What’s New at Credit Management Association?

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Greetings from CMA!

Now that the holidays are over, Credit Management Association is back with full steam ahead into projects that can help your company manage risk.

Here are a few of the projects we’re working on that you should be aware of:

– CMA recently announced our CreditScape Spring Summit, which will focus on process improvements in the credit department and cutting costs. The one-day event takes place April 12 in Garden Grove, CA. More info: www.creditscapeconference.com

– CMA and AG Adjustments are proud to announce a new collections-related webinar series that is must-attend material for anyone who works in that field. The webinars feature three of our most popular speakers: Bart Frankel, Dave Osburn and Greg Powelson. http://creditmanagementassociation.org/2017/01/31/cma-announces-new-collections-webinar-series/

– Future dates have been set for CMA’s new International Credit Best Practices Forum. For U.S. companies that sell abroad, this group can help you navigate some of the hurdles you might experience when selling overseas. More info is here.

– With all of the bankruptcies in the news last year from longtime strong companies, when is the last time you evaluated your credit information sources? CMA has a great resource who handles reports from all of the major bureaus and can get you the best solution for your company, not just the best solution from one bureau if you went direct. Learn more here.

– Several new advanced lien law webinars have been announced. If your company does construction-related business in Texas, California or Nevada, you should attend these sessions, which can be found on our education calendar. Details: http://www.creditmanagementassociation.org/events

– Speaking of construction-related business, CMA’s fast and accurate construction lien filing services can help protect your receivables to ensure you get paid on those projects. More: http://creditmanagementassociation.org/construction-forms-filing/

 

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If there are any other services you need to help your credit operations run smoother, we’d love to talk to you about ways we can help. You can reach us at 818-972-5300 or at www.creditmanagementassociation.org.

Thanks for reading!

Buy Once, Pay Twice? No! The Purpose of Lien Waivers

Homeowners sometimes get blindsided when it turns out the GC they hired hasn’t paid his subs or materials suppliers. The lien waiver in your contract protects homeowners against this.

BY JIM CORY

If you live in Tampa and own a house, count your blessings that you never hired John Iacovino and Ike’s Roofing to replace your roof. If you had, you may have ended up like John Pfaff who paid Iacovino $8,800 to re-roof his home. The roof got replaced, only Iacovino, owner of Ike’s Roofing, never paid for the roofing materials he obtained on credit from Suncoast Roofing Supply. And because, after first sending a Notice to Owner, Suncoast Roofing Supply filed for a mechanic’s lien on the property, Pfaff is now obligated to pay for the $3,700 worth of materials the supplier furnished to do the job. According to the local sheriff’s office, Suncoast Roofing Supply is out about $150,000 and there are now 70 properties with liens on them, thanks to Iacovino, who has a history of drug and DUI arrests.

Secure the Receivable

What that lien could potentially mean for Pfaff is that Suncoast Roofing Supply can force the sale of his home at auction—foreclose on it—to satisfy the $3,700 it is owed.

More likely, however, is that when he goes to sell his property, or if he attempts to refinance it, the amount owed to Suncoast Roofing Supply will be paid from the proceeds of the transaction. A mechanics lien, in legalese, is designed to “secure the receivable.” Goods or services were rendered in good faith, and the lien, to ensure payment, becomes an encumbrance to the sale or transfer of the property.

The mechanics’ lien (standard usage is now ‘Mechanics Lien’) has been around since 1791 and was first conceived in modern form by Thomas Jefferson as a way to encourage construction on the nation’s capital. The concept owes its existence to the economics of the construction business. Mechanics liens were created as a unique legal remedy to protect contractors and those who supply them with labor (subcontractors), materials (supply yards), or specialized services, such as design (architects, etc.), from being stiffed. Wikipedia.com defines the mechanics lien as “a security interest in the title to property for the benefit of those who have supplied labor or materials that improve the property.”

