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ACT Contractors Forms... From The Paper Side of Contracting.

Contractors Forms: Be Careful When Changing your Company Name

Posted by Bill Baird on Fri, Oct 3, 2014 @ 21:10 PM

Every contractor who has their own contracting business has struggled with the question of … “What name should I call my Company”?  And… Just about every contractor who has added to the services they provided in the past or has changed from a sole proprietorship to something else has struggled with the question of …”Should I modify my Company Name to better fit the new services I am providing or to reflect my new status?”  The point is, for whatever reason you have to change the name you have been doing business with and which you have printed on the contractors forms you use, be careful that the changes have not created a situation that lawyers refer to as “Operating Out Of Name Style!”   

Let me illustrate… Joe Shingle is a roofing contractor located in California.  Don’t let using California as an example fool you… The same problems Joe has created can happen in any state… not just California!  When Joe applied for his California C39, Roofing Contractor License he placed the name “Joe The Roofer” in the box for his Company name and his business type was listed as “Sole Proprietorship.” After going through the process of filling out forms, showing experience as a roofer, taking the trade and law tests  and showing financial responsibility, Joe is finally notified by CSLB (the California Contractors State Licensing Board) that he has passed the tests and is approved for a C39 Roofing Contractor License. Now Joe did his research and he was told that as a Sole Proprietor, Joe must file a fictitious business name statement since the name of Joe’s company is different than Joe’s actual name.  This means that if Joe had named his company Joe Shingle, Roofing Contractor then Joe’s company name would be the same name as the Sole Proprietor who owns the company… Joe himself… but since the name of Joe’s company is different from the name of the sole proprietor who owns the company… then Joe is operating under a fictitious or assumed name so a fictitious business statement must be filed… which Joe does.

While in business as a roofer, Joe starts to get requests from his roofing customers to do other types of work.  One customer asked him to give them a price to build a deck, another to re-model a kitchen. Since Joe cannot do this type of work with a C39 roofing license he turns down these requests. After a while Joe realizes how much income he is passing up and decides it is time to add a (B) General Building Contractor classification to his license.  Joe again fills out the paperwork, shows experience, and takes the trade test for a “B” classification.  A few months later Joe is informed that the “B” classification is now added to his original license for roofing but Joe realizes he has a problem with his company name. If Joe wants to build decks and remodel kitchens then the company name “Joe The Roofer” doesn’t really fit and might confuse his potential customers which means lost jobs and lost income!  So Joe gets the bright idea that he should call himself “Joe The Roofer” for jobs involving work covered under his C39 roofing license and for the work he wants to do as a general contractor he will call his company “Joe The Remodeler.”  Problem solved… or so Joe thought! Operating out of name style can get a contractor in trouble.

Here’s why… Joe has a license as, and operates his business under, the assumed name of “Joe The Roofer.”   In the eyes of “THE LAW” and the CSLB, there is a contractor name Joe Shingle who is doing business as (dba) a company called “Joe The Roofer” that is licensed to do work under both a C39 and a B California Contractors License, however, no company called “Joe The Remodeler” has any contractor’s license whatsoever!  This means while “Joe The Roofer” is duly licensed and has protection under the law, “Joe The Remodeler” is an unlicensed contractor and as such (per CA B&P Code Section 7031a) “Joe The Remodeler” is prohibited from recovering any money due him by using the courts. In fact “Joe The Remodeler” is violating Section 7117 of the same California Code for not being licensed. For this, Joe can be fined, have his license suspended or revoked, and possibly have a license violation become part of the public record  which could discourage future customers from hiring Joe … all that because Joe thought it was a good idea to do business under another name!

This is an extreme example but serves to show why it is never a good idea to modify the proper name style listed originally when you opened your business, without “updating” your company’s records with the appropriate licensing/ registration agencies.  All Joe had to do was contact CSLB and add the dba “Joe The Remodeler” to his existing license. While this example is using a California contractor, the same problems can occur, one way or another, in ANY state… even if the state does not require a license or a registration of contractors!

A common mistake we see here at ACT Contractors Forms, and try to prevent, is for contractors who purchase our form products for their construction business to do exactly what this blog post is all about… Use names for their business that are different from the names they are licensed under, have registered under or have filed fictitious names as.  It is the routine of ACT Contractors Forms to go to any available state’s online licensing/registration database and check to make sure the name the license/registration is under is the same as the name on the paperwork we create for them and if not, advise them of the differences. When you add to or change words in your company name, change from sole proprietorship to partnership or LLC or to a Corporation, or even re-order the existing names such as “Joe The Roofer & Remodeler” to “Joe The Remodeler & Roofer”, YOU MUST be sure you have met all the requirements this change creates.

Let’s face it… as a contractor there are many things you can’t control… fortunately the forms you use and the name you use on them is not one of them. In Joe’s case, he may well be successful going to court and paying an attorney to “rack up” hours upon hours of billable time researching and arguing why Joe’s operating out of name style should not keep him from collecting in court, instead of the real issues, namely that the work Joe did wasn’t paid for. However, the thousands of dollars Joe would pay an attorney for this to happen would never be seen by Joe as a victory… just one more needless expense that cost him big time!  Your contractor forms should have the correct company name.

