What? You Didn’t Properly
Serve a Preliminary Notice?

Sorry, you can’t file a mechanic’s lien!


By Diane Dennis, TheContractorsGroup.com

Being part of the construction industry is truly wonderful...when your customers pay you. But what about those times when your customer isn’t willing to pay you for a job well done? Unfortunately, walking around muttering #*$%& won’t pay your bills.

A mechanic’s lien, also known as a construction lien, exists to give the contractor security that he or she will get paid for work completed. Filing a mechanic’s lien on the owner’s property is often your last chance to collect on the money that is owed to you. This is where the importance of the preliminary notice (sometimes referred to as a pre-lien and prelim) becomes most clear.

If you are not an original contractor (contracted directly with the owner) and you are not providing labor for wages, then a preliminary notice establishes your legal right to file a mechanic’s lien. If you don’t properly process/serve your preliminary notice, most often the penalty is that you are not allowed to file a mechanic’s lien on the owner’s property. Note: If you’re in California and you don’t serve a preliminary notice where required, you are in violation of the contractor’s license law.

Not being allowed to file a mechanic’s lien means that you could very well lose out 100 percent and collect absolutely none of the money that is owed to you!

Read on—you’ll be shocked at how easy it is to get “stiffed” when you don’t serve a pre-lien to protect your right to lien.


The Purpose of the Preliminary Notice

In the world of construction, while it is expected that you’ll be paid for your work, unfortunately, there are times when payment is not so easily forthcoming. These are the times when the preliminary notice is important.
The main purpose of the preliminary notice is to notify the owner and lender that you and your company are present and that you have a financial interest in the property. Even though your general contractor knows that you are involved, his customer (usually the owner of the property) may not know. It’s your legal responsibility to tell the owner (and the rest of the financially interested parties) that you have this claim.

Here’s why: You’ve finished the job, and your general contractor is refusing to pay you. After you’ve gone to court and you’ve won your judgment, who is going to make sure that you get paid?

Don’t look at the judge—he or she is a judge, not a bill collector. Sure, the ruling was in your favor, maybe you were even awarded more than what you were asking for (hah!), but the judge is not going to reach into the guy’s checking account and get your money for you.

Don’t look at the guy who owes you; he didn’t want to pay you to begin with, remember? He’s not going to write you a check. Well, not a good check anyway. You see, he knows what you now know—that the judge most likely isn’t going to force him to pay you.

So now you’re back to where you were before you went to court – the guy still owes you and he still won’t pay you! (Except that, in addition to still not being paid, now you’re in debt to your attorney.)

What to do?

Short of a broken knee cap or two (just kidding!), about the only thing you can do is file a mechanic’s lien on the property you did the work on—but only if you served your preliminary notice to the correct parties or can prove that you made a “reasonable inquiry” as to who the correct parties are should you have served to the wrong parties.

An important point to keep in mind: Even if the owner has paid your customer in full, you still file the lien.

Why?

It’s the legal responsibility of the owner to ensure that everyone gets paid. This may mean that the owner/lender has to require lien releases/waivers; pay bills with joint checks; place phone calls to the creditors to verify that they have indeed been paid; etc.

That’s why you still file the lien; because the owner didn’t do what he was supposed to do, which was to make sure that you got paid. He can’t say that he didn’t know you were owed money, because you have proof (the proof is explained a bit further on) that he received your preliminary notice.

Why It’s Important to Serve the Notice in a Timely Manner

Now let’s take a look at the importance of serving the preliminary notice in a timely manner. The preliminary notice MUST be mailed out within the time allowed by the law. This time frame varies from state to state, so you must check to see what the requirement is in the state where the project is located.

Here are a few examples. It’s my understanding that in Oregon, the notice must be processed within eight days of the first shipment or incurrence of labor costs, whichever applies to your situation. I’m told that Alabama and Alaska require that these notices be processed before the first shipment or incurrence of labor costs. In California, the notice must be served within 20 days of starting the project.  In most states, the lien statutes must be followed precisely; courts do not afford much latitude with respect to timelines and compliance with statutory forms.

