in the law after a unfavorable decision by a Georgia court nearly a year ago.  In that case, 182 Tenth L.L.C. v. Manhattan Construction Company, the Court of Appeals of Georgia reversed the trial court’s holding and instead found that a lien claimant could not include interest on the amount claimed in a mechanics lien.

Unfortunately neither the trial court nor the Court of Appeals’ opinion gives us a great factual background, but the plaintiff’s complaint provides a one-sided view of the dispute.  In June 2006, Manhattan entered into a contract with Midtown Atlanta Properties to construct a building called The Onyx in midtown Atlanta.  The complaint alleges that “Defendant 182 Tenth was the entity” that was supposed to pay Manhattan the entire contract price of more than $36 million.  About 10 months later, in March 2007, Manhattan stopped work on the project after 182 Tenth failed to make several payments.

After Manhattan stopped working it decided to file a mechanics lien worth approximately $2.1 million on the property.  Manhattan initiated a foreclosure suit to enforce the lien March 14, 2008 and was awarded $1.75 million.

After 182 Tenth appealed, the Court of Appeals reversed the trial court’s award.  Specifically, the court held that only about $1 million of the $2.1 Manhattan claimed in its mechanics lien was actually due to “labor and material actually furnished to improve the property.”  The rest, another $1.1 million, included items that were not lienable such as interest on the amount owed to Manhattan.

The court’s ruling infuriated Georgia contractors who now realized that they could not recover for any amount that was not specified for in the contract, such as interest or other general costs.  An intense lobbying effort followed the unfavorable holding in 182 Tenth and less than a year later those lobbyists managed to get the law changed.

What the Bill Changes

As we noted in the earlier post, Georgia mechanics lien law now includes the following text:

 (c) Each special lien specified in subsection (a) of this Code section shall include the amount due and owing the lien claimant under the terms of its express or implied contract, subcontract, or purchase order subject to subsection (e) of Code Section 44-14-361.1.

(d) Each special lien specified in subsection (a) of this Code section shall include interest on the principal amount due in accordance with Code Section 7-4-2 or 7-4-16.

Subsection (c) implies that so long as an item is listed in the contract, a lien claimant can include that item’s worth in a valid mechanics lien.  Subsection (d) makes it explicitly clear that whether or not interest is included as a lienable amount in the original contract, a lien claimant may recover interest on any unpaid amounts.

Why Did the Bill Become Law?

The legislative history behind HB 434, which became Act 340 once it was signed by the governor, is fascinating.  First of all, it only took a little over a month for the bill to pass both houses, including two votes in the House on March 7, 2013 and then another one after the bill was amended, on March 28, 2013.  The bill passed with unanimous support in the Senate and the first time in the House and only received two “nay” votes when it returned to the house.

Given this speedy history, it’s not clear why the bill sat for more than a month on the governor’s desk.  Nevertheless, the bill gained passage so quickly probably because it simply wouldn’t make sense if unpaid subcontractors and suppliers weren’t permitted to recover interest on amounts they were owed.  In many other instances involving breach of contract cases, Georgia courts have consistently permitted parties to recover interest on their award.  In fact, the rate of 7% has been established as the legal rate of interest under Georgia law.

While the court in 182 Tenth may not have been wrong in not permitting Manhattan to recover interest since interest was not specified in its contract, the changes to Georgia’s mechanics lien law now allows any unpaid party to include interest in a mechanics lien.

Written by Elliot Singer See original article at Mechanics Lien Law: Georgia Amendments Signed by Governor Originally posted on the LIEN

New Hampshire “Green” Mechanics Liens

Mechanics liens have been around a long time.  In fact, they date back to at least the original construction of Washington, D.C.  The great thing about mechanics liens is that they cover a huge variety of projects.  Specifically, in addition to traditional construction projects like residences, mechanics liens are also a great way for unpaid subcontractors and suppliers who furnish labor or materials to get paid for the construction of “green” projects like wind farms.

Filing a Mechanics Lien on a New Hampshire Wind Farm

Zlien has wonderful resources describing the ins and outs of filing a mechanics lien and suing to foreclose on a mechanics lien in New Hampshire.  In New Hampshire, a party can file a mechanics lien on any:

house or other building or appurtenances, or for building any dam, canal, sluiceway, well or bridge, or for consumption or use in the prosecution of such work, other than for a municipality [...]

Although the New Hampshire statutes are in need of some serious updating (the statutes still provide separate categories for “bricks”) it’s fairly certain that even these seriously outdated statutes would include a modern project like a wind farm.

