The term “mechanics lien” occupies a strange place in the construction industry. What I mean is, everyone has heard of a mechanics lien, and almost everyone knows that a lien has at least something to do with getting paid. But once you probe a little deeper past that basic understanding, people’s knowledge of mechanics liens starts to fall off very quickly.
And why shouldn’t it fall off? After all, most of the folks hard at work in the construction industry are probably not lawyers as well (thank heavens). People in construction are great at building things and delivering value to their clients. Parsing the legal jargon used on notices, waivers, liens, and bonds is not supposed to be part of what they do best!
That’s why it’s always been a part of our mission to educate the entire construction industry with helpful information and other resources. As part of that mission, we wanted to briefly show you the difference between two documents that are a part of the construction payment process: the Stop Notice and the Mechanics Lien. Please read on to learn the top 4 differences between a stop notice and a mechanics lien.
What Is a Stop Notice?
But first, let’s start with the definition of a stop notice:
A stop notice is a document given for the purpose of stopping, intercepting or freezing funds that have not yet been paid on a construction project in an attempt to ensure payment.
And now for the 4 reasons:
1) Stop Notice Is Not Available In Most States
The stop notice concept may be a perfect fit for your collection goals, but it just may not be available. In fact, in the vast majority of states, there isn’t a stop notice law. Any stop notices sent in these states will have absolutely zero effect.
You should be cautious (and skeptical), therefore, of any individual or service offering to send a stop notice for you on any construction project. Sending these stop notice documents in states without stop notice statutes is a waste of time and money, and leaves you vulnerable to losing your actual lien rights.
Stop Notice documents are most popular (and legal) in Arizona, Alaska, California, and Washington. They do exist in a very few other states but are more obscure instruments even there.
2) Stop Notice Only Effective Against Unpaid Funds
Typically, when you file a mechanics lien, your claim for payment is secured by the property on the project where you performed the work. It doesn’t matter whether the owner paid the general contractor, or if the GC paid the sub. If you file your mechanics lien on time, the GC and/or the property owner may be required to pay for your services twice.
This absolutely does not happen with a stop notice. If you can file a stop notice, and do, it’s typically only effective against “unpaid money” on the project.
The goal is to get the stop notice sent as soon as possible so that you can “trap” funds still in the owner’s control. If the owner already made payment, though, there are no funds to trap, and the stop notice documents is useless.
If you filed a mechanics lien, however, the fact that the owner made payment wouldn’t matter. You’d still have your right to collect from the owner, and the owner would be stuck fighting to get his money back from the other parties on the project that may have been the cause of your non-payment issue.
3) Stop Notice Does Not Touch The Land (Which Can Be Good Or Bad)
To underscore point #2 above, that the stop notice is only effective against unpaid funds, this #3 point explains why the stop notice acts this way: because it doesn’t touch the property at all.
Unlike a mechanics lien which actually attaches to the real property itself and encumbers it, the stop notice document doesn’t usually get filed and recorded in the real property records. Since it does not affect the property, it does not prevent the owner from transferring, refinancing, selling, donating, or anything else they might want to do with the property. The ability to tie up a property in this way is what makes a mechanics lien so powerful.
While the Stop Notice may in legal theory make a property owner accountable for your debt, the stop notice doesn’t give your debt any security. The only good that can come of this is that you may sometimes be able to trap the funds held by an owner without having to ruffle as many feathers on the project. But, if you’re not getting paid, ruffling feathers should be your last concern.
4) Sent, Not Filed
Finally, as alluded to in point #3, a stop notice is typically sent, and not filed anywhere. The stop notice document is not filed in any property records or clerk office, and is only sent to the parties who you are seeking to notify.
Be careful about how you send the stop notice document, as the states with stop notice laws have very specific procedures for sending the notice. And, since it’s not filed, it’s critical to keep good records of how you sent the notice and when it was received. If you go to suit on the debt, you’ll need to prove in court the notice was received, and won’t have the benefit of showing any recording date.
Also, unfortunately, since the document isn’t recorded, many property owners or prime contractors will receive the notification and not treat it seriously. The document lacks any formality and looks like regular correspondence, which cannot only be purposefully ignored, but can be accidentally overlooked.
While this article is supposed to be about the differences between stop notices and mechanics liens, what is really shows is the top 4 reasons why a mechanics lien is far superior to a stop notice as a powerful, legal tool that can help to guarantee payment so that a construction company is able to get paid the money they’ve earned on a project.