This article comes from a webinar that was presented by SunRay Construction Solutions and Alex Barthet. Alex is a board-certified construction lawyer who serves clients in Florida. In this article we will discuss how to deal with material price escalation – a real problem that is affecting the construction industry.
The following points will also be discussed:
What a judgment is and is not
A judgment is a court order that gives you various rights as to those debtors and the property they have. Most judgments are money judgments, which say that if you are the judgment creditor the judgment debtor owes you a certain amount of money.
1. A judgment applies only to named debtors
Importantly, you need to know that it only applies to the named debtors. If you have a judgment against a certain person or company, any related companies or related people are not automatically subject to that judgment.
We will talk about ways to get the judgment to apply to them, but on its face, a judgment only applies to those that are named debtors in the judgment.
2. No one is going to get your money for you
People think that once they get a judgment, that they will get paid. But this is a wrong belief. Getting a judgment is Step one, and Step two is turning that judgment into money. It is up to you as the judgment creditor to get a judgment debtor to pay you.
3. Subject to further review of court, you can recover your legal fees and costs
Subject to further review of the court, all the work and money you spend in legal fees and costs after you get a judgment should also be collectible. Meaning that you can submit paperwork to the court and have your judgment increased by the fees and costs you have spent in having to get your judgment paid by the judgment debtor.
4. Judgment lasts for 10+10 years
Finally, know that a judgment lasts for ten years and that it can be renewed for another 10 years. So, a judgment will last, in totally, for 20 years. But after 20 years, it no longer exists. It sounds like a long time, but you need to make sure that if you are intending to pursue a judgment that you do it regularly and soon after you get it.
You then need to stay on top of it over the course of the life of the judgment. Because someone may not have any money now, but they may have it in two to three, or even five years from now. So, if you can keep track of your judgments, you may be able to turn an old one.
What is the difference between a judgment and lien and bond claims?
Now we will talk about the difference between a judgment and what you may understand that you have in the construction industry which are lien and bond claims.
1. What is a lien?
A lien is an encumbrance on real property that allows you to foreclose on that property and get paid when that property is sold. That lien is subject to the rules of priority of liens. So, a lien typically has the priority date of either the day that the Notice of Commencement for the project was recorded or if there is no Notice of Commencement, or if the Notice of Commencement expired, then the priority date of the lien is the date that the lien was recorded.
If you foreclose on that property and you are successful, you have a priority date of your foreclosure sale as of the date of your lien. This is whether it is lien recording date or the Notice of Commencement.
The benefit of having a lien, is that you have priority for the sale, probably sooner than other judgment creditors. But again, it is only subject to the amount of equity that you may find in the property.
So, if you have a lien for $100,000 and a property is subject to a first mortgage with no equity. Then you have a lien, but it is not really worth it because there is no equity in the property.
2. What is a bond claim?
Bond rights are rights you have against a surety which is in effect an insurance company. If you prevail on that bond claim, you will have a money judgment against that insurance company. And it is subject to all the rules of collection that we are going to talk about now, with one significant difference.
That is what should typically be done is to wait for that judgment to be obtained and recorded. Wait for 60 days, and after that time passes, an unsatisfied judgment can be submitted to the insurance commissioner of Florida. The commissioner can revoke the right of that insurance company to sell anymore policies of any sort in the state.
So, that is a big hammer you can hold over a surety. Typically, you won’t spend time and effort once you get a judgment against a surety in collecting. A letter is sent to the insurance commissioner and then you get paid because the money judgment is worth very little compared to the loss of business of not being able to continue to write policies in the state of Florida.
Why Can’t My Lawyer Get Me Paid?
There are many people who consult with other lawyers after obtaining the judgment. Because the lawyer they have gets them a judgment but then does not know what to do after that. And you have to understand that getting a judgement and collecting on a judgment are very different things. Most lawyers know how to get a judgment, but they do not know how to do all of the work in order to collect on it.
It is not something they teach in law school which may be hard to believe. But they just do not know how to do it. It comes down to having experience and being creative and scrappy in the manner in which you go after people who are unwilling to pay a judgment you have obtained against them.
