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“Construction Notices 101: Preliminary Notice vs. Notice of Intent to Lien (NOI)“
The Notice of Intent to Lien is a mysterious document. While it is only required in a select few states, claimants all across the United States send this form. Even though a preliminary notice is required in most states, and a mechanics lien can be filed in all states, it’s the Notice of Intent to Lien that is perhaps our most popular filing at Levelset.
What Is a Notice of Intent to Lien?
A notice of intent to lien is a lot like a demand letter. It is a document sent to certain parties on a construction project warning that if payment isn’t made, the claimant intends to file a mechanics lien.
No matter what industry you’re in, it’s always a struggle to deal with customers who don’t pay on time (or even not at all). What are you supposed to do when a customer doesn’t pay? Make a phone call? Shoot off an email or fire off a fax? Send a demand letter?? Good luck with that!
If your customer ignored your invoice, what are the chances that they’re going to pay attention to your “demand letter?” Probably not too great. But here’s a thought: what if there was a demand letter that worked? What if there was a demand letter that actually got you paid?
Well guess what — we’ve got some good news for you. The construction industry is different from other industries. That’s because folks in the construction business have access to a demand letter that actually works — it’s called the Notice of Intent to Lien.
The States Where a Notice of Intent Is Required
A few states require parties to send a notice of intent to lien before they file a mechanics lien or bond claim. These states are:
- North Dakota
It is important to distinguish this brand of notice from the preliminary notice.
The preliminary notice must be sent within a few days of when work begins, sometimes long before any amounts are owed or overdue on the project. The notice of intent to lien, on the other hand, is sent only after work is completed and payment is outstanding. It is delivered to a party immediately before filing a lien, usually 10 or 30 days before the filing.
Notices of Intent to Lien Aren’t Liens – So Don’t Confuse the Two
Even though a notice of intent to lien can be effective to prompt payment (see graphic, right), it’s not the lien itself, which is very important to keep in mind. Sending the notice of intent accomplishes exactly what its title implies, informing interested parties that you intend to file a mechanics lien if the payment issue remains unresolved and the payment you’re waiting on has not been received, and not that you have already gone ahead and filed a mechanics lien.
The notice of intent doesn’t encumber the property or otherwise secure the debt owed to you. It’s important to not send a notice of intent and then kick back with your feet up thinking that the work is done. There are other steps that must be taken, and it is crucial that they be taken on time and correctly.
Should You Send a Notice of Intent to Lien?
The short answer is that notices of intent to lien are frequently successful at producing payment, and may be worth sending. It’s a fraction of the cost you’ll spend on a mechanics lien or bond claim, and in many cases, it’s enough to nudge the parties to pay your claim.
Sending a Notice of Intent is also less dramatic than filing a mechanics lien. Whereas a mechanics lien will interfere with the property record and debts, an NOI is only a letter. It is usually not recorded with any official government office.
That being said, a Notice of Intent will usually get the message across enough to resolve your payment dispute.
If a party is refusing to pay your claim or ignoring your phone calls, sending a notice of intent to lien to that party, the prime contractor and/or the property owner will raise eyebrows. It will get the property owner breathing down your customers neck, and your debt will become a priority.
Sometimes, of course, a notice of intent to lien is not enough. Sometimes, it isn’t the “bringing more parties to the table” factor that is likely to get you paid, but some other effect of the mechanics lien. You’ll be in the best position to know whether the notice of intent to lien might work for you. Chances are, however, that it may.
3 Benefits of Sending a Notice of Intent to Lien
1) Communication May Be Enough to Solve the Problem
Most payment delays and problems are caused simply by miscommunication. Especially on big projects with several tiers of hiring, parties at the top of the chain may not know of your involvement on a project. For example, if you were hired by a subcontractor to provide materials, it is very possible that the general contractor and property owner are unaware of your involvement and how much you are owed. By sending a Notice of Intent to Lien, you are alerting the parties funding a project that you worked on a project and are still waiting to get paid. Increasing transparency can be enough to smooth out cash flow and improve business relationships.
2) Even If You Don’t Have Lien Rights, this Notice May Get You Paid
There are hundreds of reasons why you may not have the right to file a mechanics lien against a construction project.
For example, you may have:
(i) supplied materials that were not incorporated into the project;
(ii) failed to protect your lien rights by neglecting to send a required preliminary notice; or
(iii) missed your lien filing deadline.
Whatever the reason, sending a Notice of Intent to Lien may be a great move for your company. Even if you don’t have lien rights, you can use the notice of intent as a bluff. The recipient likely wants to avoid a mechanics lien filing at all costs since liens are cumbersome and inconvenient, but they may not know that you don’t have lien rights. There is a lot of gray area in the mechanics lien world and it’s hard to say definitively whether you have rights or not because of the layers and layers of rules and exceptions. When you say you intend to file a lien, even if you don’t ultimately have the rights, it’s complicated and expensive to work out whether you do or don’t.
3) NOIs Are Inexpensive and Risk-Free
Sending a Notice of Intent to Lien is a lot less expensive than filing a mechanics lien.
There are a lot of reasons for the price difference, such as:
- Liens must be filed, Notices of Intent do not
- Liens must be researched, Notices of Intent usually do not
- Liens have filing fees, service fees, courier fees and the like, and Notices of Intent do not
In addition to the expense differences, there are risk differences as well. If you file a mechanics lien, it could potentially be challenged which could cost you a good deal in attorney fees and damages, especially if your lien is invalid or there is another problem with it. Notices of Intent to Lien do not expose you to this risk. The notice is just a mailed letter, not a document formally filed with the county recorder.
Beware: Notices of Intent to Lien Deliveries Can Be Dangerous
Unfortunately, I’ve seen many claimants lose their right to file a mechanics lien because of the notice of intent to lien, or rather, a misunderstanding about the notice of intent to lien.
You have to remember two key facts when you’re preparing to send a notice of intent to lien.
First, the notice of intent to lien will not delay or extend your mechanics lien deadline. If your deadline is in five days, you simply don’t have time to file a mechanics lien. If your deadline is twelve days away, you’re really close. You must, of course, send the notice of intent to lien if its required in the project’s state, so you have to squeeze it in. If you’re in a state that doesn’t require that notice, however, don’t take the risk. Or, at least, understand that the lien deadline will not budge.
Second, the notice of intent to lien may cause folks to promise you payment in the future, but a promise of payment is not the same as actually getting paid!
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