Mechanics Lien Policy is Important for Credit Policy
I’ve recently mentioned that, in my opinion, a consistent and consistently utilized lien policy is a crucial part of a proper credit policy for companies in the construction industry. It’s important not only because it offers emotional security by legally securing the debt, but also because it may allow the overall credit policy to be less restrictive. When constructing a lien policy, it should be written down, it should be comprehensive, and it should be consistently used. These are all practical and important considerations, but the real meat of the policy is the content. That is, what does the lien policy actually entail? It’s all well and good to say a policy will be consistently followed, and that it will be written down, but if there is nothing to write, or nothing to follow, it’s useless.
Important Content of a Mechanics Lien Policy
In my opinion, the most important part of a lien policy should be to preserve and protect potential lien rights on every project. This means, basically, that an overarching notice policy is the most important part of a good lien policy. In order for a lien to be effective, and therefore a lien policy to be effective, the potential lien claimant must comply with any and all notice requirements. The most important part of a lien policy should be to preserve and protect potential lien rights on every project. The ability to file a mechanic’s lien in order to secure the debt owed does not start with the lien filing itself. Unfortunately, since notice requirements vary from state to state and by project type, and role of the lien claimant in the project, compliance can be complex.
Despite the complexities, however, it is imperative that complying with notice requirements is an integral part of a company’s mechanic’s lien policy. As this blog has mentioned many times in the past, failure to send a notice when it is required, and to whom it is required to be sent can extinguish any potential lien right for that project. This is a serious consequence. The ability to place a lien on a property on which you furnished labor and/or materials is dependent upon following the applicable notice rules. That mean a company’s ability to follow its own mechanics lien, policy is completely dependent on first making sure that notice requirements have been complied with on every project. This is why I say that the notice policy is the most important part of the mechanics lien policy.
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Structuring the Notice Portion of a Mechanics Lien Policy
Even if you’re not on board with my premise that the notice portion of a mechanics lien policy is the most important part, although really why wouldn’t you be, notice compliance must be at least some part of the lien policy. The question then becomes, “how does my company manage the various notice rules and requirements?” In order to answer this question, the first decision must be whether the process will be handled in-house, or whether it will be outsourced. If you decide to stay in-house somebody (or somebodies) will need to keep abreast of the laws in each state in which you do business, and formulate a structure from providing the required notices, to the required parties, in the required manner on every project. If you choose to outsource the notice service an outside company can take care of this structure and research for you. However, getting an attorney, or multiple attorneys in several states is likely 1) cost prohibitive, and 2) not practical (if you could even find somebody to do it). Fortunately, there are options like levelset, where the notice process can be outsourced using a “self-help” approach.
