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Notice of Intent vs. Demand Letter

We have a customer in Ohio that is past due. The lien period was used up while waiting on insurance to approve and provide adjustments. We have not been able to contact the customer via phone to get the payment insurance sent them. Even though the lien period is up can the Notice of Intent be used as a Demand Letter? I am concerned about a SOX violation if we do.

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Jul 22, 2019

That's an interesting question. First, I'll mention that the Sarbanes-Oxley Act ("SOX") generally creates accounting and auditing requirements for publicly traded businesses, as well as creating some requirements for privately owned businesses. But, I'm not aware of SOX regulations that affect a business collecting its business debts. Though, admittedly, I'm not an expert on the Sarbanes-Oxley Act. For more information on SOX, here's a great resource: Sarbanes Oxley FAQ.

With that being said, it is natural to wonder whether sending a document like a Notice of Intent to Lien might run afoul of some debt collection laws. After all, there are consumer protections in place which bar deceptive debt collection practices, such as the Fair Debt Collection Practices Act ("FDCPA").

The FDCPA bars some collection practices, like sending certain time-barred legal threats and filing certain improper legal actions. However, the FDCPA applies to debt collectors - that is, third-party collectors who are generally in the business of collecting debts for a third party. A business that is collecting its own commercial debts is not subject to the FDCPA. For more information on that distinction, here are two great resources from Nolo: (1) What Is the Difference Between a Debt Collector and a Creditor?; and (2) Debt Collectors, Collection Agencies & Debt Buyers.

Further, a Notice of Intent to Lien isn't a legal action (and neither is a mechanics lien, for that matter). Rather, a Notice of Intent to Lien is merely a warning or threat that a construction business can make, on its own behalf, in order to collect a debt owed to them. What's more - even if the FDCPA did come into play, note that simply because the right to lien may have expired doesn't mean that some other action to collect on the debt might not be available. And, debt collection generally becomes time-barred when the debt is no longer collectible via legal action. Because the statute of limitations on collecting a debt will very typically extend far beyond the timeframe for filing a mechanics lien, threatening to file a lien shortly after the lien deadline has expired would seemingly not come particularly close to posing a situation where the debt could be considered "time-barred". But again - typically, regulations on debt collections generally apply to third-party debt collectors. So, a construction business sending a Notice of Intent to Lien wouldn't seem to even approach falling under those regulations.

Granted, it's natural for a company to be wary of making a threat they can't follow through with - like a threat to file a mechanics lien after the deadline to do so has passed. So, when a company is concerned about sending a document like a Notice of Intent to Lien, utilizing some other collection practice - like sending invoice reminders or demand letters - might be an attractive option.

I hope this information has been helpful. If you have other questions, or if there is a specific law or regulation you were wondering about in regards to sending a Notice of Intent to Lien, please don't hesitate to post another Expert Center question!

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Sep 7, 2019

It's common to combine demand letters with a "notice of intent to lien." There's no reason why these two things shouldn't be one in the same and treated that way. For contractors, a well-drafted demand letter can be extremely effective, and can refer to/get benefits from: - the lien laws - the prompt payment laws - open account laws - etc. Here is a great article here on Levelset that will guide you through writing and sending an effective demand letter, including a free demand letter sample that also will work as a notice of intent to lien: Contractor Demand Letters.

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