Priority: What is it and how do I get it?
First, we will talk about what priority is, how you get it, and where you fall in the pecking order.
1. First in time, first in right, but only as to recording
The first thing is to understand that the rule for judgment is “first in time, first in right.” This means the parties that are able to recover first from equity that they may find in property, whether that is personal property or real property are those that get a recorded copy of the judgment first.
2. Real Property: Record certified copy in county where property is held by debtor
It is not whether you get the judgment first, it is who records the judgement first. So, if you want to attach to real property (land), you need to take your judgment record a certified copy of it in the county where the property is held by the debtor. So if you have a judgment against ABC Corp and they have property in Brevard county, then wherever you happen to get your judgment, let us say in Miami-Dade, but you identify property in Brevard, you need to take a certified copy of that Miami-Dade judgment and record it in Brevard county.
Once you do that, your priority date for your judgment for that property, is the date you recorded in Brevard county. And your judgment on that property is subject to any other prior judgments, liens, or encumbrances on that property that existed prior to you recording a certified copy.
3. Personal property: Docket with Secretary of State
Personal property is secured by docketing a copy of the judgment with the Secretary of State of Florida. What you do is you take a judgment that you have obtained, you go online to the Secretary of State, you docket your judgment with the Secretary of State and that is the state-wide public database for judgments in the state of Florida.
You obtain priority on any personal property based on how quickly you can dock your judgment no matter where you get it with the Secretary of State.
What Are the Primary Collection Tools?
Now we will talk about the primary collection tools that we use on a regular basis.
1. Bank accounts (garnished)
The first is bank accounts via what is called a garnishment. Garnishments are great because they are inexpensive, quick, and they have the potential to pay off in an easy way.
For example, if you have a $100,000 judgment, you can identify a bank account that the judgment debtor has in their name, you can submit the necessary paperwork called a writ of garnishment through the court to the bank. Any money in that bank account held by the judgment debtor will be set aside by the bank and subject to certain exemptions that may exist for individuals and heads of household (not for companies).
That money will be given to you. So, the hardest part about garnishing an account is finding the account. So, some ways to find an account, or if this is someone who paid you in the past, they have given you checks. You want to get a copy of the canceled check that they gave you, and you want to see what bank they used. That is one bank that you may be able to garnish. There are other ways to find bank accounts. There are some services that suggest they can find bank accounts for you.
We are going to talk about something else called the deposition in aid of execution where you can ask the debtor about their bank accounts. But garnishments are a great way to get paid. That is typically the first attempt at getting paid, which is indemnifying a bank account and garnishing those accounts.
2. Personal property – cars and boats
Personal property typically includes cars and boats. So, if you can identify any vehicles owned by the judgment debtor, again, whether it is a company or an individual, those items of personal property are subject to your judgment. You can go, pick them up, and sell them at any public sales. Any proceeds will be given to you.
a. Check for UCCs
There are also some things you should keep in mind when you are trying to go after someone’s vehicle. First, you need to do a search through the Secretary of State through their UCC database to see if there are any prior security interests or judgments on the party’s personal property.
So, if you have a $100,000 judgment and you have identified that your judgment debtor has a van and you want to get it, the first thing you would do is check if there is a UCC-1 or another judgment that covers that vehicle. Assuming that there is not, the next thing you need to do is determine if there is any equity.
And even if there is no prior UCC or judgment as to that vehicle, you need to understand that picking up a car or a boat is an expensive endeavor. Typically, you need to get what is called an execution. You need to have the sheriff, who does not do it for you, they just get a fee to stand there and make sure that no one goes crazy.
So, you have to pay the sheriff and the moving company. Then it has to go to a bonded warehouse. You need to then have it brought it auction and it has to be sold at public auction. Next, the sale of the vehicle has to be published so that you follow all of the rules associated with selling someone else’s property.
