Lien Law Online eLert for 9/11/2012 - Texas

September 11, 2012 The forms for waiving lien rights for progress payments and final payments have been updated to expressly include a place for a notary’s signature. As happens in the creation of statutes, there is a conflict in the statutory changes that went into effect in 2012 that mandate the exclusive forms to use as lien waivers. Section 53.281 of the Texas Property Code provides that for a waiver of lien to be valid it must utilize the new statutory form and be notarized. However, the new forms found later in the statute – which must be utilized – do not include a place for execution by a notary (referred to as a ‘jurat’ when the author swears to the veracity of the information or simply an acknowledgement where only the signing is verified). Thus, it is unclear whether the mandated form should be followed (without a notary signature) or whether the text of section 53.281 should be followed, and the statutory form altered to insert a notarization blank. However, this conflict should be practically irrelevant. If payment is not made to the person executing the waiver, then the waiver is invalid regardless of its format, and a lien can likely be asserted. But if payment in full has been made, the debt is extinguished, and no lien is needed to secure payment. Thus, the format of the form is moot. For expediency, the forms provided include a place for a notarization, should a claimant elect to follow the admonition in section 53.281. Gregory A. Harwell, Esquire (Contributing Author) Gardere Wynne Sewell, L.L.P Revised Forms now found in Texas chapter: Unconditional Waiver and Release on Final Payment Conditional Waiver and Release on Progress Payment Conditional Waiver and Release on Final Payment Unconditional Waiver and Release on Progress Payment