In 2011, Groton Wind, a wind farm developer, contracted with Iberdola Energy Projects to construct a 48 MW wind farm in rural New Hampshire.  Iberdola then contracted with Cianbro to provide labor and materials to the farm.  Cianbro finally hired the plaintiff, Alvin A. Colemean & Son to complete much of the work assigned to Cianbro, including building roadways, foundations, and underground electrical infrastructure.

The lien doesn’t state exactly how much Coleman was to paid.  However, according to the plaintiff, work worth close to $3.5 million was performed in addition to the originally contemplated work.  As a result, Coleman filed a lien for that amount on the wind farm’s property.

The lien does have a few twists, however.  In addition to filing a lien for nearly $3.5 million, Coleman also asked the court to permit the attachment of a mechanics lien to the property without sending notice of the lien first.  Under an exception to the requirements of notice provided under New Hampshire law, a party may file a lien without first sending notice if:

there is imminent danger of transfer to a bona fide third party. In such land cases, as well as those to perfect a labor and materials lien, a writ of attachment may be filed at a registry of deeds without prior application and notice, provided said writ is in the form of a lis pendens and specifically restricts its application to the particular real estate described in the writ and the return of attachment.

Because the plaintiff, Coleman, believed that the property would change hands perhaps before it actually had a chance to file the lien, it asked the court to forego the usual notice requirements.  Fortunately for Coleman, the court agreed and Coleman’s lien was successfully filed on April 3, 2013.

In the original complaint, Coleman asserted that should the court permit the lien to be filed, which it did, it would also file suit to foreclose on that lien.

To What Property Does a Wind Farm Lien Attach?

A question you might have is if an unpaid subcontractor such as Coleman wants to file a lien on a green project such as a wind farm, on which property does the lien attach?  Specifically, should the lien be filed on the wind turbines themselves or should it be filed on the land in which the turbines are situated? Or, does it even matter?

The answer in at least two examples is that the lien attaches to the land, not solely the turbines.  In its complaint, for example, Coleman referred to three lots on which the mechanics lien would attach.

Filing a lien on the land, not the turbines themselves, can have unintended negative consequences for the original property owners.  For example, on an upstate New York project, Hardscrabble Wind Farm, Iberdola is also party to a mechanics lien.  As a result, the property owners who, it appears, leased their land to Iberdola in order to construct the farm are now finding out that their property is being specified in a number of mechanics liens filed by a concrete company.  Even property owners without any physical turbines on their land are being named in the liens.

One property owner involved in that project couldn’t understand why the liens were filed on his property since he “had nothing to do with their cement.”  Unfortunately, whether the property owner hired the concrete subcontractor or even knew that concrete work was performed on his property is irrelevant since a indirect contractual relationship exists between the property owner and subcontractor. This demonstrates the power of the mechanics lien as a instrument that can secure payment from all parties up-the-chain from the lien claimant.

Thus, property owners who lease land to energy companies, whether they are “green” or not, should be careful to ensure that they understand that if the energy developer doesn’t pay its subcontractors and suppliers, the property owner may be the one confronted with a mechanics lien.

Written by Elliot Singer See original article at Mechanics Liens Can “Go Green” Too Originally posted on the LIEN

Glacier National Park in Montana

Zlien is the nations leading lien manager and filing service. Want to get paid? Check out the “5 things to know” below!

Parties Eligible to File a Mechanics Lien

In Montana, any project participant that has provided service or materials pursuant to a real estate improvement contract can file a mechanics lien. It is unclear, however, if suppliers to any party more remote than a first-tier subcontractor is protected. The following is all considered to be lien-able work: excavation or fill work, construction or installation on, above, or below the surface of land, demolition, repair, remodeling, or removal of structure, landscape operations, surface or subsurface testing, preparation of plans or surveys and drawings.

Preliminary Notice Not Always Required, But is Always Advisable

Preliminary notice is generally required in Montana, but there are exceptions. Contractors who have a direct contractual relation with the property owner are not required to send preliminary notice. Preliminary notices are also not required on projects involving a 5+ unit residence, or projects that are wholly or partially commercial in character. Notwithstanding the foregoing, however, it may be advisable to send preliminary notice anyway, just to be safe as there is little jurisprudence providing guidance on these issues.

If a project participant is sending preliminary notice, it must be served on the property owner not later than 20 or 45 days after first furnishing of labor or materials to the project, depending on the project type. The 20-day period generally applies as a baseline, but if the project is not an owner-occupied residence, and payment is to be made by a lender with a security interest in the property, the 45-day deadline applies. After the notice is sent, it must be filed with the county’s clerk and recorder within 5 days.

