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As a contractor, building material supplier, professional architect, designer or construction labor provider you count on getting paid quickly for your hard work, so it may be stressful (and very frustrating) when it doesn’t. Customers may refuse to send money for a building project until contractors threaten legal action, whether because of a shortage of funds, displeasure with the job, or another reason.
Fortunately, contractors have preventive legal measures at their disposal to guarantee that they are paid for their job; the two we’re concentrating on today are the Preliminary Notice to Owner and the Notice of Intent to Lien (NOI) or Lien Warning Notice.
There is a clear distinction between “sending notices of intent to lien” and “sending preliminary notices to owners,” even though the terms are frequently incorrectly used interchangeably plus to make even more confusing the necessary legal paperwork for both has various title names based on the State.
A Preliminary Notice to Owner or Notice to Owner is a standard legal form informing the property owner who the parties are involved in his/her project, with the proper language required under each State of the project work; an NOI is a more serious warning document indicating an intent to file a lien. The differences between a preliminary notice and an NOI are found in the ramifications of each document.
To safeguard your legal right to payment for the services you provided, if you’re a contractor who likes to get paid for your job, you must understand the distinction between a Notice of Intent to Lien and a Preliminary Notice. And in this post, we’ll help you in doing just that.
What Is a Preliminary Notice to Owner in Construction?
The first step in establishing lien rights on a construction project is sending Construction Preliminary Notices to Owner. Missing the deadline or failing to give the required Preliminary Notice typically results in the loss of Lien Rights and the inability to file a Mechanic’s Lien in the case of non-payment.
Even though it may not be mandatory in a particular State, sending a preliminary notice is very beneficial. These notices emphasize your invoice by keeping the property owner, general contractor (GC), and other top-of-chain stakeholders informed about your work. Additionally, it fosters strong working relationships by making the project transparent.
Consider a preliminary warning as a preventative measure rather than a response. Contractors often file preliminary notices at the outset of a project, perhaps even before project work has started, and almost always far before any payment issues surface. It is a low-cost insurance product created specifically for the construction sector.
There are a few things to keep in mind about preliminary notices:
● Every construction company in the country should use a preliminary notice, but in some places, it’s necessary to protect your lien rights.
● Depending on the State a project is in, a preliminary notification may go by various titles like Notice of Furnishing in Michigan, Notice to Owner in Florida, etc.
Who Files It?
The Preliminary Notice is often sent by material suppliers, contractors, and subcontractors. All or any of them may issue a preliminary notification to the responsible party in contractual arrangements, which is often the construction lender, the general contractor, or the property owner.
Second-tier and lower-material suppliers and subcontractors may submit the form for public contracts. However, it is just the general contractor who needs to deliver the document for projects sponsored by a lender.
Which States Require It?
Nearly all states mandate the Preliminary Notice. The contractors’ and subcontractors’ rights to file a mechanical lien and pursue unpaid clients will be essentially worthless in nearly all states if a preliminary notice is not submitted.
In all but Texas and Mississippi, prime or direct contractors are obligated to file a preliminary notice. Only upon demand or delivery of other non-lien-related documents triggers the requirement for the notice in these two states.
What Is a Notice of Intent to Lien?
Now that we have discussed preliminary notice, let’s look at the Notice of Intent.
An official demand letter is what the Intent to Lien letter or Notice of Intent to Lien is. It must be prepared after giving preliminary notice but before submitting a mechanic’s lien claim. Compared to the first document, which is typically given as a precaution, this one carries much more legal weight.
It usually occurs after mailing the preliminary notice and before submitting a lien claim as the second stage in the lien rights procedure.
Although they pack a powerful legal impact, Notice of Intent to Lien documents alert property owners to your intentions. Consequently, they often provide better and faster outcomes, with contractors receiving payments an average of twenty days sooner.
NOIs also have the advantage of being pertinent to parties besides the debtor and carrying more weight. As a result, more attention is required, and more success is generated. After delivering an NOI to an overdue customer, most of the time, payments are made within twenty days.
Who Files It?
The party that wishes to collect money from a customer who hasn’t paid on time files the Notice of Intent to Lien. To make the client aware that they still owe you money, you can serve a Notice of Intent to Lien whether you’re a material supplier, a contractor, or a subcontractor.
Which States Require It?
The following states demand that suppliers, subcontractors, and contractors file a Notice of Intent to Lien:
● Wyoming
● Arkansas
● Wisconsin
● Colorado
● Pennsylvania
● Connecticut
● North Dakota
● Missouri
● Illinois
In Florida and the other states that remain, sending a notice of intent to lien is optional. Even though they are not required to do so, contractors who reside in these states should still strongly consider submitting a notice of intent to lien to safeguard the right to payment.
Preparing Construction Preliminary Notices to Owner and NOI Is a Breeze with the i-Lien Software
Even if your state doesn’t mandate it, the general legal advice is to file both a preliminary notice to the owner and an NOI with a construction notice. It gives the property owner ample notice that you intend to use every legal method to recoup the debt.
You must provide the proper paperwork in the correct format to avoid losing your legal right to make a mechanic’s claim.
The good news is that i-Lien Software Golden Omega makes it a breeze to prepare Construction Preliminary Notices to Owner and Notice of Intent to Lien.