As mentioned above, the time frame for California is 20 days. For contractors, this means you’ve got to serve that notice within 20 days of the first day you either start work or supply material to the project (or place the material order if it’s a special order item), whichever comes first. For material suppliers, this means within 20 days of the first day you supply material to the project (or order it if it’s a special order item).

The California 20-day preliminary notice covers all work, material, etc., for up to 20 days prior to the postmark date on the mailing of the preliminary notice. So, if you’ve been on the project for 30 days and are just now sending the preliminary notice, you’ll be covered for 20 days back (or from after the first 10 days forward).
If you mail the notice within the state’s time frame, then you can then usually lien for 100 percent of what is owed to you. If you mail the notice after the time limit, then you’ll usually only be able to lien for the portion of the project that is covered by your preliminary notice.

Get the Return Receipt

When sending preliminary notices, an original MUST be sent to each of the parties involved, such as the general contractor, the owner, the lender/surety, if applicable, the lease hold owner, the trust fund, and any other parties that have a financial interest in the property. The notice must be mailed certified or registered.

Note: While requesting (and paying for) the return receipt is not required, I highly recommend it. If you leave it to the post office to keep track of the receipt, but the post office loses the receipt (of course, this is hypothetical because we all know that the post office never loses anything, right?), you will not be able to provide proof that your notice was mailed and received. The receipt is your proof that the notice was received or that delivery was attempted.  Sometimes it’s undeliverable or refused, at which point the undelivered envelope takes the place of the return receipt. 

Keep the return receipt (or a photocopy of the record of delivery and receipt maintained by the post office, should you decide to throw caution to the wind and trust the post office with it) with the proof of service affidavit that you are required to complete when serving the preliminary notice. These two documents constitute proof that you served your notice in accordance with the law.

It’s Your Right, and Legal Responsibility, to Serve the Preliminary Notice

The person/entity you contracted with should provide you with a list of the parties involved in the project (commonly referred to as “the preliminary information” or “prelim info”). When my husband and I first started our suspended ceiling construction business, I was extremely uncomfortable asking general contractors for this information. Their attitude was usually that of the offended (like, “how dare you prelim my job?”), and that just made me more uncomfortable.

Now, many years later, it doesn’t bother me one bit when they are unhappy with preliminary notices. I just tell them that if they don’t want me to issue a preliminary notice, then they will need to have me paid in less than 20 days from the day I start. (I say 20 days because I’m in California; you’ll need to check with the state your project is located in.)

Don’t be uncomfortable when requesting the prelim info. Serving a preliminary notice on a construction project is a necessary part of the project, and you need that information in order to serve the notice.

It’s very important to note that you must make a “reasonable inquiry” as to who should receive the notice. If an entity that should receive your preliminary notice does not receive it, no matter the reason (including that the general contractor gave you incorrect information, whether on purpose or by mistake), you could lose your right to file a mechanic’s lien on the property.  Unfortunately, it’s not always clear what constitutes “reasonable inquiry.”  It could be as simple as asking your customer for the information, or as involved as obtaining a title report or using other methods.  Only an attorney can tell you what a “reasonable inquiry” would entail for each project.

Don’t Lose Your Right to Lien

Protect yourself and your business by serving your preliminary notice. It is one of the primary ways you can secure payment for your work. There are two main ways that you can do this: You can serve the California 20-Day Preliminary Notice form yourself, or you can hire a legal professional to prepare and serve the notices for you. On some projects, my husband and I process and serve the preliminary notice ourselves, and on other projects we hire a legal professional to process and serve the preliminary notices for us. 

You can usually find the preliminary notice forms available for purchase online, but buyer beware. Many of the forms available online do not have the proper verbiage. You can also find them available for free sometimes, but you should be even more cautious about the free ones.

There are so many details involved, and just one mistake, even what seems like a minor mistake, could cost you so much.  I strongly recommend that you consult with an attorney who can advise you for your specific situation(s).  There’s really no other way to protect yourself and your business.

Diane Dennis has been serving construction contractors across the country for 16 years. You can learn much more about how to manage your preliminary notices, and about all aspects of your construction contracting business, at her website, www.TheContractorsGroup.com.  In addition, you’ll find many construction-related forms available. Ms. Dennis is not an attorney and recommends that readers consult with a legal professional for their specific situation(s).

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