File and Serve your Mechanic’s Lien and Bond Claim on Time
You have a lien claim right and a bond claim right particularly for private projects but also for some private projects. So the question is, if you are not being paid, are you going to file a lien? Are you going to file a bond claim? Are you going to file both? Are you going to file neither? A lot of this will depend entirely on a different set of things. Liens tend to be faster money, while bonds tend to be more sure money.
A lien can have a problem because if it is a private project, you put a lien on the property itself. The construction mortgage is going to be ahead of you, and possibly some other things. All mechanics liens will have the same priority that you do so nobody is getting in front of you, and you are not getting in front of them no matter when you filed.
b. Bond claims
Bond claims do not pay out so quickly but they are surer and more certain. Particularly on public projects, there is both a payment and performance bond. So you are interested in the payment and performance bond.
c. Filing both a lien and bond claim
Should you file both depends on how much money there is, and whether you are concerned. Sometimes it is worth filing both. What if you always have to file a lien to get paid? You do not, but generally, we would look at it at being if your claim is very small. You can file for amounts as low as $600, but it is not recommended that you file a lien for $600. By the time you get up a little higher into the thousands, and into $10,000, you are in on it.
Serving your Lien
If you are filing a mechanic’s lien for your client, be sure that your malpractice coverage is paid up. Because if you do not do this all the time, you are going to screw it up and this is one of the ways that people always screw it up. If you read the statute, it tells you exactly how to file your lien that is in a higher revised code § 13 1106.
But you never turn the page to get to § 13 1107 that says you also have to send them a copy by certified mail. Actually, it says you have to serve it on them. One of the best ways is certified but there are a bunch of ways to do it. If you do not serve your lien within 30 days, you are out of the running at all, and your valid lien is otherwise void void.
Your lien is filed and served, or bond claim is served. Now what?
Now your lien claim is filed and served and your bond claim is filed and served. What do you do? The first thing you do is wait.
First, wait for a reaction
Now you are not going to wait forever, but there is going to be some reaction. And sometimes the reaction is strong and forceful against you. Sometimes, it is about getting stuff taken care of and what we can do. You should see what the reaction is going to be before you decide how to work with this.
Getting paid without a lawsuit
Now who should negotiate for you?
a. Who should negotiate for you?
When you are filing the mechanic's lien what generally happens is the lawyer for the other side calls you. If you are filing it yourself, the lawyer, the client, the general contractor, or the property owner will be calling you. And now you decide what exactly you should do.
If they call you, the one thing you want to do is listen. Do not start talking, do not start telling them how awful they are and why you filed the lien notice. You filed it because it is business. You want to get paid, you have done all your work, you have supplied all your materials, and you just want to get paid. And the statute says you should do this and can do this.
If you are really good at negotiating, you can do it. It is suggested that an owner of a company or the president of a company not negotiate even if you are the best negotiator in the company. This is because what you say is going to be taken as gospel. If you have somebody else in your company who is really good, there is still a reason you should not let them negotiate, or talk to the other side particularly.
If you have somebody other than you as the homeowner negotiating, they are not the last word so they always get the chance to turn around and say that you have to report to somebody else and you cannot agree to this. If you are a small business and it is a mom-and-pop shop, great.
You have another boss even if you are the property owner – like your spouse who is not on the phone with you. Always push it off to somebody else so you have more leverage because you are negotiating on behalf of the company but you are not the final word.
b. If you are negotiating, assume that everything you say is being recorded
Remember that if you are negotiating, assume particularly that if it is with the other client that the homeowner or the general contractor assume that you are being recorded. A lot of people do that, and in fact, consider doing it yourself. It is not a bad thing, and it works particularly if you are in Ohio. Ohio’s law says that as long as one person to the conversation agrees to the recording, then it is legal.
If you cross state lines, you do not know what the law is in another state. So, you can get yourself in trouble. Because you may be recording something that is illegal if you are in a different state.
They Go on the Offense
The first call from their lawyer
The first call from their lawyer is that the prime contractor owes you nothing. If they say the construction lien is bad or that it is a slander of the title and they are going to sue you, the last thing is to prove you did all the paperwork right.
You need to serve a Notice of Furnishing. The first thing that people usually ask is to see the proof of service of the Notice of Furnishing. This is the first thing they ask because they are trying to knock the mechanic's lien out on a technicality.
