The Critical Role of Backup Documentation in Mechanics Lien Filing

The Critical Role of Backup Documentation in Mechanics Lien Filing

Never underestimate the value and necessity of documentation supporting your mechanic’s lien claim. When assisting clients with mechanic’s lien filings, CMA partner NCS Credit always reviews backup documentation. Backup documentation may include invoices, statement of accounts, a copy of the contract, bills of lading etc. Backup documentation provides a bigger picture.

Backup documentation isn’t just used for preparing a document, there are states that require copies of open invoices and/or a copy of the preliminary notice to be attached to the lien. And, as one subcontractor has learned, backup documentation can play a vital statutory role in supporting a claim.

We will address recent case law, where a subcontractor filed a mechanic’s lien in the amount of $287,212.28 and included an itemized statement in accordance with statute; however, the itemized statement was for $6,574.69. First, we’ll review the statutory requirements for Kansas, and then the fate of the subcontractor’s lien.

 

Mechanic’s Lien Rights & Requirements for Kansas

Commercial and residential projects have separate statutory requirements in Kansas. For commercial projects, claimants do not need to serve a preliminary notice. Residential projects, however, have a notice requirement.

New Construction: file a Notice of Intent to Perform no earlier than 18 months prior to filing a lien, but prior to title passing to the buyer.

Improvement: serve warning statement upon the owner or obtain and retain a statement signed by the owner that states they were given warning statement.

The lien deadline, for commercial & residential projects, is different for general contractors versus subcontractors and material suppliers.

General Contractors: file the lien within 4 months from last furnishing materials or services.

Subcontractors/Material Suppliers: file the lien within 3 months from last furnishing materials or services.

For parties proceeding with suit to enforce the lien, file suit within 1 year from filing the lien or if a promissory note was attached to the lien in lieu of a statement, file suit within 1 year from the maturity date of the promissory note.

 

The Contents of a Kansas Mechanic’s Lien

Key to the case at hand is that Kansas mechanic’s lien statute dictates a mechanic’s lien must include the following:

 

(1) The name of the owner,

(2) the name and address sufficient for service of process of the claimant,

(3) a description of the real property,

(4) a reasonably itemized statement and the amount of the claim, but if the amount of the claim is evidenced by a written instrument, or if a promissory note has been given for the same, a copy thereof may be attached to the claim in lieu of the itemized statement.

 

It’s also important to note, mechanic’s liens can be amended, if within the time allotted and/or by judge’s approval. But, statute specifically states a mechanic’s lien cannot be amended for an increased claim amount.

 

60-1105. Limitations and amendment. (b) Amendment. Where action is brought to enforce a lien the lien statement may be amended by leave of the judge in furtherance of justice, except to increase the amount claimed.

 

OK, On to The Case!

In Madison, Inc. v. Western Plains Regional Hospital, LLC, Dist. Court, D. Kansas 2018, there are a lot of issues up for debate, but the focus for this post is on the validity of the subcontractor’s lien.

 

The subcontractor, Madison, Inc. (Madison), contracted with general contractor, Sanderling Healthcare, LLC (Sanderling). Sanderling was hired by project owner, Western Plains Regional Hospital (Western). The project was an improvement to a medical complex in Dodge City, Kansas.

 

Madison claimed its last furnishing was August 3, 2016. Based on Kansas’ statute, Madison’s lien (or an extension to file lien) should have been filed by November 3, 2016. Madison did file its lien timely on October 18, 2016. Madison’s lien for $287,212.28 was accompanied by an itemized statement showing $6,574.69.

 

Based on a lien filing date of October 18, 2016, Madison needed to file suit by October 17, 2017. Again, Madison was timely with its action, filing suit to enforce its lien on May 1, 2017. Then, on May 18, 2017, Madison filed a motion to amend its mechanic’s lien. Specifically, to “add additional itemization left out of the initial lien.”

 

As I mentioned earlier in the post, Kansas statute does permit liens to be amended within the statutory period, however, not if it is to increase a claim amount. In the court opinion, the judge mentions cases where an amended lien was permissible to correct the name of the owner, correct the incorrect use of the term “subcontractor,” and to correct the project description. Adding, the difference between Madison’s request to amend, and the cases cited in support of amendments, is that the other liens provided “sufficient information to give the property owners notice of the claims.”

 

In other words, how could the general contractor or owner review Madison’s itemized statement for accuracy when Madison failed to include the itemization for over 90% of its claim?

