In general, as a project participant on a construction project, you can file a mechanics lien. This process of filing a mechanics lien secures the right to file a claim against the property in the event of non-payment.
If filing a mechanics lien does not spur payment, you have the option to initiate a lawsuit, but this article will discuss a better option than initiating a lawsuit. You can instead send a Notice of Intent to Foreclose which is not only a powerful collection document, it also helps the claimant avoid having to file a lawsuit to enforce the lien.
Mechanics Liens: Not Ideal, But Sometimes Necessary
Nobody likes liens, but if you’re not getting paid on a construction project – money that you’ve already earned – then sometimes, filing a lien is necessary. When it gets to the point that a lien is filed, this significant step is usually enough to get the attention of the interested parties on the project and to prompt payment.
Read more: Understanding the lien foreclosure process
However, if filing the lien does not prompt payment, then the claimant always has the option to initiate a lawsuit to enforce the lien, which is also known as a foreclosure action.
We already know that everyone hates liens, but guess what? Everyone REALLY HATES litigation. Initiating a foreclosure action is not very attractive because it is costly and risky.
But there is an option that may help claimants avoid court. It’s a document, a “warning letter” called a Notice of Intent to Foreclose.
What Is a Notice of Intent to Foreclose?
A Notice of Intent to Foreclosure is a cost-effective way to provide one last warning prior to initiating a lawsuit. It is a voluntary warning letter that clearly states that if payment is not made then the claimant will initiate a lawsuit. And since we already know how much everyone hates lawsuits, sending a Notice of Intent to Foreclose can be very effective at prompting payment (so that a lawsuit can be avoided).
Sending a Notice of Intent to Foreclose is a cost-effective tactic because it adds pressure on property owners due to the threat of pending litigation, on top of the lien filing which is already on their property. This pressure on property owners gives more incentive to the interested parties to satisfy the lien. This also avoids litigation costs for both sides – by avoiding legal costs associated with litigation such as court costs and legal fees.
When to use a Notice of Intent to Foreclose
This warning letter is optional. That being said, if you choose to send a Notice of Intent to Foreclose, the main requirement is that there has to be an existing, filed mechanics lien to foreclose upon. Or in other words, sending an optional Notice of Intent to Foreclose has to come after a mechanics lien has been filed.
Then, there are other deadlines on your mechanics lien so the best practice is to send the Notice of Intent to Foreclose well before the lien’s deadline-to-enforce date.
So, to recap, the window of time to send a Notice of Intent to Foreclose is after a lien has been filed, but well before the deadline to enforce the mechanics lien. And you’ve got to be careful here because these deadlines vary greatly from state-to-state and according to several other factors.