Lien Law Online eLert for 9/4/2012 - North Carolina

Lien Law Online eLert for 9/4/2012 – North Carolina September 4, 2012 North Carolina has enacted changes to its Mechanic’s Lien and Public Bond Law that take effect on January 1, 2013. North Carolina has also enacted substantial changes that will introduce a new requirement for a “lien agent” that take effect on April 1, 2013. The following summarizes these changes: Note: One change went into effect upon ratification on June 29, 2012. That is, former owners of real property are no longer necessary parties in a lien enforcement action, and, where a lien is discharged (which statutory discharge procedures are unchanged), neither a subsequent purchaser or lender are necessary or proper parties in such action. As of 1 January 2013: (Applies to projects for which the first building permit is pulled on or after that date, or, as to projects not requiring a building permit, to improvements commenced on or after that date) Owners: The owner’s duties remain substantially unchanged. Contractors/subcontractors/suppliers: A. Contractor’s claims of lien against real property: To perfect a claim of lien on real property, the claimant must, in addition to all current existing requirements: 1- Serve the Claim of Lien on the owner. Service shall be one of three ways: (1) by personal service, (2) by USPS first-class properly addressed mail, or (3) by designated delivery service (DHL, FedEx, or UPS). “Properly addressed” first-class mail means to the owner’s address as shown on the improvement (building) permit, on the tax rolls of any North Carolina county, or to a registered agent listed by the North Carolina Secretary of State. AND 2- File the claim of lien with the clerk of court. The claim of lien on real property form remains substantially the same, except that: • in a subrogation claim brought by a subcontractor the contractor as well as the owner must be identified, and • The claimant must certify service on the owner and on any contractor through whom subrogation is claimed. The requirements for an action to enforce a lien on real property remain substantially the same. B. Subcontractors/suppliers’ claims of lien: A subcontractor’s lien arises, attaches and is effective immediately upon its first-furnish date at the site of the improvements. (This is the so-called “bankruptcy” fix, to allow subcontractors and suppliers to serve Notice of Claims of Lien on Funds after an upstream party in the contractual chain files bankruptcy. Recent federal bankruptcy court decisions in the Eastern District of North Carolina had invalidated a number of such claims, based on construction of existing perfection-of-claim provisions.) A subcontractor may now use either its first-furnish date or the contractor’s first-furnish date, for its subrogated lien claim. The Notice of Contract allowing a contractor to limit or cut off the subrogation rights of second and third tier subcontractors remains the same but the posting procedure is expanded: the Notice of Contract my be posted by the owner as well as the contractor and within the later of (1) 30 days following issuance of the improvement (building) permit or within 30 days following the award of the improvements contract to the contractor. C. False Statements in Lien Waivers. Criminal liability for furnishing a false lien waiver is expanded: culpability now extends to a signer, or to a person directing another to sign, or to any person or entity for whom it was signed. Additionally, furnishing a false lien waiver now constitutes deceit or misconduct subjecting licensed general contractors to disciplinary action including revocation, suspension, or restriction of the license or the ability to act as a qualifier for a license. Payment Bond Claims North Carolina’s Little Miller Act, providing for claims on payment bonds issued on bonded public construction projects, adds significant new requirements for downstream subcontractors having no contractual relationship with the (general) contractor. A subcontractor still has 120 days from its last furnish date in which to give written notice to the contractor; however, due to the procedure as outlined below, the amount of the subcontractor’s claim may be significantly reduced or eliminated if the subcontractor waits to give this notice until after completion of its work, as has been the practice. • The contractor must provide each subcontractor a contractor’s project statement containing the following: 1. name of project 2. physical address of project 3. name of the contracting body 4. name of the contractor 5. name, address and phone number of an agent authorized by the contractor to accept service of requests for payment bonds, notices of public subcontract, and notices of claims on payment bonds 6. name and address of the payment bond surety • Each subcontractor must furnish its subcontractors (each sub-subcontractor) a copy of the contractor’s project statement • Furnishing of the contractor’s project statement to a lower tier subcontractor is a condition precedent to enforceability against the lower tier subcontractor of any agreement between the contractor and its subcontractors or between any subcontractor and a sub-subcontractor • As a prerequisite to making a payment bond claim on claims of $20,000 or more, a subcontractor on a bonded public project must serve a Notice of Public Subcontract containing the following: 1. name and address of subcontractor 2. general description of the real property where labor performed or material furnished 3. general description of the subcontract, including all parties 4. general description of the labor perfor4md or materials provided • The contractor must furnish a copy of its payment bond within seven calendar days in response to written request from a subcontractor made either to the contractor or the agent shown in the contractor’s project statement. The request and response both must be served by either USPS certified mail or signature confirmation. • If the contractor has timely satisfied its obligation to furnish the a copy of the payment bond to the subcontractor, the subcontractor’s claim is limited to labor or materials provided no more than 75 days prior to the claimant’s service of its Notice of Public Subcontract. This restriction applies only to amounts over $20,000, meaning that a subcontractor who is limited by the 75-day rule can still claim up to $20,000 against the payment bond. The burden on subcontractors imposed by these changes is simply that subcontractors should now routinely serve a Notice of Public Subcontract immediately upon being engaged for