Mechanic's Lien Changes on the Way in North Carolina?

May 29, 2014

A committee within the General Assembly of North Carolina has passed legislation onto the full House regarding potential changes in the state's mechanic's lien law.

A Judiciary subcomittee considered and “reported favorably” on a pair of two-week-old mechanic's lien-related proposals (H.B. 1101 and H.B. 1102) on May 28. They are now scheduled to be heard before the full state House on June 3, with the potential for a vote that day. H.B. 1101 seeks to improve protections provided in the state on construction projects regarding performance bonds. The only substantive change made to the proposal during the most recent hearing was the addition of the following clause: “For the purposes of this subsection, any building or other work or improvement constructed upon land owned by a contracting body shall be deemed to be a public building or other public work or public improvement.” James Hays, Esq., a partner with Gonzalez Saggio & Harlan LLP, believes the bill could be good for creditors and subcontractors.

"It requires bonds for improvements when the state or county enters a long-term lease, such as to a Development Authority," Hays said. "Some projects where the owner is still the government, and therefore no lien rights exist, are now required to be protected by bonds as if the governing body was contracting for the work." As such, Hays believes it could possibly become a more frequent tactic by state governing bodies pursuing new development to go the P3 route. Note: The June issue of Business Credit discusses an exception written into the proposal for public-private partnerships P3s.

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NACM-Supported Construction Bill Advances in House

May 8, 2014

The House Judiciary Committee advanced a bill endorsed by the National Association of Credit Management (NACM) last week. The Security in Bonding Act (H.R. 776), which would require all sureties on federal construction projects to meet the same financial and actuarial requirements as "corporate sureties," will now be considered by the full House of Representatives after the Judiciary Committee reported the bill by a voice vote.

Upon its introduction by Rep. Richard Hanna (R-NY), H.R. 776 was referred to both the Judiciary Committee and the Small Business Committee. While action on the bill was deferred in the latter committee, the former body considered the legislation over the course of April, ultimately approving it for further consideration on April 30.

"Current law allows prospective bidders to use individual sureties to obtain the bonds guaranteeing their performance. The law also permits individual sureties to support their bond with illiquid and risky collateral," said Judiciary Committee Chairman Bob Goodlatte (R-VA) after his committee's markup, referring to current surety policies on federal contracts as presently outlined under the Federal Acquisition Regulation (FAR). "As a result, there have been repeated instances where the federal government and subcontractors turn to individual sureties for a recovery only to find that the collateral simply does not exist. The Security in Bonding Act addresses this problem by requiring individual sureties to provide low-risk collateral to support their bonds."

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Mississippi Lien Law Signed, Now in Force

April 14, 2014

Mississippi Governor Phil Bryant signed State Senate Bill 2622 into law last Friday, extending the lien rights that used to only belong to parties with a direct contract with the owner to subcontractors and materials suppliers operating in Mississippi as well.

Prior to the bill's enactment, Mississippi was the only state remaining in the union that did not have a lien law statute that applied to subcontractors. SB 2622 remedied that, however, and put an end to the state construction industry's woes that followed in the wake of the Mississippi Supreme Court's decision last fall to declare the state's stop notice statute unconstitutional, thereby revoking one of the only payment protections previously available to Mississippi subcontractors and materials suppliers.

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Arkansas—Contract Required for Lien Enforceability

April 11, 2014

A decision out of the United States District Court for the Western District of Arkansas serves as an important reminder to officially bind contracts when dealing with GCs, subcontractors and owners. In Spencer Ondrisek and Seth Calagna v. Bernie Lazar Hoffman aka Tony Alamo (Ondrisek v. Hoffman), Judge Barry Bryant threw out the mechanic's liens of five people almost on the sole basis that they did not provide evidence of a formal contract with the defendant. "Without evidence of a contract, these individuals have no enforceable mechanic's lien...even if there was an 'understanding,' such an indefinite agreement would be unenforceable," his ruling stated.

