Issue #9 - June 17 2013

Hi!

Welcome to the ninth issue of the InformedContractors.com newsletter!

In today's main essay my guest expert Scott Wolfe, an attorney and LEED AP, tells us about the potential dangers surrounding preliminary notices.

Also in today's issue...

The Check it Out! section explains how you can use the long-ago theft of my pink Huffy bike :( to help your construction business.

My Quick Tip for today is a reminder of how important it is to keep your name out there for potential new customers and a really cool site that will help you do just that.

I hope you enjoy this issue of InformedContractors.com.

Cheers,
Di-

What You Don't Know About
Preliminary Notices Can HURT You!

By Scott Wolfe, Jr.

A Primer On Preliminary Notices

What you don’t know about preliminary notices can hurt you, and unfortunately, most people know very little or are confused a great deal about these pesky construction documents.

The name itself is a source of confusion.

Since the laws vary from state-to-state and project-to-project, preliminary notices have more than 75 formal names including (but not limited to) preliminary notice, pre-lien notice, notice to owner, notice to contractor, notice of furnishing, NTO, and notice of contract.

While uniquely named and subjected to differing nuances depending on your circumstance, the general theme of preliminary notice laws are the same: they must be sent at the start of your furnishing material or starting work, they must be sent in a prescribed way (usually certified mail), and if you don’t send them you’ll be without lien rights on the project forever.

Let’s now get into the details a bit.

Should You Send A Preliminary Notice?

Notice that we don’t begin this discussion with the next section, which is titled “Must You Send A Preliminary Notice?”  I consider that to be second in importance to this section’s inquiry.

The reason is that whether or not a preliminary notice is formally required it’s still a good idea to send a notice.

Preliminary notices’ primary purpose is to protect your mechanics lien and bond claim rights, but they have a very attractive side effect: they prioritize your invoice above others on the project.

This is something I’ve seen time and time again, and many authors and attorneys have repeated this. When the property owner or general contractor receives a preliminary notice they earmark that subcontractor or supplier and take an elevated interest in making sure they are paid.

Must You Send A Preliminary Notice?

Here is the more popular question, but unfortunately, the answer is not quite as simple. Every state has a different rule about whether a preliminary notice is required, and even within a single state, the rule is usually different depending on the character of your work, the type of construction being performed and your contracting tier. Then there are exceptions to each of the state’s rules.

Understanding when you are and are not required to senda preliminary notice, in other words, is usually a legal riddle.

Currently, over 40 states require some type of notice to preserve your mechanics lien rights. Here you can view a US Map summarizing the notice requirements of each state.

While the rules do vary greatly, a few theories are popular among the states.

For example, in almost every state, the further down the contracting chain you are the more likely you are required to deliver a notice. Most states' notice laws are there to protect owners and contractors from getting surprised about someone on the project, and accordingly, those further down the chain are the most likely to surprise.

It’s important to check the rules specifically applicable to your project, and to follow the rule. You may be required to send a notice, and after all, even if you aren’t required, you should.

How Do I Send A Preliminary Notice?

Your journey through the preliminary notice nightmare is not yet done. Now that you have decided to send a preliminary notice the next question is how do you actually do it. 

This is an important question. If you make a mistake - even a tiny, technical, and harmless mistake - your notice will be completely void and ineffective.

Again, the rules about how you must send the notice varies depending on your circumstance.  There are three general things you'll need to know:

About the Form:  The first is the form.  What form must the preliminary notice take? What language must be included and which data must be included? Most states very strictly control what the form must include and look like.

Who Receives the Form:  Once you get the form completed you must know who to send it to. Typically, the notice must be sent to the property owner. Some states also require that notice be sent to parties like the general contractor, the lender, and others above you in the contracting chain.

How To Send the Form:  The final thing you need to know is how to send your notice. This must usually be by some type of certified or registered mail. Some states require restricted delivery.

Consider A Service

Think that this is a lot to know and handle?  It is.

In my career I’ve consulted with thousands of companies about credit management techniques and preliminary notice policies in general. I can tell you with certainty that it is virtually impossible for companies to manage their own preliminary notice compliance affordably.

A service can enable you to send preliminary notices without any headache or thought. At zlien, for example, clients simply send over project information and the zlien system figures out what needs to be sent, how, to whom and when, and then sends it for you.

Bottom Line

Here are my concluding thoughts:  You should always send a preliminary notice, and you oftentimes must send a preliminary notice. The act of sending this notice is confusing and complex, and so you likely want to employ a service to handle the whole thing for you.

Now go off and do what you do best: construct.

Just make sure you are protecting your company or livelihood by sending preliminary notices, and leave that to the folks who do it best.
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Scott Wolfe Jr., son and grandson of general contractors, is a construction litigator in Louisiana and Washington, and the founding member of the bi-coastal firm, Wolfe Law Group. He educates the construction community about mechanics liens, bond claims, security instruments and other tools of credit management through blogs, publications and speaking engagements. His thought leadership is supported by his experience and qualifications. You can learn more about his preliminary notice services (available nationwide) here.

Check It Out!

When I was growing up in Pomona California I had the coolest pink (yep pink) Huffy bike. I loved that bike, so much so that I still remember it 35+ years later...

I'd been riding around and around the street (a cul-de-sac and I wasn't allowed to go out of the cul-de-sac) and I was hot and thirsty.

I jumped off my bike and ran in to get a drink of water.

When I came back out my bike was gone! My pink Huffy that I loved so much. I cried and cried. The police never did find it and I went without a bike for a very, very long time after that.

I was no thief and I would NEVER steal someone else's bike so it never occurred to me that someone would steal my bike. Sadly someone took advantage of my innocence.

What does that have to do with contracting?

Well... In today's world of contracting you can't be innocent, you must "think like a thief" in order to survive.

That doesn't mean you actually become a thief but you need to think like one so that they (the thieves) don't take advantage of you.

Too many of my contractors are ripped off every single day by people who won't pay them - and because they didn't "think like a thief" they didn't do a preliminary notice. They trusted that they would be paid, they felt no need to do the notice.

Unfortunately a handshake doesn't get you much these days. Without a properly prepared and served preliminary notice you don't have lien rights which means if they continue to refuse to pay you, you can't lien the property which means you can kiss those receivables goodbye.

Think like a thief and protect yourself as if you're going to be ripped off; if you don't develop that mindset then I guarantee you that some day a thief is going to do exactly that and you won't be able to recover what's owed to you.

On top of everything, in some states you can actually be penalized for not doing a preliminary notice! So you get ripped by not getting paid and then you get disciplined and fined for not doing the notice. Talk about pouring salt in the wound!

And think twice about doing it yourself.

If you do your own and you don't do it exactly the way it's supposed to be done, right down to who should be served, how, and what paperwork you have to keep on file then unfortunately you're a sitting duck and there are plenty out there who will take a shot.

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Monk and DBug, LLC
Diane Dennis
555 NW Fairhaven Drive
Oak Harbor, WA 98277

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