 

Topics: operating out of name style, contractors business name changes, contractor fictitious name

Contractor Form: CA Preliminary Notice, Suppliers, General Contractor

Posted by Bill Baird on Sat, May 10, 2014 @ 18:05 PM

Question: Does the California (CA) 20 Day Notice requirements apply to material suppliers as they do subcontractors?

Posted by P. Foreman... "We are a MATERIALS supplier, in the form of custom-built wood windows. We do not do any on-site work. Do the same 20-Day notice regs. apply to material suppliers as they do to subcontractors? Also, as building the windows can take many, many weeks with several deliveries to the job-site, can we file a pre-lein up until the LAST delivery, which may be long after 20 days of actually beginning the process of building all the windows?

 Yes, the 20-day notice does apply to California (CA) material suppliers in the same way as it does to subcontractors on the job. The purpose of the California Preliminary Notice, aka 20 Day Notice, aka Pre-lim or Pre-Lien, is to inform those parties who have the "purse strings" on the job that somebody is supplying labor and/or materials or equipment on their project and that these same "somebodies" have a right to be paid "out of the property" through the mechanic's lien process if they are not paid. Let’s call these "purse string" holders the project "funders" (the property owner, property manager, bank, funding control company- you know, the project funders who cut the checks).

Why is this notice necessary...you ask? Because subs and suppliers are usually "insulated" from the project "funders" by the General Contractor! The only way the project "funders" can truly know who is actually a subcontractor or material supplier on their project is if they are notified of this when they receive a Preliminary Notice! The project funders usually have no direct dealings with the subs and suppliers. The project funders deal directly with the General Contractor who is, in turn, directly dealing with the subs and suppliers! If you are "cutting" a check to the General Contractor on your job for a progress payment, and you know which subs and suppliers contributed to and should be paid from this progress payment... then you can require lien releases from the subs and suppliers showing they have been paid. The subs and suppliers interests are protected (they get paid what and when they should) and the owner and lenders interests are protected (they will not be surprised by a mechanic's lien from someone they didn't even know about).

You can file a California Preliminary 20-day notice anytime... but you will probably only have lien rights for work/deliveries of materials (in your case windows) done in the preceding 20 days from the date the Preliminary Notice is served. The value of all work/deliveries of materials made or done prior to 20 days before the Pre-Lien is served cannot be included in any lien that you might file. So, for example, if you are working for a month (30 days) on a project and decide to file a 20 Day Preliminary Notice, you will only have lien rights for the work/materials supplied after day 10 which is 20 days prior to the date the 20 day notice is served on day 30. Serving the Preliminary Notice sooner rather than later is critical to protecting your rights! You SHOULD make it your standard business procedure to serve the 20-day preliminary notice at the start of the job... preferably right after the contract/agreement/order is signed with your customer... make the Preliminary Notice part of your paperwork when you begin to first process the order/contract/agreement! Don't put this off ... that way ALL your work/expenses/materials will be covered in any lien you might need to file! Slow pay and, unfortunately, NO pay is more common nowadays... make sure your customers understand that the Preliminary Notice is a part of doing business with you, and is THE LAW and not optional!

Some General Contractors "bristle" when a sub or a material supplier sends a Preliminary Notice to their customer. The general thinks this reflects badly on them... that serving the 20 day notice implies they don't pay their bills... and, of course, this can "tingle" the "spidey sense" of their customer and make the general's life more difficult when they ask for a check. This is understandable since most Preliminary Notice recipients DO NOT understand this legal notice that has the word "LIEN" all over it and is being served on them in a legal manner... usually by certified mail which they sign for... and screams one of the scariest words in our language..."LAWSUIT"... and causes then to hit the panic button!

Here is Homeowner panics when they get a CA Preliminary Noticea secret... it is the general contractors duty to "educate" their customers about the Preliminary Notice so the customer doesn't "freak" when they get one. A smart general does this education during the contract signing... showing the customer what a Preliminary Notice looks like, telling the customer they WILL be receiving them from subcontractors, material and equipment suppliers on the job, and that service of these is usually done by certified mail which the customer will sign for. THAT'S THE LAW!  The general should tell the customer exactly what the Preliminary Notice is and how it is designed to protect THEM! Then the general should show examples of the lien release forms he will be using and providing from himself and his subs/suppliers to protect the property from any potential mechanic's lien. A little work done here will save a lot of explaining and distrust later on with the customer. Unfortunately, many general contractors prefer to hope no Preliminary Notices are given on their job and might even intimidate subs and suppliers into not sending them because it causes "problems"... even though CA Law requires that all subs and suppliers give the Preliminary Notice! Mr. General Contractor, if you give your client a little education when the contract for the project is signed... there would be little or no problem with irate and unhappy property owners.

Anyone serving a Preliminary Notice (20 Day Notice) can "soften" the blow by including a transmittal letter that explains the "why" of the notice. Here is an example of a transmittal that is included with ACT Contractors Forms on Disk Software and is also included when you purchase a 20 Day Notice Form from us.