On one level, a mechanics lien entitles a contractor to come after a homeowner who refuses to pay. But it also entitles subcontractors or suppliers to come after that homeowner, and specifically the property, should the general contractor fail to pay either party as agreed. Under the law—every state has one and every state’s will differ—the improved property becomes collateral for payment. “A mechanic’s lien has nothing to do with mechanics in the usual sense,” notes legal website Nolo.com. “It’s a legal claim against property being improved, and it can be filed by anyone who provides materials or does work on the project and doesn’t get paid. The property itself becomes responsible for the debt, and the people who are owed money can force its sale at auction if something isn’t worked out.” That is, the lien holder (say Suncoast Roofing Supply, in the example above) could sue for foreclosure to satisfy the debt. Even if sale of the house at auction is not in the picture, “you cannot sell or refinance your home without dealing with the mechanics lien,” notes Colorado law firm Robinson & Henry, P.C.

“Thus when a creditor is owed a few thousand dollars he may record a Mechanics’ Lien against real property which may have a value of hundreds of thousands of dollars. You can see the leverage he has in collecting this debt! This is a great tool for mechanics, tradesmen, subcontractors, labor providers, and material providers. But it must be used properly or the Mechanics’ Lien may be found invalid and thus unenforceable.”

Not That Complicated

If you’re a contractor who’s been stiffed, or a supplier left holding the bag, the idea of taking legal action around the concept of a mechanics lien might sound complicated and expensive. Actually, it isn’t at all hard to file a mechanics lien. In Pennsylvania, for instance, you could simply go to anscers.com, fill out the online forms, submit them, and allow the lien service to file for you. The cost: $290, though the price goes to $850 for a New Jersey residential lien. Generally, counties charge a filing fee of less than $50, but the cost of preparing a lien, which would require a lien service or a lawyer, would be anywhere from $250 to $500.

The key is to move quickly and not let the situation drag on. You snooze, you lose. In New York, for instance, “you must file your mechanic’s lien within four months of the time that you last provided labor or materials to the project,” according to the website for New York Mechanic’s Lien. The time frame will differ in every state. So, similarly, is the requirement that preliminary notice—Notice of Intent to File a Lien—must be given, or, in some states, you as a subcontractor or supplier forfeit your right to file a lien. (Click here for a state-by-state breakdown of requirements for preliminary notice.) So, for example, in Florida, to collect for the materials it supplied to John Iacovino and Ike’s Roofing, Suncoast Roofing Supply would have to have served John Pfaff with a Notice to Owner (NTO)—preferably by registered, Global Express Guaranteed, or certified mail— “within 45 days from first furnishing services or materials.” That’s not a huge amount of time. Note that, according to the site: “Failure to
provide the notice within the statutorily mandated time frame is fatal to the lien claim in Florida.” The lien itself would need to be filed with 90 days of the date the materials were supplied and must be notarized to be valid.

In the state of California, mechanic’s liens are a constitutional right guaranteed to contractors by the California Constitution. This right has been implemented in detail by statutes enacted by the California State Legislature.

Lien Waivers

What Pfaff could have done to save himself the aggravation and expense of the mechanics lien filed by Suncoast Roofing Supply was to demand a waiver of liens, or a subcontractor lien waiver, in the contract he signed with Ike’s Roofing, if in fact he signed one. “With a lien waiver, when the project is successfully completed, both parties sign off and state that the contract obligations have been met, including the general contractor [in this case, Iacovino] making all necessary payments to materials suppliers, subcontractors or vendors,” advises the Angie’s List review site. “If the general contractor doesn’t agree to sign off on the subcontractor lien waiver, you can withhold payment until he or she has proved they’ve paid their suppliers or subcontractors.”

As for Pfaff, he can take some small amount of comfort in knowing that mechanics lien claims … very rarely result in a piece of property getting put up for auction and sold. As in, almost never. According to the source, and based on a survey of mechanics lien filings from 2011, 64 percent of lien claims were paid within three months, “without any additional legal or collection efforts whatsoever.” Which means that the mechanics lien functioned as Jefferson intended. So Pfaff will almost certainly keep his house. But unfortunately for him, he paid 50 percent more for that home’s roof than he ever thought he would have to.

 

ABOUT THE AUTHOR

Philadelphia-based freelance writer Jim Cory is a senior contributing editor to Professional Remodeler who specializes in covering the remodeling and home improvement industry. Reach him at coryjim@earthlink.net.

 

This article originally appeared on Professional Remodeler’s website. To read the original story, click here.

 

Why Are Lien Waivers Important?, by Sergey Garanyants

Lien waivers and releases, which were once just a way for owners and general contractors to make sure they wouldn’t have to pay for the same work or material twice, are now became something much more broader affecting much more than just a mere mechanic’s lien rights.