Montana has a 90 Day Deadline to File a Mechanics Lien

In Montana, all project participants have a 90 day deadline to file. The 90 days begins on the last day that the project participant has provided services or materials for the project, or 90 days from the date that the owner filed a Notice of Completion.

Montana Mechanics Liens are Not Required to Be Notarized

Montana, among a handful of states, does not require a mechanics lien to be notarized. Other states that do not require notary are Louisiana and California.

Fees Can Not Be Included in the Mechanics Lien Amount

Unlike some states, Montana does not allow any additional fees, such as attorneys’ fees, interest, or consequential damages, to be included in the lien amount.

Written by Scott Wolfe Jr See original article at Montana Mechanics Lien Law: 5 Things to Know Originally posted on the LIEN

California Mechanics Lien Law Changes

On July 1, 2012, a whole host of changes to California’s mechanics lien law went into effect.  Given the substance of these changes and new requirements, the Lien blog published a series of articles describing the modifications to California’s mechanics lien law.  But have the changes actually led to any change in the number of preliminary notices and mechanics liens that are actually filed?

A Summary of the Changes to the Law

Many changes went into effect on July 1, 2012 to California’s mechanics lien law.  As we previously summarized, some of the most important changes to California’s mechanics lien law are as follows:

1. General contractors must now send preliminary notice in California.  Previously, general contractors, or, as they are called under California law, “direct” contractors (those who have a direct relationship with the property owner) were exempt from preliminary notice requirements.  The new laws changed that; so long as a “construction lender” exists on the project, the general or direct contractor is now required to send preliminary notice.  
2. Subcontractors still must file preliminary notice under California mechanics lien law, but a new law actually imposes disciplinary consequences on a party that doesn’t send notice.  This penalty, which is applicable to any contracts worth “more than $400,” is of course in addition to the fact that a subcontractor who fails to file preliminary notice forfeits mechanics lien rights.
3. Mechanics liens that contain factual mistakes – such as the wrong digit in an address – will not be overturned so long as those mistakes were “not in bad faith.”  Of course, whether or not a mistake in a mechanics lien is in good or bad faith is a fact-based query, but this change to California mechanics lien law does give parties who made innocent or good faith mistakes an out for an otherwise fatal procedural error.

Other changes went into effect as well.

Have the Changes Had Any Practical Effect?

It’s one thing for a state legislature, as they so often do, to enact changes to their mechanics lien law.  Whether changes to a state mechanics lien law actually have any effect on the raw numbers of filed liens, however, is another issue entirely.

As a recent article noted, the number of mechanics liens filed in California as a result of the changes that went into effect last year has neither increased nor decreased dramatically. This makes sense.  Perhaps a more telling statistic would be the number of preliminary notices filed in California over the last 10 months.  Unfortunately, however, this number is much harder to determine.  If the number, adjusted for the number of projects year over year, did not go up, there are some direct contractors in California that failed to protect their right to lien.

What really has an effect on the number of liens filed is, not surprisingly, the economy.  The reality that the economy, not the law, is what drives people to file mechanics liens. It should be the law however, that focuses change in the sending of preliminary notices.  All to often, parties on a construction project don’t think about protecting their lien rights until they need to file a lien.  By this point, it’s too late.  A good lien policy requires compliance with all notice requirements to protect lien rights.  If the economy drives lien filings, and contractors are not pushed to action by changes in the law, they run the risk of filing an invalid lien when they actually need one.

Written by Elliot Singer See original article at California Mechanics Lien Law Changes: (Nearly) One Year Later Originally posted on the LIEN

Deadline to Foreclose in Connecticut

If you’ve ever looked at Zlien’s state-by-state resource page, you’ll see that each state has deadlines that must be complied with.  One deadline common to every state is the time in which a party must sue to foreclose on a mechanic’s lien.  Connecticut is fairly generous in this regard; a party has up to one year after the perfection of a mechanics lien to enforce it.  But are there any exceptions to this one year deadline?

Mechanics Lien Law in Connecticut

The mechanics lien law pertaining to deadlines for filing suits are fairly straightforward in Connecticut.  So long as the party has also filed notice, the law states that:

A mechanic’s lien shall not continue in force for a longer period than one year after the lien has been perfected, unless the party claiming the lien commences an action to foreclose it

Translation: Either file a lawsuit to foreclose on the lien within one year of filing it or lose the right to do so forever.

In many states, deadlines such as these are the end of the story.  Courts generally don’t like to play fast and loose with clear-cut statutes, so if those deadlines aren’t strictly obeyed, courts will not be lenient due to extenuating circumstances.