This system works if it is followed yet I am amazed at how often I am contacted by banks and property owners who seek Preliminary Notice forms and lien release forms for subs and suppliers on their project! The contracting "business" demands that EVERY contractor have their own legal forms, such as these, to be paid! This is the LAW rather than the exception so, Mr. Contractor or Mr. Supplier, if your check is "held up" because you do not have a lien release to give the project owner, as the LAW REQUIRES, it's not their fault now... is it?


Topics: California Preliminary Notice, Pre-Lien, 20 Day Notice, Material Suppliers

Are You a Subcontractor or a Contractor?

Posted by Bill Baird on Fri, May 9, 2014 @ 17:05 PM

D  USERS WILLIAM PICTURES Website little guyOne of my pet peeves is the misuse of the term “subcontractor.”   Why… you ask? … Does it REALLY matter?

Here’s why… Because many construction/contractor companies who call themselves “subcontractors” believe that this classification gives them a “pass” on the laws and regulations that most states require of “larger contractors”!  I frequently get phone calls from business owners who tell me they do not need to use a particular form or comply with a particular state or federal law because, as they tell it… “I am just a subcontractor”…  When what they really mean is that they are not general contractors but are a specialty contractor such as an electrician, plumber, or painter. You know… they are just one of the “little guys.”  I always explore further so…

 I ask them who their contracts are with and they almost always tell me… “Oh sometimes it is with homeowners… sometimes commercial property owners and sometimes it is with a general contractor or some other contractor on the project.”  By definition, you are a subcontractor ONLY when you sign a contract with another contractor. You are a “sub” when the work you are doing is part of another Contractor’s contract. A “sub” is hired by and paid by another contractor, not by the property owner.  In fact, the property owner might not even know a particular subcontractor is working on their project. You are simply a CONTRACTOR when you sign a contract with a property owner. It does not matter if the property is a commercial building, a home or an industrial plant and it doesn’t matter if you are doing the work of a single trade or are a General Contractor doing the work of multiple trades… you ARE NOT a SUBCONTRACTOR unless your contract is with another CONTRACTOR and you are performing some of the work that CONTRACTOR is obligated to do to fulfill THEIR contract!  

So, you say, what’s the difference? I say poTAYto you say poTATo… what does it matter?  It doesn’t… except when you call yourself a Subcontractor and operate your business as if being a “subcontractor” puts you in some special category that gives you a pass on all the laws every other contractor must follow!  As far as the laws are written… who you contract with is all important and will determine which laws apply.  Do not jeopardize your business by thinking of yourself as just the “little guy”, you know, just a SUBCONTRACTOR who the rules do not apply to! EVERY State has its own unique set of laws that every CONTRACTOR and SUBCONTRACTOR MUST COMPLY WITH… even the “little guy.” And don’t forget the requirements the Federal Government has also placed on businesses doing construction work in each and every state!

The moral of this story… Be aware of the state and federal laws you are required to follow and make sure you do. If your contracts are with homeowners and other property owners, it doesn’t matter what job you are doing… most of the same laws a general contractor and every other contractor must comply with also apply to you! Want to make sure you are operating lawfully… that’s why ACT Contractors Forms is here and has been here for contractors like you for the past 20 YEARS!

Topics: subcontractor, legal, compliance

CALIFORNIA CONTRACTORS FORMS UPDATE FOR JULY 1, 2012

Posted by Bill Baird on Mon, Nov 12, 2012 @ 19:11 PM

New Contractors Forms for CA July 1, 2012

Senate Bill 189 (Sections 8000 to 9566 of the California Civil Code) went into effect July 1, 2012.  This bill mandates many important changes in California construction law. SB 189 reorganizes (puts all the provisions scattered about the CA Civil Code together) and attempts to  "simplify" those provisions in the California Civil Code that deal with construction claims and their legal remedies (such as the mechanics lien and stop notice and related forms). All of our forms have been re-written to comply with these changes and have been since June 1, 2012! Throw out your old forms... do not jeopardize your rights to collect what is owed you by using up those out of compliance forms! 


You can purchase these new forms individually as fillable PDF forms or as part of any version of ACT Contractors Forms on Disk for California Contractors. Call us to order the new forms... or if you have questions! 

 

 

The following forms have been changed and the old versions should no longer be used:

  • PRELIMINARY 20 DAY NOTICE (Now called simply “Preliminary Notice”)

  • CONDITIONAL WAIVER and RELEASE ON PROGRESS PAYMENT

  • CONDITIONAL WAIVER and RELEASE ON FINAL PAYMENT

  • UNCONDITIONAL WAIVER and RELEASE ON PROGRESS PAYMENT

  • UNCONDITIONAL WAIVER and RELEASE ON FINAL PAYMENT

  • MECHANICS LIEN

  • RELEASE OF MECHANICS LIEN

  • PARTIAL RELEASE OF MECHANICS LIEN

  • EXTENSION OF TIME TO ENFORCE MECHANICS LIEN

  • STOP NOTICE (Now called “Stop Payment Notice”)

  • RELEASE OF STOP PAYMENT NOTICE

  • PARTIAL RELEASE OF STOP PAYMENT NOTICE

  • PAYMENT BOND NOTICE

  • NOTICE OF COMPLETION (You now have 15 days to record instead of 10 days)

  • NOTICE OF CESSATION

    California Contractors, be aware of the new term "DIRECT CONTRACTOR" which is part of the changes in the new laws. A "Direct Contractor" is a contractor that has a contract DIRECTLY with the property owner.  The old term used was "Original Contractor'" The purpose of this new term is to clearly diferentiate between  a "Subcontractor" who contracts with another contractor and a "Direct Contractor" that contracts directly with the owner of the property.