Mechanic’s liens (a.k.a. construction liens) are designed to provide additional protection and way to ensure payment for contractors, subcontractors or suppliers for the work provided or material supplied. A mechanic’s lien essentially gives the person or company an interest in the property equal to the unpaid amount, affecting the owner’s ability to convey or transfer the property free and clear without paying the amount owed. While such laws aim to protect contractors and subcontractors, it also creates a risk for property owners and real estate developers of paying for the same work or material twice. In an attempt to protect themselves, developers, property owners and contractors are now increasingly insistent on the practice of obtaining a signed waiver or release of lien rights to the extent actually paid, as condition to furnish any payments to contractors and subcontractors working on the project. However, signing such waivers may directly or indirectly cause for contractors and subcontractors to “sign away” many of their rights to dispute contractual and related project issues.

Modern-day construction lien waivers and releases became much broader than simply addressing mechanic’s liens. In some instances, signing a release not only waives the right to file a mechanic’s lien, but also waives the ability to file claims for any other related issues, such as breach of obligations by a party to a contract, delays caused by mismanagement of the project, or additional expenses incurred. Contractors, subcontractors and suppliers should remember to preserve their own rights when executing any construction waivers or releases. For example, if a subcontractor is concerned about underpayment, it could refuse to accept payment until the general contractor has been paid in full, or the subcontractor could accept payment, but note on the release that it was reserving the right to make certain additional claims.

Many projects usually only have one general contractor, and each general contractor knows all of its subcontractors or suppliers, each of whom may be eligible to file a mechanic’s lien. However, many state construction lien laws are now allowing tier 2 and tier 3 subcontractors, including suppliers and others with whom the general contractor has no direct relationship, to file mechanic’s liens, thus creating a much larger and potentially unknown number of parties that are able to create liability on the project. That is why many general contractors require their subcontractors to acquire signed lien releases from all other subcontractors and suppliers on a periodic basis before issuing any payments. One of most common issues challenging the ability to secure signed lien releases on a monthly basis is the struggle of many companies to maintain enough cash flow to make all of their payment obligations in time. It can be easy for companies to find themselves in a difficult situation in which they can’t afford to pay their subcontractors or suppliers right away, and, in the same time, they can’t obtain payment from the general contractor or the owner without first providing a signed release stating in turn that they have already paid everyone.

It is vital that general contractors and subcontractors review the proposed contractual language carefully in order to ensure the appropriate cash flow and lines of credit, so they are able to fulfill their payment obligation when required. Carefully review the exact terms of any release or waiver you are expected to sign. Exercise care before accepting any payment, particularly if the payment is not for the full amount owed. Most importantly, always remember that lien waivers are separate obligations, and no matter how unfair the underlying result may be, courts are very likely to uphold provisions of signed waiver or release.

Source: Joshua R. Lorenz: “Mechanic’s Lien Waivers Place Burden on Contractors and Subcontractors; Construction Law”, the Legal Intelligencer (Online), September 6, 2016; Copyright 2016 ALM Media Properties, LLC.

Sergey Garanyants runs CMA’s Construction Forms Filing Services, helping CMA members in the construction industry protect their lien rights in all 50 U.S. states. For information about CMA’s construction forms filing services, visit http://creditmanagementassociation.org/services/construction-forms-filing/ 

Construction News: Mechanic’s lien on Tenant Improvement and Commercial Leasing Projects, by Sergey Garanyants

A mechanic’s lien (also known as construction lien, laborer’s lien, artisan’s lien, supplier’s lien, materialman’s lien, and professional’s lien) is a special security interest that may be acquired in property by someone who expends material, resources or labor working on that property, and is, generally, effective until the lien holder gets paid for services provided. (Definition from Cornell University Law School, Legal Information Institute as published at https://www.law.cornell.edu/wex/mechanics_lien).

In some instances, tenant improvement work may lead to a mechanic’s lien on the owner’s property. Due to the fact that mechanic’s lien laws are not uniform in each state, there are many factors to consider when your company is getting involved with tenant improvement projects.

