Three Parties Required to Be Served

Filing for mechanics' liens across different states has its caveats, and each set of rules varies from state to state, often with unpleasant surprises. When extending credit through multiple state lines, assumptions serve no purpose as the laws cannot be predicted.

In at least three states in the U.S., a total of three parties must be served preliminary notices at the time of first furnishing, with one of those parties being the lender. On California, Arizona and Illinois private projects, the lender must be notified for the claimant to have lien rights. While a failure to notify may not nullify a lien in each of these states, at the very least—in the case of Illinois—it will render the claim subordinate. Keeping solid records and accurate job information sheets are crucial elements for filing, especially in an unfamiliar state.

In the case where three parties are served on the preliminary notice, the lien becomes more complicated. In some instances, this may even extend into public projects when notifying the surety is required.

On a recent public project in California, a small equipment rental company in Texas sought to work on a state project. Before following through with the deal, the small company attempted to get job information, but the customer did not provide surety information on the job information sheet. In California, sureties must be served a preliminary notice to have rights against the general contractor's payment bond. When the customer left out the bond details on the job information sheet, the fetch quest for the bond began.

To date, there are limited options for obtaining surety information in California. There are no websites that can provide this information or a database of those records. Since the Texas company does not have proof of the payment bond, sending out a notice and subsequently filing becomes much more difficult. Complicating the matter even more, California statutes do not require a payment bond to be recorded at all.

The only option left prior to furnishing for the Texas company would be to request a copy of the bond from the general contractor. Getting the copy of a bond before even supplying or shipping material is the safest course of action as customers are generally more willing to provide information before the job begins. If getting a copy of the bond is impossible, asking for surety information at the very least can still be helpful.

"NACM recommends pursuing a Stop Payment Notice on all public jobs," NACM's Lien Navigator for California reads. "Serving the Preliminary Notice compels the withholding of funds. Bond claim remedies can be simultaneously pursued by serving a timely notice to the principal and surety."

Even if the state doesn't require the recording of a bond or other information, it is important to get the record anyway. Obtaining as much information as possible helps limit what needs to be hunted for, while also reducing any future headaches for obtaining lien rights or filing against bonds.

—Christie Citranglo, editorial associate

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Tuesday, 16 July 2019

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