a project and before furnishing any labor or materials to the project. This will mean that all such labor or materials is furnished within the 75-day rule period and will preserve the subcontractor’s entire claim (because in this case all such labor or materials will be provided after service of the Notice of Public Subcontract). As of 1 April 2013: (Applies to improvements to real property for which the original cost is $30,000 or greater and in which the first furnishing of labor or materials at the building site is on or after that date.) Owners: The owner shall designate a Lien Agent, from a list of registered lien agents maintained by the Department of Insurance. The list will consist of title insurance companies that have consented to serve as lien agents. The designation must be made on or before the first contract with any person for the improvement of any real property other than the owner’s own existing single-family residence. An owner who pulls the building permit shall provide the identity of the designated lien agent to the office issuing the permit. Either the owner or its contractor must post the lien agent contact information on the building site, either as part of the building permit or as an additional posting if not included in or with the building permit. The owner within seven calendar days must provide the lien agent contact information to potential lien claimants (contracts/subcontractors/suppliers) who request it, in writing and by the same service method used to make the request. Contractors/subcontractors/suppliers: Persons improving real property now constitute “potential lien claimants.” Except for contractors dealing directly with the owner for the construction of a single-family residence and in whose contract the lien agent is identified, all potential lien claimants must serve a Notice to Lien Agent in order to perfect and enforce its lien rights. The Notice to Lien Agent must contain the following four entries: (1) The potential lien claimant’s identity; (2) The identity of the party with whom the potential lien claimant contracted to improve the real property; (3) A description sufficient to identify the improved real property; (4) A statement giving “notice of my right subsequently to pursue a claim of lien for improvements to the real property described in this notice.” Service of the Notice to Lien Agent is a prerequisite to perfection and enforcement of a lien claim but does not replace any of the other, existing statutory requirements to perfect and enforce claims of lien against real property or claim of lien upon funds. In order to serve the lien agent, potential lien claimants must obtain the lien agent’s contact information. This is done by making a written request to the owner for the lien agent contact information, to which the owner must respond by the same service method use to make the request within seven business days. Potential lien claimants providing labor on site – i.e., a general contractor and the trade subcontractors – are required to obtain the lien agent contact information from the building permit, the posted contact information, or within the contract documents, or alternatively to make the written request directly to the owner. With respect to potential lien claimants who are lower-tier subcontractors not providing labor on site – i.e., suppliers – the contractor or subcontractor making the supply contract must provide to the supplier the lien agent contact information, either in its subcontract or purchase order documents or otherwise in writing within three business days. This written notice can be given in one of six ways: (1) certified mail, (2) USPS signature confirmation, physical delivery and receipt, (4) fax with fax confirmation, (5) designated delivery service (DHL, FedEx, UPS), or (6) email with delivery receipt. A contractor or subcontractor who has previously received notice by any means of the lien agent contract information and who fails to provide it to a lower-tier subcontract (supplier) shall be liable to the lower-tier subcontractor for actual damages caused by the failure to give the notice. A potential lien claimant’s claim of lien will be subordinate to a mortgage or deed of trust recorded before its claim of lien is perfected, and potential lien claimants may perfect a claim of lien on real property only if: (1) The designated lien agent received the potential lien claimant’s Notice to Lien Agent no later than 15 days after the potential lien claimant’s first furnish date; OR (2) The designated lien agent received the Notice to Lien Agent prior to recordation of a deed of conveyance of an interest in the real property to a bona fide purchaser for value not related or affiliated with the owner; OR (3) The potential lien claimant filed a claim of lien with the clerk’s office prior to recordation of a deed of conveyance of an interest in the real property to a bona fide purchaser for value not related or affiliated with the owner. A potential lien claimant may serve the Notice to Lien Agent prior to contracting, prior to starting its work, during its work, or after completion of its work. A lien waiver signed by a contractor prior to the commencement of a subcontractor’s lien enforcement action waives the subcontractor’s subrogation rights through the contractor but does not affect the subcontractor’s right to a claim of lien on funds or a direct lien against an owner who has paid out over a lien on funds. Lien Agent: The Lien Agent must: • Acknowledge the lien agent designation to owners with three business days; • Receive, record and acknowledge to owner and potential lien claimants within three business days its receipt of Notices to Lien Agent and copies of Notices of Claim of Lien on Funds. • Provide notice of potential lien claimants’ Notices to Lien Agent within one business day upon request by an owner, title insurer, contracted purchaser, potential lien claimant, closing attorney, lender, or settlement agent. Closing Attorney: A closing attorney who contacts the lien agent no more than five business days prior to the date of recordation of a deed to or deed of trust on the improved real property is deemed to have fulfilled the attorney’s professional obligation to check for such notices and is under no further obligation to check for notices received subsequently by the lien agent. Building Inspections Office: The building inspector shall not issue a permit for affected projects unless the lien agent is conspicuously identified in the permit or in an attachment. Steven D. Hedges, Esquire (Contributing Author) Sparrow Wolf & Dennis, P.A.