In Missouri, a contractor performing work for a tenant may acquire mechanic’s lien rights on a landlord’s property interest if certain factors surrounding the landlord-tenant agreement are present, including (but not limited to) the “mandated nature to perform a complete build-out” of the premises by tenant, and whether such “improvements are required and completed under the control of the owner with the view of improving the property.” See Crafton Contracting Co. v. Swenson Construction Co., No. ED102910 (Mo. App. E.D. April 12, 2016); see also Missouri Revised Statute § 429.010.

In Minnesota, a property owner is not subject to a mechanic’s lien for improvements contracted by another if the owner gives “adequate notice of the owner’s intent not to be bound” by such contract. See Marksman Const. Co., Inc. v. Mall of Am. Co., C0-97-1030, 1997 WL 757392 (Minn. Ct. App. 1997); see also M.S.A. § 514.06. This practice is also known in some states as the “Notice of Non-responsibility” and may require to be properly recorded by the owner with the county land records in order to be enforceable.

In Virginia, generally, a mechanic’s lien in tenant improvement projects extends only to that portion of property on which the laborer or materialman has worked, precluding the lien from extending to the entire building or property. See Elder-Jones, Inc. v. Byers, Inc., 23 Va. Cir. 40 (Va. Cir. Ct. 1990); see also VA Code Ann. § 43-20.

Similarly, Texas laws support the proposition that a lien on real property cannot be established simply by nature of a construction contract between a tenant of the property and the laborer or materialman, and the mechanic’s lien should attach only to the leasehold interest of the tenant, and not to the entire land interest of the owner. See 2811 Associates, Ltd. v. Metroplex Lighting and Elec., 65 S.W.2d 851, 852 (Tex. Ct. App. 1989).

In Maryland, a mathematical formula, estimating the value of improvements made to leased premises as compared to the value of entire building, will be used to determine if a mechanic’s lien is “substantial enough” to be placed on the entire building or property. See MD. Real Prop. Code Ann. § 9-103; see also Hurst v. V & M of Virginia, Inc., 293 Md. 575 (Md. App. 1982).

Given the complexities of the mechanic’s lien laws, it important to obtain all the relevant information on the tenant improvement project in order to better protect your lien rights and avoid becoming subject to various limitations. Please contact CMA’s Forms Filing team if you have questions.

Source: Krista C. McCormack, “Tenant Improvements Lead to Mechanic’s Lien on Owner’s Property”, Commercial Leasing Law and Strategy: Pg. 3, Vol. 29, No. 3, September 1, 2016, Copyright 2016 ALM Media Properties, LLC.

Sergey Garanyants runs CMA’s Construction Forms Filing Services, helping CMA members in the construction industry protect their lien rights in all 50 U.S. states. For information about CMA’s construction forms filing services, visit http://creditmanagementassociation.org/services/construction-forms-filing/

A Contractor Will Serve 45 Days in Jail for Wrongful Lien Against Residential Property, by Sergey Garanyants

If you supply materials or labor to construction projects, make sure that you protect your company’s lien rights under the law. In doing so, remember that it is crucial to file liens properly and in a timely fashion.

A Wisconsin contractor will serve 45 days in jail and will pay a $3,505.46 fine for wrongfully filing the lien against residential property in Winnebago County, Wisconsin. According to the Oshkosh Northwestern, a 51-year-old owner of the local construction company illegally filed a construction lien on the residential home without giving proper notice to the homeowners as required by Wisconsin Construction Lien Laws. The homeowners discovered the wrongfully recorded lien when they contacted a financial institution in the attempt to refinance their property.

The contractor has been convicted with criminal slander of title after a jury determined he illegally filed a lien against the owners without properly notifying them. Moreover, the Winnebago County Circuit Court ordered the contractor to pay a $3,505.46 fine, and imposed additional restrictions on the contractor’s personal and business affairs, which included such obligations as – to inform potential customers about the conviction; to not have or use alcohol, drugs or paraphernalia; to submit a DNA sample; to not control any bank accounts; and to undergo any additional necessary counseling as may be required.

According to the contractor, he did notify the property owners but later lost the paperwork that would prove the fact that proper notice was given, and subsequently released the lien. “It’s amazing that, as a contractor, I can go to somebody’s house … and they decide they’re not going to pay for 50 percent of it, and then all of a sudden they can be suing me.” – the contractor told USA TODAY NETWORK-Wisconsin.

