The Alabama preliminary notice scheme provides for two different types of notices, that correspond to two different type of mechanics liens available. One of which is required, and the other grants additional protection to material suppliers who comply with the requirements. This article will give you all the information you need to know to ensure you get paid in full.
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Alabama’s two types of mechanics liens
Alabama offers mechanics lien rights to almost all participants on a private construction project. However, there are limitations to these rights. Alabama law provides for two types of mechanics liens; one being an “unpaid balance lien” and the other being a “full price lien.” Depending on the role of the claimant and if and when they sent a preliminary notice will decide which one the claimant will be able to secure. The distinction between the two is usually reserved to categorize how individual states handle mechanics lien rights.
Alabama is one of the few states that allow for both of them. The difference between unpaid balance and full price liens is pretty straightforward. A full price lien is exactly as it sounds. This provide lien rights for the full amount claimed as being unpaid. On the other hand, an unpaid balance lien is limited to the amount of funds that the owner has yet to pay the claimant’s hiring party. Alabama is traditionally labeled as an unpaid balance lien state. But the law does provide a full price lien for two specific parties.
For a full breakdown of the differences:
Who is entitled to an Alabama full-price lien?
The first is fairly obvious, and that’s general contractors. Think about it, it’s impossible to be any other way. An “unpaid balance” lien is limited to the money still owed to the prime contractor, so it’ll always be a full price lien. The other party entitled to a full price lien is a material supplier, but only in narrow circumstances. The supplier must either (a) have a direct, express contract with the property owner, or (b) have given a written notice to the owner before supplying any materials. This type of notice is aptly named a “Notice to Owner Prior to Performance.”
Who is entitled to an Alabama unpaid balance lien?
An unpaid balance lien is available to almost all other project participants who send a Notice of Unpaid Lien before filing their statement of lien. These include those who (a) don’t have a direct contract with the property owner, or (b) material suppliers who failed to provide a written preliminary notice. Keep in mind, that timing is key with these types of liens. The longer you wait, the less money will be left in the pot.
Alabama preliminary notice requirements
So in Alabama, neither of these liens are available unless some sort of written notice is provided to the property owner. Who needs to send them and when they need to be sent by depends on the claimant and type of lien. So let’s breakdown each type of notice and their requirements. That way you can ensure that you get paid all you’ve earned on your next Alabama construction project.
Notice of Unpaid Lien Balance requirements
This type of notice is akin to a notice of intent to lien. While this is an optional step in many states, in Alabama this is required. Anyone who didn’t contract directly with the property owner, must send this notice before they file their actual lien claim. So if you’ve gone unpaid on private project in Alabama, and are considering filing a lien to get paid, you won’t be able to validly file a claim until this notice is sent.
Timing is everything with a Notice of Unpaid Balance
There is no hard deadline or timeframe in which this notice needs to be served, but timing is nevertheless important. Since Alabama is an unpaid balance state, the sooner the better. The amount that is recoverable by this type of Alabama mechanics lien is based on when this notice is sent. If the property owner has disbursed most or all of the project funds, then a mechanics lien is useless. So best practice? Send this notice as early as possible, by either personal service, or certified mail with return receipt requested.
What needs to be on a Notice of Unpaid Balance?
The statute governing the Notice of Unpaid Balance doesn’t set any strict requirements for the actual form of the notice. But it does state the information that should be included. Be sure to provide the your information, the property owner’s information, a description of the property, the hiring party’s information, the amount owed, and a description of the labor or materials provided. Along with this there should also be a brief statement declaring that if payment isn’t made, a mechanics lien will be filed against the property.
This is a simple notice, but it should be filled out carefully. Although it’s rare, any errors identifying the owner, property, or the amount claimed could be grounds for the notice to be challenged. Be sure it’s as accurate as possible.
What happens when a Notice of Unpaid Balance is sent?
Once this notice is sent, the owner will typically be required to withhold that amount of funds from the claimant’s from the contract funds. This is to ensure that there is enough money withheld to pay the claimant in case the lien is foreclosed. Hence, the “unpaid balance” part of Alabama mechanics liens.
One last thing worth noting. The applicable statute provides that the notice should be sent to the owner or the owner’s agent. Yet, that’s not all. Again, the purpose of this notice is to let the owner “take measures” (withhold that amount) to ensure the claim gets paid. But what about construction lenders?
Most projects are financed by construction loans. The Alabama courts addressed this issue as well. Although the statute doesn’t mention them, a notice can, and potentially should, also be sent to the lender, if there is one on the project. Thereby, allowing them to take precautionary measures as well to ensure that the appropriate amounts are withheld from the contract funds.
Notice to Owner Prior to Performance requirements
A Notice to Owner Prior to Performance is what one would consider the more “traditional” preliminary notice. But as we mentioned, in Alabama, this type of notice is only available to material suppliers who didn’t contract with the property owner. If this sounds like you, don’t forget this step. This can be served either through personal service, or certified mail, with return receipt requested. Material suppliers are afforded a special privilege over other project participants, and it should be taken advantage of.
What needs to be on the Notice to Owner?
Again, there is no specific form requirements for this type of notice, but the statute provides that “The notice may be given in the following form, which shall be sufficient:
“To [owner or proprietor],
“Take notice, that the undersigned is about to furnish [contractor/subcontractor], certain material for the construction, or for the repairing, altering, or beautifying of a building or buildings, or improvement or improvements, on the following described property:_____________ and there will become due to the underside on account thereof the price of the material, for the payment of which the undersigned will claim a lien.”
Again, accuracy is key! Particularly since these types of claimants didn’t contract directly with the owner, and some of this information may prove difficult to get 100% right.
So how long before furnishing materials?
The law is unclear on the timing, but, the notice must be given soon enough to provide the owner with a reasonable opportunity to object to the materials before they are incorporated into the project. However, the keyword here is before furnishing materials to the project. Alabama courts have gone so far as to declare that even if a small portion of the materials have been delivered before sending this notice, the supplier will lose their rights to a full price lien. But that’s not entirely true.
If you find yourself in this position, what should you do? Go ahead and send a Notice of Unpaid balance ASAP! There’s nothing stopping suppliers from sending this notice immediately after supplying materials. If you get it in early enough, the unpaid balance may still be the entire contract price.
Risk of nonpayment is inherent on almost every construction project. Taking proactive steps to ensure you are afforded the full protection of mechanics liens is a must. An Alabama preliminary notice is the best way for material suppliers to secure their full mechanics lien rights.
As for all other participants, the sooner a Notice of Unpaid Lien Balance is sent, the more amount of protection is afforded to them. A good understanding of the Alabama preliminary notice requirements can help subcontractors and suppliers sleep easy knowing they can recover the money they’ve earned.