 

The court deemed Madison’s lien invalid based on its failure to include a “reasonably itemized statement.” Madison tried a last-ditch effort to save its lien, arguing that even if Madison can’t have a lien for $287,212.28, Madison should have a valid lien for the itemized statement amount of $6,574.69.

 

Well? According to the legal opinion, neither the Judge nor parties could find case law which addressed reducing the claim as Madison proposed. However, the judge did refer to a recent Court of Appeals decision, which essentially said “secure the lien according to statute, or don’t bother.”

 

“It is a settled rule in this state that equitable considerations do not ordinarily give rise to a mechanic’s lien. Being created by statute, a mechanic’s lien can only arise under the circumstances and in the manner prescribed by the statute. A lien claimant must secure a lien under the statute or not at all.

 

Unfortunately, Madison’s lien did not comply with statute, thus failing the “all or nothing” comment from the Court of Appeals.

 

What did the judge say? “Because Madison’s lien was vitally defective as filed, it cannot be found to be partially valid. Severing defective portions of liens would not give defendants proper notice of the claim against them and would circumvent the strict requirements of the statute by creating liens without statutory compliance. For these reasons, Western’s Motion to Dismiss the claim for enforcement and foreclosure of the lien is granted.”

 

Never Underestimate the Power of Paper

When assisting with lien filings, sometimes clients push back when NCS requests backup documentation, e.g. “You don’t need to review my statement of account, I know what I’m owed.” We certainly don’t want to invade your privacy or second guess the information you provided. We request the documentation because we want to assist in ensuring your lien meets the statutory requirements.

 

Maintaining comprehensive and complete records can be a challenge. But, losing lien rights and potential payment security can put a burden on your cash flow.

Thanks to CMA partner NCS Credit for this information!

CMA & NCS Form Strategic Partnership

NCS is CMA's Exclusive Provider to bring additional construction lien services, UCC filings to CMA customers

Partnership to expand CMA’s offerings to include additional construction lien services, UCC filings.

FOR IMMEDIATE RELEASE

LAS VEGAS, NV (Sept. 17, 2018)— Credit Management Association® (CMA), who provides extensive services to companies and corporations that sell goods and services through credit transactions, has formed a strategic partnership with NCS, the leading provider of notice, mechanic’s lien, UCC and secured collection services in the U.S. and Canada. This partnership will allow CMA to offer NCS’ breadth of service to CMA members, while providing additional benefits such as access to a variety of educational opportunities and industry leading resources. This partnership became effective September 4, 2018.

CMA will continue to provide best-in-class service and CMA’s members will benefit from NCS’ nearly 50 years of expertise in the commercial credit services market.

A long-standing relationship between CMA and NCS, coupled with NCS’ impeccable reputation within the credit community, provides a strong foundation for this strategic partnership. This partnership will add tremendous value for CMA’s wide base of construction-related companies. “As we’ve been looking to add to the benefits CMA offers its members, we decided that an alliance with NCS will provide an array of world-class educational offerings, the ability to offer UCC filing services, and improved synergies with the addition of NCS’ Notice & Mechanic’s Lien services,” says Kim Lamberty, CMA CEO.

“This is an incredibly exciting time for NCS and CMA,” states NCS President, Mary B. Cowan. “Together we will create more value for the CMA member. We’re grateful to have the opportunity to serve CMA members and pledge they will continue to receive superior service. NCS is laser focused on securing lien and bond claim rights while also providing educational support. We have built a solid relationship with CMA and this strategic partnership will allow us to strengthen our mission as the leading authority empowering clients in the management of their corporate credit decisions. NCS is dedicated to excellence and we look forward to providing exceptional, personalized service and first-in-class resources to the CMA member.”

CMA serves businesses primarily located in the western U.S., with offices in Las Vegas, NV and Glendale CA. NCS, serving industries throughout the U.S and internationally, is headquartered in Cleveland, OH.

About Credit Management Association

Credit Management Association® (CMA), is a non-profit association that has served business-to-business companies since 1883. CMA delivers a variety of services to large and small companies across the full spectrum of the business credit economy. In addition, CMA assists insolvent companies with workouts or liquidation through cost-effective alternatives to bankruptcy. For more information about CMA, call 800-541-2622, or visit www.creditmanagementassociation.org.