Source: Nathaniel Shuda – The Oshkosh Northwestern, USA TODAY NETWORK-Wisconsin, as published on November 24, 2015, August 6, 2016 and August 12, 2016.

Sergey Garanyants runs CMA’s Construction Forms Filing Services, helping CMA members in the construction industry protect their lien rights in all 50 U.S. states. For information about CMA’s construction forms filing services, visit http://creditmanagementassociation.org/services/construction-forms-filing/

Southern California Joint Construction Group Meeting Planned for October

construction building 2

Attention Southern California construction-related companies: if you sell on job accounts, CMA has created an opportunity to meet with credit managers from other construction industry credit groups to discuss current jobs and common accounts.

The meeting will take place Thursday, October 13 at 9:00am. Members of the Aluminum Suppliers, Electric, Glass and Metal, Wholesale Roofing, HVAC SoCal, SoCal Building Materials, Building Materials Manufacturers, Steel Warehouse, are invited, but other companies who have common accounts with those industries are also welcome to join. As a bonus, guest speaker Christopher Ng, Esq. of Gibbs Giden will speak on a construction-related topic. The meeting will take the place of the regularly scheduled October group meeting for those groups.

For more information, contact Diana Escobar at 818-972-5300.

CMA Welcomes Sergey Garanyants to Construction Forms Filing Department

Sergey Garanyants
CMA is proud to announce the hiring of Sergey Garanyants to manage its Construction Forms Filing Services (CFFS) team and offerings in CMA’s North Las Vegas office. Sergey, who obtained his Juris Doctor Degree from Loyola University New Orleans – College of Law, Class of 2015, offers his law background to help companies protect their lien rights under the law.

 

With a background in corporate legal counseling, commercial litigation, corporate governance, contracts & transactional practice, alternative dispute resolution, intellectual property & information technologies, administrative law & compliance, Sergey’s skill set is sure to provide additional value to companies filing preliminary notices, mechanics liens, bond claims, stop notices and other services to ensure they get paid on their construction jobs.

 

Sergey can be reached at 702-259-2622 or sgaranyants@emailcma.org.

CA Mechanics Lien Law Revisions and Forms

SACRAMENTO — The Contractors State License Board (CSLB) is reminding licensees of revisions that were made to the state’s mechanics lien laws on July 1, 2012. Legal revisions mainly change the wording and format of the mechanics lien notice. Because of the changes, CSLB has updated release forms to reflect the new language. Contractors can use these documents to protect their lien rights on construction projects. The forms are available on the CSLB website (www.cslb.ca.gov).

The 20-Day Preliminary Notice is now simply called Preliminary Notice. In addition, the wording of the Notice to Property Owner statement, required as part of the Preliminary Notice, has changed. Subcontractors and suppliers should use the newly worded Notice for private home improvement projects. The Preliminary Notice should be delivered to the homeowner in person or by certified, registered, or express mail, or overnight delivery, with a receipt of the mailing as proof. You may give notice any time before work starts or products are delivered, and up to 20 days after. If you give notice more than 20 days after work or delivery, your lien rights only apply to the work or products provided 20 days before the notice was given, and anytime thereafter.

The Notice of Mechanics Lien wording also changed in the new law. This notice must accompany the lien claim and be sent via certified, registered, or first class mail, with a certificate of mailing as proof. Failure to send the properly worded Notice with the lien claim could result in the lien being unenforceable.

The conditional and unconditional lien release forms also have changed. Make sure subcontractors and suppliers sign the new conditional forms as progress payments are owed, and when the project is finished before they are given final payment. Have them sign the new unconditional release forms after they receive progress payments and their final payment. The new law gives homeowners 15 days instead of 10 to file a Notice of Completion with the County Recorder. If a notice is filed, the contractor has 60 days and subcontractors have 30 days to record a lien. If no notice is filed, all parties have 90 days to record a lien.

Download the forms and statements:

Unconditional Waiver and Release Upon Partial Payment (702)

Unconditional Waiver and Release On Final Payment (545)

Conditional Waiver and Release On Progress Payment (566)

Conditional Waiver and Release Upon Final Payment (444)

Preliminary Notice statement (517)

Notice of Mechanics Lien (454)

 

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