Topics: CA Preliminary Notice, Lien Release, Waiver & Release of Lien, Conditional & Unconditional Waiver & Release of Li

NEW CALIFORNIA PRELIMINARY NOTICE AS OF JULY 1, 2012

Posted by Bill Baird on Wed, Jul 11, 2012 @ 21:07 PM

New California Preliminary Notice

Effective July 1, 2012, California has a new Preliminary Notice form titled “California Preliminary Notice” (the old title “Preliminary 20-Day Notice” has been replaced).  As always, we like to stay ahead of the “game” and have had these revised forms available since May of 2012! If you need to update just give us a call.
 

We have the new California Preliminary Notice in both Public and Private Works versions with the all-important transmittal letter included!  Our form is typeset not "typed out" so, like previous versions, it is contained on one page.  If you remember from a previous blog post, I told you that the transmittal letter should be included to explain the California Preliminary Notice to the recipient. This transmittal makes it clear that the California Preliminary Notice is being given as a matter of California law and does not reflect badly on the “Direct Contractor” of the project.  In the past, California law allowed a combined California Preliminary Notice for both public and private jobs… now these should be separate forms as the requirements differ and combining both into one form makes the form very confusing.
 

This revised CA Preliminary Notice includes new wording and the replacement of the term “Original Contractor” or “Prime Contractor” with the new term “Direct Contractor.”  The meaning is the same… a “Direct Contractor” is any contractor that has a contract directly with the property owner. A “Subcontractor”, on the other hand, has a contract with another contractor on the project and does not have a contractual relationship with the property owner!
 

The usage, timeline, and basic procedures associated with the CA Preliminary Notice remains the same. The preferred way to give this notice is still by certified US Mail, WITH return receipt service.  You still give this notice to ALL interested parties like… the property owner, any subcontractor of a higher tier (the subcontractor that you are contracting with on the project making you a sub-subcontractor), to the Direct Contractor, as well as to any construction lender.
 

In the past, subcontractors have been at the mercy of the Direct Contractor on the project to supply them with the names and addresses of the property owner and any construction lender.  The new Section 8208 of the CA Civil Code now requires the direct contractor to supply to “any person seeking to give preliminary notice” both the name and address of the property owner as well as any construction lender. Section 8210 of the CA Civil Code also requires the property owner to supply the names and addresses of any construction lenders, for loans obtained after commencement of the work, to anyone who has given preliminary notice. As we have always recommended, and that has been included is Section 8214 of the CA Civil Code, any server of a preliminary notice can and should file the preliminary notice with the county recorder… especially if large sums of money are involved! When this is done, the County Recorder will make a “good faith” effort to notify them of a Notice of Completion or Notice of Cessation that is filed on the project. Remember, the timeline for filing a mechanics lien is shortened on any project when either a Notice of Completion or Notice of Cessation is filed!
 

Be aware that section 8216 of the CA Civil Code REQUIRES every subcontractor on the project to give the California Preliminary Notice for any work over $400 in value!  Failure to do so is grounds for disciplinary action from the CSLB! 

BE SURE TO READ THE OTHER ARTICLES WE HAVE REGARDING THE CALIFORNIA PRELIMINARY NOTICE AND THE CALIFORNIA MECHANICS LIEN PROCESS. 

Topics: California 20 Day Notice, California Pre Lien, CA Pre Lim, CA Pre-Lien, California Preliminary Notice, CA Preliminary Notice

Home Improvement Contractors Warranty Forms

Posted by Bill Baird on Fri, Mar 25, 2011 @ 17:03 PM

     Most contractors miss the “boat” when they misuse or do not use a written warranty certificate in their business. The commonHow to use a construction warranty in your contracting business. idea is that by ignoring a formal warranty and by not bringing it up with the customer, warranties will never become an issue. Wrong!

     Contractors should know that in many cases, a contractor will be held to an implied warranty even if they do not formalize the terms in a written warranty form or certificate. We also know that most consumers expect some type of warranty with everything they purchase… including a home improvement. So what is the best way for a home improvement contractor to approach the nasty business of “standing behind” their work?

     First of all, you should ALWAYS use a formal written workmanship warranty! It is important that this warranty tell the customer the contractor is only responsible for their work and never for the materials or equipment installed by them. Clearly state that a defect in the materials and equipment is the responsibility of the manufacturer and that claims should be made directly to them.  This will eliminate many complaints, limit your exposure, and everyone understands that you are the “little guy” and can’t be responsible for the failure of the product you install… your responsibility is that you install their product correctly!

     Your warranty should be specific to the particulars of your trade. For example a roofing contractor’s warranty needs to take into account things like physical damage to the roof and leaks caused by the work of others.  A painting contractor’s warranty needs to cover under what circumstances they will be responsible for paint peeling and structural cracking. A general contractor’s warranty needs to cover lack of owner maintenance and normal “wear and tear”.  Every trade is different and the warranty form used must reflect that.

