Liens 101

During the current financial crisis, sign companies have been as vulnerable to slow or non-paying clients as any other technical trade. In fact, probably more so – a cash-strapped GC or end user might perceive a signmaker as a lower priority in payment hierarchy than a builder, electrician or plumber. However, signmakers have avenues of recourse available to collect from a delinquent client, and the lien process offers an often effective mechanism.

Anthony Williams serves as executive sales manager for NCS Construction Services Group (Cleveland), a company that facilitates the lien-filing process for general contractors and subcontractors, including signshops. At presstime, he was scheduled to lead a seminar, “Protect and Collect: Learn About Mechanic’s Lien and Bond Claim Laws,” at the Southern States Sign Show in Atlanta on September 25.

He said nearly 40 U.S. states require a subcontractor to serve a preliminary notice to owner (NTO) to all parties with authority over a project. The NTO notifies all responsible parties that the property has been improved by signage or graphics and, therefore, the fabricator and/or installer expect payment. Even in states that don’t require the preliminary notice, a non-statutory notice can help trigger payment. California statutes allow mechanic’s liens as a right to all contractors who work to improve a property’s value. Williams said a sign company’s owner or financial manager should familiarize himself with such laws.

“For example, in Ohio, a preliminary notice must be served within 21 days of the start of work on a project,” he said. “In states such as New York, the notice isn’t required, but is recommended. Some companies are afraid of offending the client by serving [an NTO]. It shouldn’t be presented as a threat; you’re simply reminding the owner of the value of the product and service you provide, and protecting your legal rights.”

If the preliminary notice doesn’t trigger payment, Williams said a lien should be filed in the county recorder’s office where the project was installed, or, if applicable to a government-owned project, make a bond claim against the contractor’s payment bond. A lien prevents the property from being sold or obtaining further financing until the debt, or encumberance, is paid. Each case is unique, but Williams said failure to receive payment within 60 to 120 day s of project completion is usually the statutory timeframe for filing a lien. A shop owner may file a lien himself, hire legal counsel to do so or contract a third-party service such as Williams’ company, which operates with a flat-fee structure.

A lien’s duration varies; in some states, it lasts one year, in others, six. The retroactive enforcement of a lien varies as well; in some cases, the lien’s timeframe commences on the date filed; in some, it begins on the agreed-upon completion date or the customer’s project acceptance.

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He said, “It’s important to be timely with a lien. The sooner you’re on record filing for restitution from a company, the earlier you’re in the pecking order and in consideration as a secured creditor should there be a bankruptcy.”
After a lien, a lawsuit to affect payment may be the final step. Williams said the filing of such a suit doesn’t necessarily need to wait for the lien’s termination. Rather, he said a company’s financial position (i.e., how badly it needs the delinquent payment, and whether the financial wherewithal exists to endure the legal process) should dictate the timing of such actions.