Tuesday, April 16, 2013
April 12, 2013 California's revised lien law expanded protection for contractors working on selected projects with a contract price over $1 million by requiring certain owners to provide payment security of between 15% and 25% of the contract value. This important added protection can be found in Chapter 7 of the California Civil Code, Sections 8700-8730. Please refer to complete changes in the California Chapter. B. Scott Douglass, Esquire (Contributing Author) David K. Ismay, Esquire (Contributing Author) Farella Braun + Martel, LLP
Monday, April 8, 2013
On February 11, 2013, Governor Quinn signed House Bill 3636 into law, effective immediately. The bill addresses two sections of the Illinois Mechanics Lien Act (the “Act”): Section 16 and Section 34. With respect to Section 16, House Bill 3636 overturns the controversial Cypress Creek decision (LaSalle Bank National Association v. Cypress Creek 1, LP, 242 Ill. 2d 231 (2011)) and clarifies how to apportion foreclosure proceeds under the Act between lenders and contractors. The amended Section 16 of the Act reads as follows: No incumbrance upon land, created before or after the making of the contract for improvements under the provisions of this act, shall operate upon the building erected, or materials furnished until a lien in favor of the persons having done work or furnished material (hereinafter "lien creditor") shall have been satisfied, and upon any questions arising between incumbrancers and lien creditors, all previous incumbrances shall be preferred only to the extent of the value of the land at the time of making of the contract for improvements, but shall not be preferred to the value of any subsequent improvements, and each lien creditor shall be preferred to the value of all the subsequent improvements erected on said premises, whether or not provided by the lien creditor, and the court shall ascertain by jury or otherwise, as the case may require, what proportion of the proceeds of any sale shall be paid to the several parties in interest. All incumbrances, whether by mortgage, judgment or otherwise, charged and shown to be fraudulent, in respect to creditors, may be set aside by the court, and the premises freed and discharged from such fraudulent incumbrance. When the proceeds of a sale are insufficient to satisfy the claims of both previous incumbrancers and lien creditors, the proceeds of the sale shall be distributed as follows: (i) any previous incumbrancers shall have a paramount lien in the portion of the proceeds attributable to the value of the land at the time of making of the contract for improvements; and (ii) any lien creditors shall have a paramount lien in the portion of the proceeds attributable to the value of all subsequent improvements made to the property. The amended Section 16 settles the dispute created by Cypress Creek by giving contractors preference over a prior incumbrancer to the extent of all improvements to the property, including improvements provided by other contractors. House Bill 3636 also amended Section 34 of the Act. Section 34 allows an owner to serve on a mechanic's lien claimant a notice to proceed to file suit and if not done in thirty days the lien is extinguished. The notice that is given must provide a warning in at least 10 point bold face type: Failure to respond to this notice within 30 days after receipt, as required by Section 34 of the Mechanic's Lien Act, shall result in the forfeiture of the referenced lien.
Friday, April 5, 2013
April 3, 2013 The following article was written by our Ohio Contributing Author, Russell O'Rourke and is reprinted with permission. Ohio Mechanic's Lien Law: Top 4 Reasons to Serve a Notice of Furnishing #1 Getting Paid Faster DO serve a Notice of Furnishing ("NOF"). Without the NOF the only person that really knows that you are working on the project is the one that hired you. The NOF gives you the opportunity to make sure that all the right people (the people who are responsible for assuring that subs and suppliers are paid) know, too. The NOF gets you on the right lists, the lists that the owner and the contractor look at when they are getting ready to make the next payment to the companies that work for them. When you serve an NOF you ARE on that list and before they make the payment, they want to know that you are being paid for your work (partially because most people are good people and they want the people who do the work to be paid, and partially because they know you have lien rights and the LAST thing they want is for you to file an Ohio Mechanic's Lien. #2 Maintaining Your Mechanic's Lien Rights If you are working on or supplying material to a construction project in Ohio (with some exceptions for homeowner involved residential projects) a Notice of Commencement ("NOC") has likely been filed. If an NOC has been filed and if you are a subcontractor or supplier, you MUST serve an NOF if you want to assure that you have the right to file an Ohio Mechanic's Lien to protect your right to be paid by claiming a security interest (the Lien) in the property you improved. Your ultimate right, if you are not paid, is to foreclose on the property. Without having served your NOF, you have no ability to file your mechanic's lien to be able to exercise this right. Often just the threat of filing a mechanics lien by your attorney is enough to bring the parties to the table to get you paid. If that does not work, filing the lien gets you in the right line for consideration when the property is being sold or refinanced. All else failing, you can still file suit to force the issue. #3 Being a Professional Subcontractor or Supplier, Serve Your Notice of Furnishing The Ohio Mechanic's Lien Law was changed over 20 years ago to include the Notices of Commencement ("NOC") and Notices of Furnishing ("NOF"). It is a part of doing business as a professional subcontractor or supplier. Owners and contractors are increasingly sophisticated and EXPECT that you will SERVE AN NOF. Actually, they will be more surprised if you don't. Some subcontractors and suppliers are concerned that a contractor or owner will be upset if they are serve an NOF. Again, it is a part of the construction business, as much as a construction contract is. People think it is strange if you do your work on a handshake, this is the same. It isn't personal, it's business. You will also look more professional to your banker if you do follow all the rules and properly serve your NOFs. #4 Serving Your Notice of Furnishing on Time, but if You Didn't, Remember, Better Late Than Never The Ohio Mechanic's Lien law requires that for full lien rights, that is lien rights that cover ALL of your labor and/or materials, you must serve your NOF within 21 days of your first day that you supplied labor or materials on the project. If you are late, you lose one day of lien rights (the labor and/or materials you supplied on that day) for every day you are late. If you serve your NOF on day 22, is it too late? No, for 2 reasons: First, unless you only supplied labor or materials on day 1, at least you will cover your claim for the time after that day. Second, even if you are VERY late, the contractor and the owner are less worried about whether you served it on time than they are about the headache they may have if you aren't paid. Even if you are late, service of the NOF is likely to get you paid. If you have completely missed your lien rights and you aren't being paid, you still have a contract claim against your customer and an equitable claim against the others. R. Russell O’Rourke, Esquire (Contributing Author) O’Rourke & Associates Co., LPA