Connecticut, however, has a law which extends the deadline if a state marshal is assigned with a task such as providing service of notice to a party:

a cause or right of action shall not be lost because of the passage of the time limited by law within which the action may be brought, if the process to be served is personally delivered to a state marshal, constable or other proper officer within such time and the process is served, as provided by law, within thirty days of the delivery

Translation: If service is due within a certain time period but a state marshal is completing the service as opposed to the party itself, then so long as service is given to the state marshal within the allowed time period and that marshal then serves the proper party within 30 days of receiving the notice, then the service of notice is still valid.

Let’s use a practical example.  In a suit to foreclose on a mechanic’s lien, the unpaid subcontractor must service notice of the lawsuit upon the defendant within one year of recording a mechanic’s lien.  Instead of serving the defendant himself, the subcontractor hires a state marshal to complete the service.  The subcontractor then gives the notice to the marshal 364 days after filing the mechanic’s lien.

Under the law common in most states, the marshal must serve the defendant with notice the very next day.  However, in Connecticut, the marshal has another 30 days to complete service.  Thus, even if notice of the lawsuit gets to the defendant one year after the lien was recorded, the lawsuit is still valid due to the 30- day exception statute described above.

The Service Law in Action

A recent case heard by a Connecticut Superior Court exemplifies this mechanics lien law extension.

In that case, Frank Lill & Son, Inc. v. O&G Indus., the lien claimant, Frank Lill, claimed that it was owed more than $12 million dollars for work it completed on an energy project.  Lill filed a lien for the exact amount it alleged it was owed on June 20, 2011.  The property owner than “bonded-off” the lien and obtained a bond for more than $18 million.

Lill then hired a state marshal, Anthony LaRosa, to deliver notice to the defendants.  Lill gave LaRosa the complaint to give to the defendants on June 18, 2012.  LaRosa completed service to the surety on June 26, 2012 and to the project owner, O & G, on June 27, 2012.

The twist in this case is that because O & G had bonded-off the lien, the lawsuit was to recover on a payment bond, not on a mechanics lien.  The law surrounding deadlines on payment bonds is similar to the deadline for a mechanics lien enforcement suit:

Whenever a bond has been substituted for any lien, pursuant to this section, unless an action is brought to recover upon the bond within one year from the date of recording the certificate of lien, the bond shall be void

Although it’s widely accepted that the “30 day state marshal extension” applies to enforcement suits on mechanics liens, in Lill, the defendants argued that the extension did not apply to suits to foreclose on bonds.

In a short but well-written opinion, the court disagreed and sided with the plaintiff.  As the court reasoned, the 30-day extension applies to any cause of action, including suits to foreclose on a payment bond, and not just to suits to foreclose on a mechanics lien.  Therefore, since Lill gave LaRosa the complaint within 365 days and LaRosa served the defendants within the 30-day extension that he had under law, the service was valid and the suit could proceed.

A Word of Warning about Lill

As another blog post on the Lill case notes, subcontractors and attorneys alike should be warned about relying on Lill in practice.

First, since Lill was decided by a Superior Court, the lowest court in the state of Connecticut, it’s holding is at best persuasive authority.  Second, the holding only addressed a very narrow area of law – whether the exception statute applied to suits to foreclose on a payment bond.  Third, the opinion did not address another crucial area of law, which is whether the plaintiff properly filed notice of lis pendens.

Moving forward, while it’s good to know that this case does exist, it’s probably best just to comply with the one year notice deadline, or any other deadline provided by law, if such compliance is possible.

Written by Elliot Singer See original article at Payment Bonds: Connecticut Court Rules on Deadline to Foreclose Case Originally posted on the LIEN

The mechanics lien is a staple to conversations we have here on the Lien Blog about getting paid. The reason boils down to a simple philosophy that we have: security rights in the construction industry are a solution to the violative nature of the business.

For centuries the construction industry has had problems with disputes and payment delay. Every project involves multiple parties and a series of complexities that almost always results in someone not getting paid on time. The construction industry has the nation’s highest business failure rates. I could go on and on.

How can a company be successful in this environment? Is there a way to offset the payment and dispute challenges?  The answer is yes, and it comes down to protecting security rights.  Just like a bank takes collateral when issuing a loan, every construction and building supply company can require collateral from their customers – the project job site.  This is the mechanics lien (and bond claim) concept, and it’s as old as the United States itself.

Great companies understand this, and that is the subject of a guest post published this morning on the Funding | Gates blog: How Great Companies Get Paid In The Construction Industry. Here is a snippet to tease you into going over to that site and reading:

A mechanics lien is pretty useless if you don’t understand how and why these claims work. Really. It’s unfortunate that the term is such a buzz word in the industry but massively misunderstood. The result is that folks sometimes sink money into filing liens without ever getting an impact. The reason for this is that they simply lack understanding. So, how do mechanics liens work? Why do they work?

