The Zlien Blog has been renamed the Lien & Credit Journal. The content continues to be impressive. This national U.S. lien filing and credit management service provides invaluable insights and resources into lien laws and best practices in collecting subtrade and supplier debts. I’ve been publishing news for the construction industry for 25 years now, and lien rules continue to challenge my comprehension, even in jurisdictions where I’ve done continuous business. Ontario’s lien rules, for example, require notices of substantial completion — a vital part of the lien process here — to be published in a specific trade publication (not mine, alas), providing that publisher an exceptional monopoly, generating a truly significant annual revenue and requiring me to tell potential advertisers that they must advertise in the competitor, not my, publications. (Ouch, but it would be both unethical and dangerous legally for me to accept that advertising.)
The challenges in understanding lien rules are magnified by the fact that these are administered at the state level — causing some degree of havoc and consternation for anyone doing business across state lines. Zlien provides a solution — a national service that can help co-ordinate the filings wherever you are.
That’s good business, but what I like about this blog the most is the fact that it combines some highly specific state-relevant information with a general explanation of how the lien laws work everywhere. Consider this recent posting about the basic lien lifecycle:
Day One: Understanding the Mechanics Lien Lifecycle
Whether you are a mechanics lien veteran, or just getting started, navigating lien laws across the country can be a mess. Having a general knowledge of mechanics lien basics – what liens are, why they exist, and how they work — provides a strong foundation to mastering mechanics liens, and becoming a zlien Pro.
Mechanics Liens 101
Let’s go back to basics and start at the beginning: What is a mechanics lien? When a materials supplier, contractor, laborer, or other party performs work and/or delivers materials to a construction project, he has the right to secure the value of his contribution with, and make a claim against, the real property that was improved. This is a powerful ability, but it is only available if he has complied, throughout the project, with the state specific requirements necessary to protect his lien rights.
So what does it mean? If you haven’t been paid for work associated with a construction project, the value of your work is protected by the value of the property itself. As long as you complied with the mandatory notice and form requirements you can file a lien, and get paid. When you lien a property, you are making a claim that allows you to foreclose on (force the sale of) the property in order to recoup the money owed to you. Failure to give proper notice in the proper manner, however, can limit or extinguish your right to lien.
This is a very powerful piece of leverage for contractors and suppliers, so powerful that in most cases the lien results in payment without any further action.
Fight, For Your Right, to…. File a Lien?
In most states, there are certain notices that must be given in order to protect your right to file a lien. These notices can go by many different names, “pre-lien”, preliminary notice, notice of intent to lien, notice of right to claim a lien, etc., depending on both the type of notice required, and who’s speaking. Contingent upon your “tier” in the project (prime contractor, subcontractor, supplier, etc.) you might have to send out two, three, or even more notices to fully protect your lien right.
Why do you need to send notice? A lien is a powerful tool, and shouldn’t just show up “out of the blue” from a party the property owner didn’t know was even on the project. Assume, for example, a house is being built. The general contractor hires a flooring subcontract to put tile floors in, and the flooring subcontractor then contracts with a tile wholesaler who delivers to the job site. Even though the property owner didn’t hire the tile wholesaler (or even knows he’s on the project at all) that tile supplier has a right to file a lien if he’s not paid. The property owner doesn’t even have theoretical control of payment to parties on the project of which he is not aware — so, most states require some notice be given to alert the owner to all parties involved in the project.
Sound complicated? It is. Fortunately, zlien is here to help. The easiest way to think about protecting your mechanics lien rights (in general), and getting paid on every project, is through four steps:
- Send out your Preliminary Notice or Notice to Owner at the beginning of the project, (and any other required time).
- Send out a Notice of Intent to Lien to prompt payment when you feel your customer may need some addition urging (or when required by your state).
- File your Mechanics Lien to secure your invoice.
- Initiate an action to enforce your lien (foreclose on the property) before your state’s deadline.
That’s it for the basics. Tomorrow, we will dig into mapping out your own plan to make navigating the lien laws easy.
(Of course, anyone knows the story about lien filings is never as simple as going out and enforcing your rights. You need to understand local traditions and practices and the natural concern that the minute you start the legal expression of rights you may flag yourself as a troublesome supplier — to be banished forever. Then, again, should you care whether or not you are troublesome if you risk never being paid for your work? That is where associations such as the American Subcontractors Association can help. These groups are careful to comply with anti-trust rules in providing information about contractors/owners who are credit-worthy and which ones are less reliable.)