Lien Law Online eLert for 7/18/2012 - Utah

July 13, 2012 With Utah’s mechanics’ lien statutes having gone through a substantial overhaul in 2011, the amendments in 2012 were minimal, relatively speaking, and mainly cosmetic. One primary change is that the code sections governing mechanics’ liens were renumbered. They were also divided to distinguish between lien laws for private projects and certain lien-based laws (e.g., notices of commencement and preliminary notices) applicable to payment bond claims on government projects. The sections governing private projects are now identified as Utah Code sections 38-1a-102 through 38-1a-804, while those pertaining to government projects are identified as sections 38-1b-102 through 38-1b-203. Another amendment is the addition of Utah Code section 38-1a-309, which codifies the recovery of interest on mechanics’ lien claims at a certain statutory rate (ten percent per year) unless a governing contract requires a different rate. Brian J. Babcock, Esquire Babcock Scott & Babcock P.C.

Lien Law Online eLert for 7/5/2012 - California July 5, 2012 The long awaited changes to California's lien statute went into effect July 1. The changes required revisions to all fourteen (14) forms that are contained in the chapter; so make sure you are using up to date forms in the future. Visit www.lienlawonline.com to review the revised text and forms. B. Scott Douglass, Esquire (Contributing Author) David K. Ismay, Esquire (Contributing Author) Farella Braun + Martel, LLP

Lien Law Online eLert for 5/9/2012 - Iowa

May 8, 2012 The Iowa legislature recently adopted significant revisions to Iowa’s mechanics’ lien statute. These changes will take effect on January 1, 2013. Below are highlights of the major changes, which will be addressed in further detail in a revised Iowa section of LienLawOnLine. The first major change to Iowa’s mechanics’ lien law is the creation of a centralized online filing system for mechanics’ liens on both commercial and residential projects. Previously, liens were filed with the clerks of court in each of Iowa’s ninety-nine counties. Under the new system, the Iowa Secretary of State will administer a website for filing and posting of liens. The system will include the option of direct filing, or filing by mailing the lien to the Secretary of State’s office for posting within three (3) days of receipt. The state construction registry website will be accessible to the general public through the Secretary of State’s website. Other significant changes pertain solely to residential projects. Under the new law, general contractors and remodelers (who have utilized or will utilize subcontractors or material suppliers) on residential projects, must post a “Notice of Commencement” to the online registry system within ten (10) days of commencement of work on the project. If the required Notice is not posted within the required time period, the general contractor/remodeler loses all rights to later file a mechanic’s lien. Similar to the current statute, under the new law, subcontractors are still required to file preliminary notices. However, the notices must be posted to the online registry system. Jodie C. McDougal, Esquire (jodiemcdougal@davisbrownlaw.com) Elizabeth R. Meyer, Esquire Davis Brown Law Firm (davisbrownlaw.com)

Lien Law Online eLert for 2/4/2012 - South Carolina

February 4, 2012

The South Carolina Court of Appeals recently upheld an arbitrator's decision allowing a contractor to amend his pleadings on the first day of a five-day arbitration, even where the change ultimately made him the "prevailing party" and entitled him to a fee award under S.C. Code §29-5-10. The homeowner challenged the late amendment because of the effect it had on the "prevailing party" analysis, but the court upheld the arbitrator’s discretion to allow the amendment. C-Sculptures, LLC v. Brown, 394 S.C. 519, 716 S.E.2d 678 (Ct. App. 2011).

C. Allen Gibson, Jr., Esquire (Contributing Author)

James E. Weatherholtz, Esquire (Contributing Author)

Lien Law Online eLert for 1/26/2012 - Washington

January 26, 2012

In a recent case, Williams v. Athletic Field, Inc., --- P.3d --- 2011 WL 4089927 (Wash. 2011), the Washington Supreme Court reversed a 2010 Washington Court of Appeals decision that found that in order for a Claim of Lien to be valid, it must contain a proper acknowledgement pursuant to Washington’s Real Property & Conveyance Act (RCW 64.08). The acknowledgement required under RCW 64.08 identifies specific language to be used and acknowledged by a notary, which varies depending on whether the claimant is an individual or a corporation. The decision of the Washington Supreme Court found that the form of lien provided in the lien statute itself (RCW 60.04.091(2)), although ambiguous, is sufficient to establish a valid Claim of Lien even if the document is not acknowledged pursuant to RCW 64.08.