Read the full article on the Funding | Gates and stay tuned to their blog for really great information about managing your receivables. Note that Meredith Wood from Funding | Gates also regularly contributes to our publication, and you can view her posts here.

Related articles

• Mechanics Lien: How Great Companies Get Paid In The Construction Industry
• Mechanics Lien: Getting Paid Faster Means Protecting Lien Rights According To Industry Magazine
• Getting Paid In The Construction Industry: A War Between Policy, Contract And Tempers

Written by Scott Wolfe Jr See original article at Mechanics Lien: Great Companies Use Their Rights – FundingGates Guest Post Originally posted on the LIEN

I’ve discussed the intersection of bankruptcy and mechanics liens several times here on the Lien Blog, both in general terms and through specific court decisions. These discussions have caused me to believe strongly that, in terms of construction projects, the mechanics lien is the best way to get paid in the face of a party’s bankruptcy. It’s unfortunate, but bankruptcy is all too common in the construction industry, so it’s important to recognize how to be best protected.

Bankruptcy’s Automatic Stay

The “automatic stay” is one of the cornerstone principles of bankruptcy protection. The automatic stay is triggered by Bankruptcy Code Section 362(a), and bars collection efforts and other creditor actions against the debtor and/or his property once the bankruptcy has been filed. As soon as the debtor filed for bankruptcy protection, the provisions of Bankruptcy Code Section 362(a) immediately spring into place to form a sort of protective barrier around the debtor and his assets. After Bankruptcy is filed, attempts by creditors to get paid are prohibited – it is the bankruptcy court’s responsibility to determine the course of action, and apportion the debtor’s assets (that can be claimed by the creditors). Actions prohibited by 362(a)(4) and (a)(5) include:

(4) any act to create, perfect, or enforce any lien against property of the estate;

(5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title;

As I have mentioned before, however, the mechanics lien instrument puts a creditor in a significantly better position than most other creditors, even most other secured creditors. Because the Bankruptcy Code provides certain exceptions to the automatic stay, including allowing a creditor to perfect an interest in property that attached prior to the filing of the bankruptcy petition, mechanics liens may generally be filed (perfected) after the automatic stay has been triggered.

Does It Matter Which Party in the Construction Project Files for Bankruptcy Protection?

The short answer to that question is, like it so often is for questions regarding mechanics liens, maybe.

The reason it may matter which party files for bankruptcy protection relates back to the automatic stay, and other provisions of bankruptcy law. As soon as a debtor files a bankruptcy petition, all of the debtor’s property (more specifically, “all legal or equitable interests of the debtor in property”) become the property of the bankruptcy estate. The property included in the bankruptcy estate is subject to the automatic stay, and collection efforts against that property are forbidden.

The property that becomes property of the estate, therefore, is determined by the identity of the party filing for bankruptcy protection.

If, however, the developer/general contractor owns the property, for example on new construction prior to sale, the property would become part of the bankruptcy estate – and subject to the provisions of the automatic stay.

This is just another wrinkle in the complex relationship between the provisions of bankruptcy law and the mechanics lien.

Written by Nate Budde See original article at Bankruptcy: Automatic Stay Makes Mechanics Liens Important Originally posted on the LIEN

People commonly inquire about how a mechanics lien actually works. They have heard about mechanics lien claims and know a little bit of information about it, but they wonder just how it technically performs.  How, for instance, does it actually stop a property from being sold?

This article from AGBeat is pretty interesting because it discusses a lien from the perspective of title companies. The article refers to these liens as “non-instituational liens” (i.e. liens that are not mortgages).  The article refers to a number of liens, such as HOA or tax liens, but these are the same category as mechanics lien claims.

As you can see, when a property is ordinarily sold, the proceeds from the sale are reduced by lien amounts. Things can be a little more complicated with short sales and other types of sales, but the concept is the same. The mechanics lien must be addressed before the property is sold. Period.  And that’s one way that a mechanics lien works to get your company paid.

Title reports and short sales – when liens aren’t mortgages (via AGBeat)

Non-Institutional Liens One of the issues that often comes up in the short sale is the issue of non-institutional liens (i.e., liens that are not mortgages). These are liens filed against the property or against the borrower, and they can get in the way of the short sale closing (or any real estate…

Written by Scott Wolfe Jr See original article at Mechanics Lien Claims Can Cause Problems With Short Sales Originally posted on the LIEN