     The use of a written warranty as a selling tool is often overlooked by contractors. Give a copy of your written warranty certificate WITH THE BID… not with the contract or after the job is done. Look at your warranty as a means to help you get more work and not just a way to limit your exposure after the job is completed. Make your warranty something special to show the customer that, if they have you do the work, they can be confident you will stand behind everything you do. Never hide your warranty in the contract “boilerplate” like most contractors… as though your warranty is some dirty little secret you are trying to gloss over.

     Be proud of your warranty and make sure the customer KNOWS you are proud of it! It will help the “bid” you give become a paying customer!   

Topics: roofing warranty form, painting warranty form, home improvement contractor warranty form

CA 20 Day Notice: Don't just send it, Explain it to the Recipient!

Posted by Bill Baird on Tue, Mar 22, 2011 @ 16:03 PM

     Ok.  So you send a California 20 day notice to the property owner and to the prime contractor (as of July 1, 2012 the prime contractor is now called "Direct Contractor" and the Notice is called the CALIFORNIA PRELIMINARY NOTICE) on the project... you know... just like you’re supposed to. Then it hits the fan.  You get a call from an indignant general contractor who asks you why you do not trust his company. "I pay ALL my subs"... he says so... "Why did you send the owner a Pre-Lien?"  Now here comes the kicker... "The owner is freaking out and you just made it hard for me to get a check cut and that makes it harder for me to cut a check to you!"angry over California 20 Day Notice

     Now you ask yourself if you should have sent the Preliminary Notice in the first place. You want to keep doing work for this general so the last thing you need is to make the guy mad… right? He’ll never call me for work again you think. Most of the time the general general contractor angry over preliminary noticepays so why was it worth all this hassle, for probably no reason, which might have cost me jobs from this guy.

     Let’s clear one thing up right now. Whenever the “people” who have control of the purse strings on ANY job with ANY general have not directly signed a contract with you… SEND THEM THE 20 DAY NOTICE! It protects you (every interested party knows you must be paid), it protects the general (the owner knows he needs to pay the general promptly so he can pay you and keep you happy) and it protects the owner (they know they need to make sure the general is paying you.. his sub)! The bad feelings you have created with the owner and the general are not because you have given them the 20 Day Notice.  These bad vibes happened because of the WAY you gave them the Pre-Lim Notice.

HUH???”… You think.  

     The real cause of this headache is because most people, general contractors included, look at the California Preliminary 20 Day Notice and see “LIEN!” It doesn’t matter that our California Preliminary Notice Form says right at the top “THIS IS NOT A LIEN”, the fact that they had to sign for it and that it has that “legal” look to it screams LAWYER!  And don’t you just love to get legal papers like this yourself? … It makes your day doesn’t it? No wonder someone freaks when they get one of these.

So… what did you do wrong and how can you keep this from happening in the future???

     “YOU DIDN’T EDUCATE THEM!”  You asked them to “eat” a “dry” legal form without any “sauce” to make it go down easier. ALWAYS include an explanatory letter (the sauce) when you give a Pre-Lien. If you purchase a 20 Day Notice from us or if you purchase ACT Contractors Forms on Disk for California Contractors (or for any other state that uses a notice like this) we always include a transmittal letter just for this purpose. Our letter, and so should yours, tells the person receiving the pre-lien, among other things, that:

1)  It is not a lien but rather a notice required by law for THEIR protection.

2)  It is to inform the recipient that you are a subcontractor on their project and have a right to lien if you are not paid.

3)  It does NOT mean the general is untrustworthy.

4)  It does not mean that the general has not been paying you or that the general owes you money.

5)  You have confidence in the general.

6)  By law, the recipient of this notice has a duty to see that you are paid from payments made to the general for work you have done.Transmittal Letter with pre-lien makes a smoother job

Use this transmittal letter as an opportunity to butter up the general… not tear them down… that way they will still like you… and call you on their next job!

Topics: California 20 Day Notice, California Pre Lien, CA Pre Lim, CA Pre-Lien, 2012 california construction forms, NEW California Preliminary Notice

Contractor Forms: Mechanics Lien Strategy for Dummies

Posted by Bill Baird on Thu, Mar 10, 2011 @ 21:03 PM

Collecting money owed a contractorMost contractors view filing a mechanic's lien as the last resort.... you know... "GOING LEGAL!" But you know what?  The mechanic’s lien process doesn't have to be the last resort and it most definitely does not have to mean "going legal." Let’s talk mechanic’s lien strategy.

In all my years as a contractor with thousands of home improvement customers there has never been one single time that I filed a CA mechanic’s lien form (believe me I’ve filed plenty) and felt completely satisfied with the outcome. There was always something that cropped up to "rain on my parade."

Sometimes the court would reduce the lien amount in an effort to make both parties "equally unhappy" rather than one party a winner and the other a loser... you know the "share the pain" philosophy. That's a tough one to swallow… you have to settle for less than your righteous indignation tells you is your due.