The second thing they are going to ask is to prove that you served the lien notice. This is kind of obvious because they clearly have it. But those are the things you need to get right. If you start talking to them, you are making admissions. Every time you say something to someone else, because you are a representative of the company, they can use that later and say that on the telephone call on ‘x’ date – which they recorded – you said this.
So it is either an admission or it is a statement against interest or something like that. When you have that it is going to come back to bite you if you did not do everything perfectly, you can mess it up or your lawyer can mess it up. Because they are not making admissions, they may say that your client did this, and say they were wrong. It is not an admission.
Having Better Leverage
If there is lawyer on the other side you really do not want to be the one who is negotiating for all kinds of reasons. Because what is the job of a lawyer? The first job of a lawyer is to represent their client and get their client to their best position. Is it to get you paid? Is it to do the right thing? No, it is to make sure that their client gets the best deal possible.
The same thing applies to the debt collector. These people are experienced. The second thing with the lawyer is to trap you to ask you leading questions. In law school this is called leading you down the primrose path where you get in a circumstance where you no longer have the ability to say no because you answered enough questions that will prep you into the logical answer they want which will destroy you.
Use your construction lawyer to resolve the issue and get you paid
Use your construction lawyer as much as you possibly can. And try not to put stuff in writing back to people, because what sounds innocuous to you in writing will come back as evidence against you. Even if you said everything perfectly or you did not say anything wrong, they look at it as you know that they will carve stuff out and say that one thing meant something else.
Now you have a question of fact and with this question of fact, now maybe you get to a judge. So, use your construction lawyer to resolve the issue and get you paid. There are good lawyers who do a good job. Don’t pick a personal injury lawyer to be your construction lawyer. Pick your lawyer for what they can do.
You Decide to use a Lawyer
You will see people who just want to get in the game because they have attended a seminar or webinar, and now they think they know everything. So, they put up a website saying what they do and in their grand litany of things, they say they do personal injury, divorces, criminal law, and construction law. You may think construction law is their main focus, but it is probably not. So, be careful whom you select.
Helping Your Lawyer Win Your Case
When you are talking to your lawyer, give your lawyer your documents. If your lawyer gives you a list of everything he needs, be sure that you give him or her all of that.
a. Your lawyer should already have all your paperwork, not just parts that *you* think help your case
Do not just decide what you think is important. If there is something else and your lawyer asks for this litany of items, before you hang up the phone, ask if anything else is required. A good lawyer will ask for a litany of items and say that they need to see those things, but also ask for you to send your whole file.
b. Tell your lawyer everything
Now sending the whole file and telling your lawyer everything is because your lawyer needs to know everything – the good, the bad, and the ugly. If you messed up somewhere it is okay, it happens. But your lawyer needs to know it, because then they can deal with it.
c. The worst surprises are those your lawyer learns about at trial
The worst time that things are a terrible surprise is when you are at trial and your lawyer for the very first time finds out that something. And you think it’s embarrassing and you did not want anyone to know so you never tell them. But of course, people know and if they do not, there are ways they can find out.
So go ahead and tell your lawyer your deepest, darkest secret about this construction project so your lawyer can go ahead and deal with it the right way.
Resolving your Claim
Now we come down to what really happens after you file your mechanic's lien.
a. It is not that you are right, it is that you can prove you are right at a reasonable cost
If someone files a mechanic's lien, does not get paid, and there is a pay-when-paid clause in the contract, they can fight it and say it is not applicable. The claim is something like $200,000 but they get paid in the range of 60 percent of their entire claim. When the construction lien holder is able to get money from the contractor above him, he only gets 40 percent of the entire claim which is well in the millions of dollars.
He could just pay out everyone 40 percent. But the other side is going to sue because they are not paid the full amount. But there is that pay-when-paid clause, he does not get paid, and a whole host of other things.
So, they are made an offer and it is going to cost money to try the case. They are offered $15,000 on their $57,000 claim. They then come back negotiating. Very reasonably, they say in a very threatening tone that it will be settled for $52,736.18. They mention the cents because that is a real number. Saying $52,000 is a negotiating number, so they try to express that that is the final number.
If the other side does not pay that amount, a suit is filed and prompt pay damages are going to be claimed. In Ohio, this includes potentially 18 percent interest and legal fees. So, they have this big threat.
The winner of the case gets a legal fee, and if they file their lawsuit, the lien holder is going to be claiming legal fees against them too.
So, you have to believe that you are absolutely right. The question now is whether you can prove you are right to a judge or to a jury. If you prove you are right, or that you are more right than wrong, then you can win. But can you do it at a reasonable cost?