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Oklahoma Registry Pre-Lien Statute

April 10, 2014

A state bill is expected to drop in Oklahoma this month that could set up a registration system for contractors and suppliers and call for drastic changes to the pre-lien notice statutes in the state, according to Paula Black, credit manager with Dolese Brothers Co., and James Vogt, Esq., managing partner at Reynolds, Ridings, Vogt & McCart PLLC.

Black, a member of NACM MidAmerica, said the coming proposal in its earliest form was an attempt to change lien laws to be more favorable to general contractors (GCs). At present, suppliers have 75 days from last delivery to file a lien, which GCs believe is a long time for them to be exposed. GCs also oppose Oklahoma's rare "double jeopardy" status, where subcontractors or suppliers can put a lien on the owner or the GC if money paid to either doesn't make it downstream, said Black.

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STS Update: Mississippi Lien Bill Heads to Governor

March 25, 2014

A new bill awaiting the signature of Mississippi Governor Phil Bryant will expand lien rights to subcontractors in that state.

After previously passing the Senate and then overcoming some minor hurdles in the House, both halves of the state legislature advanced a final version of Senate Bill 2622 out of conference committee late last week. Once the bill is signed into law, subcontractors working in Mississippi will immediately have access to the lien rights that have previously only applied to general contractors, or any party with a direct contract with the owner of a project.

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Mississippi Lien Law Passes Senate, Moves to House

February 19, 2014

The process of enacting a new lien statute in Mississippi took another important step forward this week as Senate Bill 2622 sailed through the State Senate, passing on a 48-2 floor vote. Three minor amendments were negotiated in advance and included in the legislation as approved, but none of them are expected to affect subcontractors and materials suppliers in a meaningful way.

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Arizona Abandons Registry Legislation, Urges Parties to Debate Over Summer

February 19, 2014

Companies in the construction industry operating in Arizona hoping for legislation that would consolidate the state's filing requirements into one online registry system will have to wait at least until next year for that to happen. A bill to establish just such a registry was sponsored in the state legislature by Representative Karen Fann, but after a meeting of stakeholders last week, the bill was withdrawn due to a number of significant issues with the legislation. Fann encouraged interested parties to continue negotiating over the summer so that a more agreeable bill can move forward in the state's next legislative session.

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Mississippi Lien Law Bill Introduced

January 30, 2014

Mississippi could soon greatly expand its application of lien rights to include subcontractors and materials suppliers by enacting a bill modeled on Georgia's lien statute, according to Chris Ring of NACM's Secured Transaction Services (STS).

Two bills were filed, one in the Mississippi House of Representatives and one in the State Senate, in response to a ruling last year by the U.S. Fifth Circuit Court of Appeals in Mississippi that affirmed a lower court's ruling that found the state's Stop Notice statute unconstitutional. The ruling stripped away a valuable payment protection for subcontractors and suppliers. Previously, "you could file what's referred to either as a stop notice or a public improvement lien, which put a lien on the funds that are owed from the owner to the general contractor," Ring said. "What that did for subs and materials suppliers is it gave them the ability to put pressure on the GC. It wasn't liening property, it was pressuring the GC so that you were getting paid, and then that was stripped away. Now, if you don't have a direct contract with the owner, you don't have anything."

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Arizona

January 27, 2014

Arizona could soon follow in Utah's footsteps by replacing its existing 20-day preliminary notice filing procedures with a central registry system instead. Sources within Arizona's construction community have noted that a rough draft of a bill expected to be introduced in the 2014 legislative session included language that would have Arizona adopt a computerized registry system for providing 20-day notices. Currently, under Arizona state law, as a necessary prerequisite to the validity of any claim of lien, such notice must be provided, in writing, to "the owner or reputed owner, the original contractor or reputed contractor, the construction lender, if any, or reputed construction lender, if any, and the person with whom the claimant has contracted for the purchase of those items."

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