The issue that the Washington Supreme Court resolved arose in the situation where a corporate claimant relies on the form of lien provided in the lien statute alone (relied on by most claimants), which does not satisfy the specific language requirements for acknowledgement under RCW 64.08. Nonetheless, 60.04.091(2) states, in relevant part, “a claim of lien substantially in the following form shall be sufficient.” However, RCW 60.04.091(2) also states, in relevant part, that the Claim of Lien “shall be acknowledged pursuant to RCW 60.08. The court recognized that the statute was ambiguous, as it could either be interpreted as 1) creating an exemption to the acknowledgement requirement, or 2) requiring the claimant to append a certificate of acknowledgment to comply with RCW 64.08. Given this ambiguity, the court liberally construed the statute as to allow the form of lien provided in RCW 60.04.091(2), standing alone, to be sufficient to establish a valid Claim of Lien.

Accordingly, the Washington Supreme Court’s decision establishes that corporations may rely on the Claim of Lien form provided by the lien statute. Although the decision did not specifically address whether the same rules apply to individuals filing a Claim of Lien, as RCW 64.08 has separate requirements for acknowledgement by individuals, it seems likely a court would use a similar analysis to validate the sample form in the context of individuals as well. This may be a question for another day, however, and prudent practice for individuals would be to follow the sample form provided by RCW 42.44.100(1) for purposes of acknowledgement, in addition to the sample form provided in the lien statute.

Jason R. Wandler, Esquire (Contributing Author)

Oles, Morrison, Rinker & Baker

Lien Law Online eLert for 1/17/2012 - California

January 17, 2012

California’s legislature has revised California’ mechanics lien laws in an effort to modernize and simplify them. The majority of the changes are minor and are intended to be non-substantive, but there are a few key changes. These changes take effect on July 1, 2012. Below is a brief preview of the changes, which will be addressed in more detail in a revised California section of LienLawOnLine.

Much of the terminology regarding mechanics liens has changed. For example, under the new laws, “direct contractor” is used in place of the somewhat ambiguous “original contractor,” and is defined as “a contractor that has a direct contractual relationship with an owner.” Civ. Code § 8016. Similarly, “materialman” has been replaced with “material supplier.”

Under the new laws, all notice requirements have been standardized and relocated to a new subdivision. Civ. Code §§ 8100 – 8118. These sections govern the contents of notice, the manner of serving the notice, when notice is deemed complete, and proof of service.

The new laws create new waiver and release forms, which must be used. Civ. Code §§ 8120 – 8138.

The new laws make several changes with respect to completion. Under the new laws, “acceptance by the owner” is no longer included as a means of achieving completion. Civ. Code § 8180. Also owners will now have 15 days to record the Notice of Completion instead of the previous 10-day period. Civ. Code § 8182. Lastly, when there are multiple direct contractors, owners are now permitted to file separate Notices of Completion for each portion of the work. Civ. Code § 8186.

The new laws generally do not change the requirements of preliminary notice. However, under the new laws, direct contractors are required to give preliminary notice only to construction lenders. Civ. Code § 8200(e)(2).

Under Civil Code section 8424, mechanics lien release bonds are only required to be equal to 125% of the claim, rather than 150%, as they previously were.

The new laws provide a new procedure for judicially releasing liens, which was not previously included. Civ. Code § 8480. Included in these new procedures is a requirement that at least 10 days before petitioning for a release of lien the owner gives the claimant notice and demands a release of lien. Civ. Code § 8482. Additional new provisions include formal burden of proof requirements and the elimination of a cap on the recovery of attorney’s fees for petition for a release of lien. Civ. Code § 8488.

Deborah S. Ballati, Esquire (Contributing Author)

B. Scott Douglass, Esquire (Contributing Author)

Farella Braun & Martel, LLP