You no longer need to spend hours getting your construction mechanic’s lien forms right. The i-Lien Software automates and streamlines the process of creating construction lien notices & mechanic’s lien documents to save time, safeguard your rights, and help you get paid quickly!
Suppliers of labor and materials hold significant financial sway on construction residential projects and frequently demand an upfront deposit payment. In any other industry, this would not be unusual. However, in the construction industry, payment delays and lengthy billing cycles make it necessary for contractors and subcontractors to wait an average of roughly ninety days. Consequently, contractors frequently start a job with a substantial financial load minus their deposit
Contractors, subcontractors, building material suppliers and labor providers frequently enter a new project in double debt because they are still awaiting the final settlement from the previous project and must utilize, their own funds, aloan or credit to compensate for the supplies, materials, labor and other expenses for the new project. The financial load increases as a contractor take on multiple projects at once.
Fortunately, taking advantage of the Lien Laws in their State and sending a Preliminary Notice on each project is a straightforward approach for construction firms to relieve the strain on their cash flow. Here, we explain what Construction Preliminary Notices to Owner are, why they are used, and how to send them.
Lien rights refer to a contractor’s, subcontractor’s, or supplier’s authority to file a mechanic’s lien against property owners legally. It’s a means of enforcing payment for work performed or rendered services in the event of prolonged delays or reluctance to pay.
In other words, lien rights provide a form of security against financial risks as they provide a legal claim on the property title and revoke the owner’s right to sell it or refinance the property, until they are paid what they are owed for the job performed.
Unpaid parties providinglabor and materials for a private commercial or residential project can also file a mechanic’s lien to protect their interest and eventually receive payment from the property owner by perfecting their claim in court. In layman’s terms, enforcing your lien’s rights is equivalent to placing a wheel clamp on the property on which you’ve just completed work. .
Mechanic’s liens can also enforce a lawsuit that could prompt property owners to pay more than what they owe, depending on the damages caused to unpaid parties during the period, such as project losses, failed loan payments, etc.
However, to establish your lien rights, you must be highly proactive and do your due diligence to ensure you’re well prepared by providing the property owner and all parties involved in the project with a Preliminary Notice to Owner; without one being provided or filed, you cannot establish your Lien Rigts to begin with. Read further…
As with anything involving courts and legal proceedings, you must adhere to certain rules and regulations. In most states, you must provide the owner with a preliminary notice outlining all the parties involved in the job and the total amount owed for the project.
The Mechanic’s Lien will be filed with the county where the property is located if the property owner does not pay the full amount by the deadline, ranging from a few weeks to a whole year following completion, depending on the state.
The Preliminary Notice to Owner must be sent days so many days in advance or within the timeline provided by each State when providing labor or materials. The Preliminary Notice is to be sent to all the parties involved in the job besides the property owner.
Some states require Preliminary Notices to be sent during the project or following completion, such as Arizona (20 days after starting), Arkansas (75 days before completion), and Indiana (60/90 days after completion). Moreover, it’s also smart to send a Preliminary Notice to establish your Lien Rights even if your State doesn’t require one at all or requires one in certain circumstances. States with these conditions include Texas, Hawaii, Nebraska, Idaho, and Pennsylvania.
After sending the notice, you need to preserve your Lien Rights by following strict deadlines and not missing out on tasks or documentation. Otherwise, you could lose your Lien Rights.
The following are some valuable tips you can use to preserve your Lien Rights to ensure you’re paid what you’re owed for work performed or services rendered:
The last thing you want is to have relevant information missing from your Mechanic’s Lien. Remember, judges are instructed to review these documents carefully and identify, invalidate, and even scrutinize any inaccuracies. Hence, you need to ensure the Mechanic’s Lien contains precise information related to the project type, property owner, contractor, licensing information, lender, bond, if applicable, etc.
Preparing multiple contracts is among the best strategies you can use to preserve your Lien Rights. The process involves drafting separate purchase orders and labor contracts with one master contract so you can file multiple Mechanic’s Lien claims.
When filing a Mechanic’s Lien claim, make sure you pay attention to the property’s description and remove any bare land that may not be a part of your project to ensure the courts enforce your contract. This is one of many loopholes owners try to exploit to delay or refuse payment.
To preserve your Lien Rights before beginning work, make sure the owner is aware you’re the contractor working on the project, especially if you don’t have a direct contract. Ideally, you should send Notice to the Owner at least 45 days before procuring labor or materials for the job site.
Most Lien Release forms have through dates that free owners of any rights contractors, suppliers, or other unpaid parties have up over them during the lien period. So, before you sign it, make sure you check the amount on the form and ensure it matches your calculations. The last thing you want is to sign a document without reading the fine print first.
As mentioned earlier, you can’t establish and preserve your lien rights unless you issue a pre-lien notice to all responsible property owners. Moreover, you need to ensure your Preliminary Notice is drafted correctly as per your State’s laws and delivered timely.
Therefore, there’s little margin for error, as even the smallest mistakes could stop you from getting paid what you’re owed.
i-Lien is a game-changing software solution designed to help automate and authenticate the Preliminary Notice drafting process. The solution has been integrated with different State laws and regulations.
Hence, you can save hours of research and avoid any costly errors. i-Lien also enables you to create a wide array of other legally-binding documents, Lien Warning Notices, Waivers and Releases, , Commencement Notices, and more.
So, get in touch with our team and explore what our innovative mechanic’s lien solution has to offer.
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