Sometimes the property already had so many claims that by the time everyone was paid out of a foreclosure sale my claim at the bottom of a very long list was worthless. The money would have run out long before it was my turn to be paid so I could not even get my legal fees back if I sued!
Once, long ago, when I first started out as a contractor, I filed the lien, got a judgment for the FULL amount (over 40K in 1981 dollars), went to foreclose on the new condo development, then found out that during the course of my time in the world of the courts, lawyers, and the law in general, the property had been sold and my judgment was set aside??? How could this be you ask?  I’ll answer that one in my later post in this series about the LIS PENDENS … say those words 10 times and NEVER FORGET THEM!     LIS PENDENS…. LIS PENDENS…

The whole point of all this is that the time to decide just how far you will push the collection process is BEFORE you decide to file that mechanic’s lien. 

Do Your Research! Here are some points to remember:

  1. Have a title search done on the property (that is what a title company does) to see just what is owed, and to whom, against the property. You will also get important information on the property like the legal description which you will need. This is money well spent and this information is public record.

  2. Find out what the property would reasonably sell for if foreclosure happens. Make sure there is money there to pay you! Remember, your claim will be at the bottom of the "list" of existing lien holders and others who have secured loans by trust deeds so make sure after everyone is paid... there is enough left for YOU!

  3. Make sure this is not a “throw away” property that the owner does not have a problem with losing!

Armed with this information your next decision is just how far to go in the collection and mechanic’s lien process. Mechanic’s liens expire or as the attorneys say “become stale” after a certain time period… you can’t place a lien on the property forever and you can’t place the same lien again after it becomes stale!  In California, for example, a mechanic’s lien is “good” for 90 days. You have 90 days to file a lawsuit.  Once a lawsuit is filed the mechanic’s lien will remain in effect until the lawsuit is decided in court. This timeline varies from state to state but in California, you generally have 90 days after a mechanic’s lien is filed to decide if the circumstances are worth the expense of a lawsuit.  So, you ask, in many cases why bother with a mechanic’s lien?

Filing a mechanic’s lien in most states is easy to do and makes sense in many cases regardless of whether you plan on pursuing a lawsuit to foreclose or not.  Why... because mechanic’s liens RARELY go to a lawsuit unless other issues are involved such as a claim of poor workmanship. Would you want to lose a valuable property to foreclosure if there was another way?  Of course not and so it goes in most cases.  When the mechanic’s lien is filed, the property owner is usually eager to resolve the issue without adding legal fees to the money that is already owed.

NEGOTIATED SETTLEMENTS WORK! ... There are usually three reasons your customer is not paying.

  1. You are billing for things they did not agree upon in writing like verbal changes or extras. You blew it here by not getting extras and changes signed for so negotiate you’re a** off here since you will probably not prevail in court and something is better than nothing.

  2. They feel your work is bad and you either deny this without giving them an acceptable reason or they no longer have confidence in your taking care of the problem(s).  You blew it here by not taking care of “business” by allowing little problems to become one big problem so negotiate you’re a** off here also ... sometimes getting a friendly third party contractor here to take care of your real or customer perceived problems can be the answer. The judge is not an expert in construction but he is a consumer so arguments that things are really ok when the customer says they aren’t usually backfire.

  3. They do not have the money to pay you. This is the big one and all other reasons the customer gives you for not paying are many times just excuses for the fact that there is no more money.  You can offer a settlement for less, which I do not recommend, or…. Ask the customer to sign a trust deed for the amount they owe, add the maximum legal interest, and set up a payment schedule they can afford.  Sure, it may take years to get paid but a trust dead does not expire like a mechanics lien and it is secured by the property.  I did a job for a homeowner in 1982.  The fellow lost his job and did not have the money to pay me.  This was a $3,000 job that I took a trust dead on at the advice of my father who was a contractor for 50 years. Just a few payments were made but the trust dead remained in effect. A few years back this fellow died and a few years after that his wife died… guess what… the executor of his estate paid almost 25 years of interest on that $3,000 so the home could be sold by the fellow’s children who inherited it. I got a check for almost $35K. While this is out of the ordinary, the point is that taking a secured trust deed when the money “well” dries up is a great alternative to “going legal” and possibly spending money to get nothing.

The best reason to use a mechanics lien is to provide a reason for your customer to WANT TO NEGOTIATE with you to avoid the alternative… even if you don’t plan on going to court for foreclosure proceedings … in most cases, your customer doesn’t know that! 

Topics: CA mechanics lien form, mechanics lien, collecting construction receivables

Contractor Forms: CA 20 Day Notice Applies to Material Suppliers

Posted by Bill Baird on Tue, Jan 18, 2011 @ 17:01 PM

Question: Does the California (CA) 20 Day Notice requirements apply to material suppliers as they do subcontractors?

Posted January 18 by P. Foreman... "We are a MATERIALS supplier, in the form of custom-built wood windows. We do not do any on-site work. Do the same 20-Day notice regs. apply to material suppliers as they do to subcontractors? Also, as building the windows can take many, many weeks with several deliveries to the job-site, can we file a pre-lein up until the LAST delivery, which may be long after 20 days of actually beginning the process of building all the windows?