All of that costs money, typically, several thousand dollars. So, if you identify a vehicle that is only worth $3,000, it may not net you very much at the end. All that being said, it is suggested that if this is the primary means or one of the significant means of your judgment debtor’s ability to make money, the act of even showing up may lead them to find money in places. So, they can write you a check, give you a cashier's check or pay you cash.
c. Equipment and inventory
Just like with a car or boat, you need to check to see if there is any prior UCC-1. Typically, that would include a credit line or bank line that would in the UCC-1 say that it would include all inventory equipment vehicles. So, you need to make sure that you spend money and time to pick up something that belongs to somebody else. You do not want to end up doing all the work and not being able to sell.
Again, the equity issue is always one that you have to keep in mind. For example, someone needs to pick up some printing equipment from a judgment debtor. The printing equipment was very big and could not be moved without a forklift. So the person decided it was not worth the cost associated with all of that. He was paid by another way, but the idea of showing up and picking up equipment can be expensive.
One other thing that you can do, is called a deposition in aid of execution. So at least once a year, you can get the judgment debtor to sit for a deposition and you can ask them questions about where they bank, the assets they have, and the debts they have. It is a pretty invasive deposition, but if someone is not paying you, and you find them to be less than forthcoming and honest when it comes to them answering questions.
Use this as a last resort. Try to do your own searches and find assets on your own before you go through the effort, time, and expense of a deposition of a judgment debtor. It is only marginally fruitful because they are not very honest in how they respond to questions.
A Few Secret Tips and Tricks
1. The squeaky wheel gets the grease
The mantra of judgment collection comes down to one thing – the squeaky wheel gets the grease. If you are dealing with the judgment debtor that owes you and several others money, the judgment creditor that gives the judgment debtor the hardest time, shows up and garnishes accounts, goes after their accounts receivable, maybe takes depositions of them and related parties, and really gives them a good time.
You end up much higher on the list for the judgment debtor to resolve the case, and maybe you get on a payment plan just so that you leave them alone.
2. Accounts receivable
Accounts receivable are a great way to get paid by a judgment debtor.
a. Who owes the debtor money?
The first thing you have to ask is who owes the debtor money? Again, you can sit them down for a deposition and ask them to bring their accounts receivable. But again, judgment debtors are not very honest in how they answer those questions. So, part of what you need to do is try to figure out ways to learn independency, who may owe the judgment debtor money.
In construction, if a judgment debtor has lien rights, they may be owed money, and if they are, they may file a lien. That lien then becomes public record. You can do a search in various counties to determine if that judgment debtor has filed a lien on some other piece of property against some person or company that owes them money. If so, then you can sell that lien so that any money related to that lien comes to you instead of the judgment debtor.
c. Notices of Commencement
If your judgment debtor is someone who typically shows up on a Notice of Commencement because they are a general contractor, they would be listed on the Notice of Commencement. That is one way to figure out what jobs they may be working on.
d. Open permits
Anyone who has a license and does work that needs a permit, you can do searches on in the various municipalities and counties to see if there are any open permits in their name. Because they are doing work, you can figure out who the contractor or owner of the property is. You can send whoever would owe your judgment debtor money, a garnishment.
So, let us say that you have a $100,000 garnishment against a plumber and that plumber is still out there doing work. You do a search and find various open permits for work that they are doing. You figure out who they are working for, and maybe it is two or three different general contractors. You can send a garnishment to each of those general contractors and tell them not to pay the plumber but to pay you whatever that plumber may be owed on the job.
3. Preceding supplementary
This is a process which allows you to go after other parties that are not the named judgment debtor. As we discussed above, you can only go after the assets of those parties that are specifically named in the judgement as debtors. But there are ways to extend the reach of a judgment beyond them. So, proceeding supplementary is the term for it. What it allows you to do, is follow the assets as it may apply to individuals and related businesses.
For example, maybe you have a $100,000 judgment against ABC Plumbing company, and you learned that they closed ABC Plumbing and opened up XYZ Plumbing. If so, you may be able to go after XYZ Plumbing if you are able to show that they closed the first company in order to avoid your judgment.
So, maybe they have the same name, a similar name, or maybe the same phone number for the second company. Or maybe they are in the same office, have the same truck, or the same officers and directors. To the extent that you can show a relationship between your debtor and some other entity or person, then you can go after those other related parties whether they are individuals or businesses.