About NCS

Since 1970, NCS has been the leader in providing credit professionals throughout the U.S. and Canada with proactive solutions to secure receivables, minimize credit risk and improve profitability. With their distinct service groups: Construction, UCC, and Collection – NCS develops customized solutions based on your business model and organizational requirements to Secure Your Tomorrow®.

NCS has educated more than 600,000 credit professionals on securing their receivables and reducing their risk through NCS events, resources, and social media. NCS offers web based solutions such as LienFinder™, The National Lien Digest©, and LienTracker® Online. These resources help manage credit risk, provide time and information requirements, monitor deadlines and generate notices. NCS has been named a winner of The Northeast Ohio Top Workplaces Award for the past 4 years. For more information about NCS, call 800-826-5256, or visit www.ncscredit.com.

# # #

Thanks to CreditScape Spring Sponsors!

 

CMA wishes to recognize our event sponsors for CreditScape. Without their help, this event would not have been possible.

Thanks to these leading companies in the credit community.

 

AGA Adjustments
Contact: Sam Fensterstock
www.agaltd.com
888-496-1600
Services: Commercial Collections

Ansonia Credit Data
Contact: Bill Weiss, Kathleen Dasal
www.AnsoniaCreditData.com
855-ANSONIA (267-6642)
Services: Portfolio Monitoring, Credit Reports

Bectran
Contact: Eric Lee
www.bectran.com
888-791-6620
Services: Online Credit Applications, Document Management

Credit2B
Contact: Joe Chin
www.credit2b.com
212-279-3300
Services: Customer Onboarding, Risk Protection, Analytics, Benchmarks

CreditPoint Software
Contact: Charlie Pilkington
https://creditpointsoftware.com
918-376-9440
Services: Credit Risk Analysis Software, Online Credit Applications, Commercial Collections Software

Dade Systems
Contact: Bill Zayas
www.dadesystems.com
855-418-2786
Services: Virtual Payment Processing Solutions

Dun & Bradstreet
Contact: Bob O’Brien
www.dnb.com
973-921-6370
Services: Credit Reports

Esker
Contact: Dan Caple
www.esker.com
800-368-5283
Services: Accounts Receivable Software

HighRadius
Contact: Sally Huynh
www.highradius.com
281-968-4473
Services: Accounts Receivable Software

IAB
Contact: Diana Crowe
www.iabllc.com
630-537-0840
Services: Deduction Management Services

NCS
Contact: Jerry Bailey
www.ncscredit.com
800-826-5256
Services: UCC Filing Services

Skyminder
Contact: Mike Lindenmuth
www.skyminder.com
813-636-0981
Services: International Credit Reports

United TranzActions
Contact: Michael Williams, Dean Middleton
www.UnitedTranzActions.com
800-858-5256
Services: Payment Processing, Credit Card
Processing, Virtual Lockbox

Vantiv
Contact: Matt Fluegge
www.vantiv.com
608-834-2539
Services: Payment Services

CMA Thanks CreditScape Sponsors

creditscape_fall_summit_pb

CMA would like to send special thanks to top credit service providers who are sponsoring the upcoming CreditScape Fall Summit, powered by United TranzActions, September 22-23 at the Doubletree by Hilton Sonoma. Those companies are:

United TranzActions
www.UnitedTranzActions.com
800-858-5256
Services: Payment Processing, Credit Card Processing, Virtual Lockbox

AGA Adjustments
www.agaltd.com
888-496-1600
Services: Commercial collections

Ansonia Credit Data
www.AnsoniaCreditData.com
855-ANSONIA (267-6642)
Services: Portfolio monitoring, Credit Reports

Bectran
www.bectran.com
888-791-6620
Services: Online Credit Applications, Document Management

CreditPoint Software
www.creditpointsoftware.com
918-376-9440
Services: Credit Risk Analysis Software

Dade Systems
www.dadesystems.com
855-418-2786
Services: Virtual Payment Processing Solutions

Dun & Bradstreet
www.dnb.com
973-921-6370
Services: Credit Reporting

eMagia
www.emagia.com
408-654-6575
Services: A/R Management Solutions

IAB LLC
www.iabllc.com
630-537-0840
Services: A/R and Deduction Management Services

NCS
www.ncscredit.com
800-826-5256
Services: UCCs

Vantiv
www.vantiv.com
608-834-2539
Services: Payment Services

Thanks again for helping CMA deliver a quality event!