What is going is going to cost to try this $57,000 case? It depends on whether it is litigation or arbitration and what you have done ahead of that time frame. But there is going to be a cost in legal fees as well as risk. You can go through and you can say in front of a judge. Let us say it only costs $15,000 to try this case. That is not crazy.
If you are in a jury trial, it can be a whole lot more. If you are in arbitration, it might not be all that bad. But you have the risk on the trier of fact being the judge, jury, or arbitrator deciding that you are right. If you are right, you get all of your money, or rather you keep all of your money vs. some split the baby type of thing. Then there is the potential of having to pay the other side’s legal fees.
So, you need to think at a reasonable cost if you are going to get legal fees back. So, a good negotiating starting point would be to think what the other side is going to charge in legal fees to do this now. Maybe he thinks he is only going to charge $5,000.
What is the reasonable cost? He should have come back with at least a nuisance value. The nuisance value is the cost of litigation. Is he wrong? Absolutely. Does he think he is right? Absolutely; or at least outwardly.
Your lawyer should be talking to you about what a reasonable cost is, and if you try this case you need to ask these questions: What is the risk? What is the cost? Where should it be settled so that you do not break the bank and end up worse off than you were?
What Kind of Dispute Resolution?
Now, what kind of dispute resolution are you going to be doing?
You are going to start off with negotiation almost all the time. Even if a suit is filed, you are going to be in negotiation because the vast majority of cases settle before trial. Sometimes they are literally on the courthouse steps. Sometimes they settle right up front.
Mediation comes in the middle. Mediation is a controlled negotiation with a third-party neutral who tried to speak to both sides like a parent and get them to make a rational decision.
Now look at your contract if you are going to be in the lawsuit type of arena. You have to figure out if it is litigation, a lawsuit, or its arbitration. It will say in your contract if it is going to be arbitration. There are a lot of times when it will say at the sole discretion of the general contractor that they will use arbitration. That is the worst possible clause ever because whatever you choose, they will choose the other and force you into it which means you spend double the money just to get in.
If you get into arbitration, there is a big filing fee to begin with, that you will not get back. So do not sign a contract that says that but always read your contract. Your lawyer also will read your contract. So you will do the right thing there.
If it is silent, it is litigation.
Steps to Pursuing your Lien and Bond Claim
If you are in a lawsuit, really negotiate a good business judgment settlement.
a. Use your construction lawyer to negotiate a good business judgment settlement
Good business judgment settlement is what was discussed above. That is exactly what is going to go on not getting too far afield of the costs.
b. If there is no settlement, file ‘suit’
If you cannot get a settlement up front you are trying to collect this money then you are going to file suit. The word suit has been put in quotes because maybe it is arbitration.
c. Be prepared for a counterclaim
Be prepared for a counterclaim always. The best defense is a good offense, so they come back swinging with everything in the book trying to knock your claim out. Always try to understand that that is going to be there. In the construction industry, it never fails. It is always there.
Using a Collection Service
Now when you file a lien you are going to get calls. They are going to be collection services. There are some that sound like lawyers.
There is one Texas collection firm that has three names and it sounds exactly like a law firm. They do not disabuse you of the assumption you have that they are lawyers. They talk like it, they walk like it, and if you look at their website, you have to read between the lines to figure out they are not lawyers and they lie to you.
They will say things like they have a number of clients that they are representing and they are going to file a class action suit against this property owner or contractor or whomever for nonpayment and they just wanted to get in on it.
Well if it truly is a class action, why do you care? You are going to ride along and you are part of the class. And here is the big secret: there are no class actions in construction claims like this for collection of money. Even for unpaid contractors there is no class action and what they will do is they will get you signed up.
Once they get you signed up, it does not matter how you collect. You cannot void the contract. You cannot get out of it. If you sign up with them, and the next day the client or the general contractor pays you in full, you still owe them their collection fee even if they have done nothing.
They are not lawyers and even if they are, they are not your lawyer. They are acting as a collection company. If they are not lawyers, they cannot make legal arguments, they cannot go to court, so they will hire their lawyer to represent you and you will pay for that lawyer.
You are better off going directly to your own lawyer. Usually, lawyers do not charge a contingency fee. Contingencies are hard because of a counter claim and at the counter claim point, all bets are off. So hiring your own lawyer and paying an hourly rate is almost assuredly going to cost you less than working through a collection firm. So get your lawyer, and get it over with.