Securing lien rights is a great way to ensure your rights to payment on a construction project. However, the process and enforcement can be both frustrating and costly. In the state of Washington, there is another remedy referred to as a stop notice. This requires construction lenders to withhold project funds until your claim for nonpayment is recognized and paid. This article will provide you all the steps you need to take to send a Washington stop notice.
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Washington stop notices
If you’re working on a Washington construction project, and are dealing with a slow payment issue, it’s time to take some proactive steps to ensure your right to payment. Securing mechanics lien rights is a great place to start. But, there’s an additional measure that can be taken that’s available in Washington and only a handful of states, it’s called a stop-notice. A stop notice provides project participants with the ability to freeze project funding by requiring the lender to withhold the amount due to the claimant. These can be used on all public projects, as well as private projects that have a construction lender.
Step 1. Be sure you’ve sent any required preliminary notices
First and foremost, you’ll need to be sure that any applicable preliminary notice requirements have been met. Since the only individuals who have a right to send a stop notice are the same who have lienable rights, this logically makes sense. Failure to send a required preliminary notice will not only result in a loss of mechanics lien rights, but also this right to a stop notice. These can vary depending on the claimant’s role, and the type of project. You can find a full breakdown of Washington’s preliminary notice requirements here.
Step 2: Prepare the stop notice form
Hopefully you’ve complied with any preliminary notice requirements. That means mechanics lien rights have been secured, and so has your right to send a stop payment notice as well. It’s now time to gather all the information necessary for your notice.
A. What information is needed for a Washington stop notice?
There aren’t any specific forms requirements for a Washington stop notice, but it must contain certain information in order to be valid. This includes:
- Construction lender information;
- Property owner information;
- Original contractor information
- Claimant’s information
- Property address
- Description of labor and materials
- Hiring party information
- Amount of payment due
- Payment due date
Be sure that all of this information is as complete and accurate as possible. If the notice gets challenged for any reason down the line, inaccurate information may be grounds to invalidate the notice.
Notice language required on Washington stop notices
In addition to providing all of this information, there are two notices required by statute that must be included as well. The first stating what is expected of the lender:
You are hereby required to withhold from any future draws on existing construction financing which has been made on the subject property (to the extent there remain undisbursed funds) the sum of ___ Dollars ($__).
The second notice informs the lender of the penalties for noncompliance.
IMPORTANT: Failure to comply with the requirements of this notice may subject the lender to a whole or partial compromise of any priority lien interest it may have pursuant to RCW 60.04.226.
Step 3. Sending a Washington stop notice
Once you’ve properly filled out your Washington stop notice, it’s time to send it out. A copy of the notice should be sent to the construction lender, the property owner, and the general contractor. This can be delivered either through registered or certified mail, or it can be served personally as long as there is some evidence of delivery (like a receipt of affidavit or service). If you decide to go the personal service route, you’re best option is to send a process server to ensure you have proof of delivery.
What happens next?
Upon receipt of the notice, the lender on the project is required to withhold the amount claimed in the stop notice from the next payment draw. These payments can’t be released until they receive a court order, or an agreement signed by the claimant, the property owner, and the prime contractor. Keep in mind though, Another option available to the lender is to obtain a payment bond from the owner or the prime contractor to cover the amount in the notice.
Penalties for non-compliance
So what if the lender fails to withhold the amount stated in the notice? If the lender refuses, then this offers additional protection to the potential lien claimant. If nonpayment still remains at the end of the project and a mechanics lien is file, the lien will be granted extra priority.
Typically, Washington mechanics liens are subordinate to any mortgages, deeds of trust, or any other existing encumbrances on the property. However, failing to comply with a stop notice will give the mechanics lien of the person who provided the stop notice priority over any encumbrance that was used to secure the construction lender on the project. This is an incredibly useful remedy.
Challenging the stop notice
If the property owner believes the claim is frivolous or inaccurate they can file a motion with the county court to challenge the stop notice. This would force the claimant to appear in court and defend the stop notice. Failure to appear means automatic declaration of the notice as void. If they do show, and the court agrees with the property owner, the court will either void the stop notice altogether, or reduce the amount claimed. On top of that, the claimant who sent the notice will be on the hook for court costs and reasonable attorney fees.
A word of caution
Sending a stop notice can be highly effective, but this is an aggressive tactic. A mechanics lien provides a security interest in the property itself, while a stop notice affects the amount of funds that are available to the current, ongoing project. Depending on the amount to be withheld, this can cause a ripple effect on the rest of the project. Less money from a draw means that other trades may end up facing slower payments as well. Which may, in turn, result in more stop notices being filed on the project and bringing project cashflow to a halt. However, at the end of the day, you deserve to be paid what you’ve earned.