 Contractor confused about California Contractor Forms

Yes, the 20-day notice does apply to California (CA) material suppliers in the same way as it does to subcontractors on the job. The purpose of the California Preliminary Notice, aka 20 Day Notice, aka Pre-lim or Pre-Lien, is to inform those parties who have the "purse strings" on the job that somebody is supplying labor and/or materials or equipment on their project and that these same "somebodies" have a right to be paid "out of the property" through the mechanic's lien process if they are not paid as the contract states. Let’s call these "purse string" holders the project "funders" (the property owner, property manager, bank, funding control company- you know, the project funders who cut the checks).

Why is this notice necessary...you ask?  Because subs and suppliers are usually "insulated" from the project "funders" by the General Contractor! The only way the project "funders" can truly know who is actually a subcontractor or material supplier on their project is if they are notified of this when they receive a 20 day notice! The project funders usually have no direct dealings with the subs and suppliers.  The project funders deal directly with the General Contractor who is, in turn, directly dealing with the subs and suppliers!  If you are "cutting" a check to the General Contractor on your job for a progress payment, and you know which subs and suppliers contributed to and should be paid from this progress payment... then you can require lien releases from the subs and suppliers showing they have been paid. The subs and suppliers interests are protected (they get paid what and when they should) and the owner and lenders interests are protected (they will not be surprised by a mechanic's lien from someone they didn't even know about).

You can file a 20-day notice anytime... but you will only have lien rights for work/deliveries of materials (in your case windows) done in the preceding 20 days from the date the Preliminary Notice is served. The value of all work/deliveries of materials made or done prior to 20 days before the Pre-Lien is served cannot be included in any lien that you might file.  So, for example, if you are working for a month (30 days) on a project and decide to file a 20 Day Preliminary Notice, you will only have lien rights for the work/materials supplied after day 10 which is 20 days prior to the date the 20 day notice is served on day 30. Serving the 20 Day Notice sooner rather than later is critical to protecting your rights!   You MUST make it your standard business procedure to serve the 20-day preliminary notice at the start of the job... preferably right after the contract/agreement/order is signed with your customer... make the 20 day notice part of your paperwork when you begin to first process the order/contract/agreement! Don't put this off ... that way ALL your work/expenses will be covered in any lien you might need to file! Slow pay and NO pay is the rule nowadays rather than the exception... make sure your customers understand that the 20 day notice is a part of doing business with you.

This system works if it is followed yet I am amazed at how often I am contacted by banks and property owners who seek 20 day notice forms and lien release forms for subs and suppliers on their project! The contracting "business" demands that EVERY contractor have their own legal forms, such as these, to be paid! This is the LAW rather than the exception so, Mr. Contractor or Mr. Supplier, if your check is "held up" because you do not have a lien release to give the project owner, as the LAW REQUIRES, it's not their fault now... is it?

Topics: California 20 Day Notice, CA Pre Lim, CA Pre-Lien, Material Suppliers, Preliminary Notice

Contractor Form: The California Preliminary Notice or 20 Day Notice

Posted by Bill Baird on Tue, Nov 17, 2009 @ 16:11 PM

One of the most commonly requested forms for California is the California Preliminary Notice, sometimes called the CPN Form, California 20 Day Notice or California Pre-Lien or California Pre-Lim. Five different names for the same form. The CPN or California Preliminary Notice, is often the first step in the California Mechanics Lien process so it is no wonder these forms are popular!

NOTE: CALIFORNIA PRELIMINARY NOTICE LAW CHANGED AND THOSE CHANGES WENT INTO EFFECT JULY 1, 2012. THE FORM USED HAS BEEN CHANGED FOR BOTH PUBLIC AND PRIVATE WORKS.  THIS BLOG POST STILL APPLIES AS NONE OF THE 2012 CHANGES CONFLICT WITH WHAT IS SAID HERE!  

What is the California Preliminary Notice?

The California preliminary notice or 20 Day Notice as some people call it, is a notice intended to inform a property owner, lender and/or project contractor (NOW CALLED THE DIRECT CONTRACTOR AS OF JULY 1, 2012) or other interested party, that someone is working on the project who has a right to file and enforce a Mechanic's Lien or Stop Notice against the property.

Why is the California Preliminary Notice necessary?

Think about it from the property owner's position. The property owner typically has a contract with a general contractor to do all the work on the project. The General then hires speciality contractors to do those parts of the project covered under their speciality. Plumbers do the plumbing, electricians run wires and do the electrical and so on. The property owner may see many different people working but really doesn't know where these workers are from! They might be employees of the General Contractor or someone else. Some property owners may not see the job until it is finished so how could they know who was working on or supplying materials for their project unless you NOTIFY them with a California Preliminary Notice!

It is unreasonable to hold the property owner accountable, to make sure everyone is paid for their contributions to the work, unless the property owner KNOWS who needs to be paid from every check they cut! If the General bills for the completed roof, and the roofing contractor on the job has not notified the property owner of their existence through a CPN, then the property owner can reasonably assume the roof was done by the General's own men and can pay the invoice without further condition. Likewise, if the roofing material supplier did not notify the property owner through a California Preliminary Notice, why would the property owner question if the materials have been paid for?

If the property owner pays the general for the roof, and the general does not pay the roofing contractor who because of this does not pay the roofing material supplier, the owner has acted properly given the information that they have! If both the roofer and the roofing material supplier had each properly notified the owner through the California Preliminary Notice, the property owner would be legally bound to make sure these parties have been paid or face a mechanic's lien from both.... See! How can anyone be expected to act on information they don't have? You can't make sure someone is paid unless you know they NEED TO BE PAID!

Who needs to give the California Preliminary Notice?

If you have a "direct contractual relationship" (for definitions be sure to read Part 1 of this blog series) with the property owner (i.e., the owner or the owners agent signed a contract directly with you) you are then classified as a Prime Contractor or Original Contractor (now defined as the "direct contractor" which is part of the new July 1, 2012 law changes) and you do not need to give a Preliminary Notice to the property owner to protect your lien rights. In this case, the property owner obviously knows of your existence since he has signed a contract with you and has probably been informed of your lien rights in this same contract. IMPORTANT: If there is a construction lender on the project, even a Prime (NOW CALLED A DIRECT CONTRACTOR AS OF JULY 1, 2012) Contractor should give this lender a preliminary notice to inform them of the Prime Contractors existence, contact information, and right to lien. (THIS IS NOW REQUIRED BY THE NEW 2012 LAWS... BUT AREN'T YOU GLAD WE TOLD YOU THIS WAS A GOOD IDEA SINCE WE STARTED SELLING CONTRACTOR FORMS OVER 17 YEARS AGO!)

If you are a contractor, subcontractor or if you are a material supplier and you do not have a direct contractual relationship with the owner but are dealing through an original contractor (NOW CALLED A DIRECT CONTRACTOR AS OF JULY 1, 2012)or another subcontractor, you MUST SERVE the preliminary notice in order to later enforce a mechanic's lien. No California Preliminary Notice, then No Lien, it's as simple as that.

Who do I give the California Preliminary Notice to?

California law requires that you serve the Preliminary Notice to the property owner, the original or prime contractor (DIRECT CONTRACTOR), and the construction lender. If you believe or even suspect that someone has an interest in the property or if you are not sure whether you need to give a California Preliminary Notice, be safe and give this Notice. It is cheap insurance against a property owner later saying they did not have notice of your existence and of your lien rights and therefore, any mechanics lien you might place is not enforceable against them.

What is the 20 Days all about?

To be covered for ALL your work, you must serve the Preliminary Notice within 20 days from first furnishing labor or materials. If you are late serving this notice, then your lien rights are limited and will not cover labor or materials furnished anytime prior to the 20 days before service of the notice. Huh???

Let me explain with a real life situation.

Joe is the painting contractor on a project consisting of building a new home. Joe was hired by and is under contract with the General Contractor on the job. This means Joe does not have a direct contractual relationship with the property owner. Joe is a subcontractor on this project. The General on the job wants the exterior "buttoned up" and has Joe paint the exterior. The Job starts Monday, September 1 and the exterior is finished by Thursday September 4. As per his contract with the General, Joe submits an invoice for the exterior painting at the end of the week on September 5. Joe waits for his check and after two weeks, gets worried and decides to protect his lien rights by giving a California Preliminary Notice to the Property Owner, to the General, and to the lender. Joe also tells his paint supplier to file a CPN for the materials. The CPN from Joe and his paint supplier are given to the interested parties on September 22, 21 days AFTER Joe started work on the project. Had Joe given the CPN a day earlier, within 20 days, ALL the work and ALL the materials supplied would be lienable. Since Joe and his supplier gave notice 21 DAYS after starting, only that work and those materials used 20 Days prior are lienable. That means, as far as the California mechanics lien process is concerned, Joe worked the first day for nothing and the materials used were free. Keep in mind that this is a simple illustration following the exact letter of CA mechanics lien laws and that there might be other considerations that could change the situation....but don't count on it...

GET IN THE HABIT OF SENDING A CALIFORNIA PRELIMINARY NOTICE JUST AS SOON AS YOU HAVE A SIGNED CONTRACT! SEND THE DARN THING EVEN BEFORE THE WORK STARTS! REGARDLESS, BE SURE TO SERVE THE CPN AS SOON AS YOU CAN, EVEN IF YOU HAVE ALREADY STARTED WORK! All future work and all work done 20 days prior to the date you give notice with a CPN can be included in a mechanic's lien.

How do I "Serve" the California Preliminary Notice?

The CA Preliminary Notice must be served by registered or certified mail or personal service. You must be able to show proof that the CA Preliminary Notice was served by a proof of delivery in the case of service by mail or by an affidavit of the person making the service showing the time, place and manner of service. If you file a copy of the CA Preliminary Notice with the County Recorder, they will make a "good faith" effort to notify you when and/or if a Notice of Completion or Notice of Cessation is recorded. This is an important triggering event in the timeline of procedures for getting paid through a mechanic's lien so be sure to take the time to file the California Preliminary Notice with the county recorder!

In the next installment in this series about the California Mechanic's Lien Process the topic of how a mechanics lien might best be used as well as the CRITICAL TIMELINE that must be followed if you want to protect your lien rights.

 

Any questions or comments you might like to make regarding the California Preliminary Notice??? Please post these below.

Topics: California Mechanics Lien, CA mechanics lien form, California 20 Day Notice, California Pre Lien, CA Pre Lim, California Preliminary Notice

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