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pressure course Chris I mean you want tell me when you're ready for me to shoot forward and I will but that's our focus today all right well and I would like to introduce everyone to Aaron Evans check here I've got to know Aaron here over the last year we've become more familiar with on Lozier and Aaron's been dubbed a zealous and creative attorney by opposing counsel and he specializes in construction and real estate law he has first-year experience in construction and contract disputes as well as asserting lien and bond claims degree in civil engineering which makes him a good guy in my book and experience working in-house with a construction company so I'm going to turn it over to Aaron for today's presentation great first I want to thank Chris you for letting us present today and the OCA you know Chris has been instrumental in helping OCA members Chris and I are working on a matter right now together we're trying to get things resolved and whenever I call Chris Neely picks up the phone I appreciate that I want to thank Aaron Hawk who known as you can seen is working in the background and help to get everything together for today I know a lot of you who are on the call because I got a list in advance I want to say hello to all of you many clients and friends on here so hello on this rainy Friday and let's let's have some fun talking about Lena bond claims first we have this great Construction Law Blog construction law insights calm where my postings and postings of members of the hallowed your team are put up regularly so it's a great place to check take your time to go through that for those of you who don't know who I am there's a picture of me a little bit younger I focus on construction claims real estate zoning issue general business been doing it for about 20 years and I'm at home I'm a dad with my wife and four kids I haven't been the office and all those days and I know a lot of you are working from homes as well so the focus today is going to be on how liens work in bond claims work what we need to do to perfect those what we need to do plan know a lot of you are sitting position of the general contractor often on projects to defend against those understanding the difference between public and private and I know if your OCA members and again knowing who many of you are that you focus more on public work than private work but we're going to talk about them both so you understand how the law works some of the bond and surety claims and enforcing those things or defending those when you have a claim made against you so that's we're going to talk about today one of the first questions is why put a lien on or why a lower tier might put lien on well a lien secures payment meaning let's talk about a private project to start with imagine there's a private project there's a grocery store there's even built around the corner from me the number of our clients were on there at the end of the day that grocery store chain went out of business they went and put a lien on what did that give them rights to it meant that when the lender who had the first and best leaning that mortgage went and filed suit that lender had to name all of them in the litigation it gives us a seat at the table to help negotiate even if there wasn't equity and it enabled us to say look mr. lender you're selling this you're taking a hit or taking a hit we want X cents on the dollar you can have a greater number it gave us a seat at the table to negotiate had our clients and we said well there's no point in doing a lien there's no equity in this the the lenders getting it at all it would have gone and they would have had no voice or no ability to negotiate another thing to do on liens and we see this on public projects especially where there's a disputed lower to your claim and sometimes that lower tier will file a lien for the full value of the claims so for example if you're building a building and the roofing contractor subcontractor says there's a problem here's what it is it's a $500,000 claim and you the general contractor pass it up to the owner ODOT perhaps on the project you're building a maintenance building though that says nope go back and tell the lower to your note tell the lower tier make your you know appeal and strict accordance with project contract documents and are no doubt one will go through the step process but that that Roofing Contractor finishes the work while that proximately they might go put a lien on for the full value of their claim so that suddenly slows payment to the general contractor so and if you're the roofing contractor I tell you it's a great idea if you're the general contractor it's not such great idea because it slows money too in all of these cases the lien law is dictated by statute and you've got to strictly follow it if you're late you'll lose we have I got a question from another lawyer yesterday they asked me Aaron during the shutdown I have lien dates been extended out so if you're late it's ok and I said well I wouldn't count on that I'd make sure you get your lien done timely and if you have a client calls you who's late then you can make that argument so at the front end of any project whether it whether public or private you want to always be able to know your your tree your contract tree and if I was with all of you live I know I've done this before you with some of you live we would draw out the tree and this is the first time I've done that so on any of these you always want to know who is where and where the money is coming from I'm drawing the tree hopefully you can see it on your screen right now as I draw it Aaron unfortunately we don't see it oh there you go yeah there we go great great so you can see this sort of contract tree is going to be so important on any project to understand I know a lot of you are the general contractor so it's an easy tree to draw but on a private project oftentimes you perceive you are the general contractor because you signed a contract with someone you believe is the owner but that's not always the case if you were doing private work it's a good idea to check and see who the owner is go on to the County Recorder site and see am i indeed signing a contract with the owner because if you are not that might trigger your requirements have to file a notice of furnishing or we're going to get that I know this is review for a lot of you but it's helpful to go through and understand why the law is the way it is so you will always want to on a public project this is in here on the public project the owner here I'll go up here set up I can modify that public owner there's always a pot of cash right that's what you lean on a public project you mean that private owners pot of cash in at the beginning of a project you're on a public project when you sign the contract that public owner the end of the contract has a finance officer certificate confirming that the money is there to pay you and that's important as well if you're ever working for a city ODOT gets it right but if you're working for a city that doesn't really know what they're doing and they fail to have that Finance Officer certificate that city now has an argument that their contract is voidable and they don't have to pay you anything we've had we've had issues before where contracts were entered into incorrectly the city of Fremont versus trugo construction trucco construction was out they're building a reservoir trucco construction was terminated litigation ensued trucoat said were entitled to more money one of the owners defenses out there was well trucco your contract was left incorrectly rather than have two readings of City Council meeting the first reading of City Council whereas we need a project the engineers authorized to go out and get bids so the author engineer completed bids in the second one whereas the engineer did bids whereas true Koza lowest the engineer is authorized the mayor's authorized to contract with trucco that second one never happened and the owners argument was because that second one never happened your contracts void we don't owe you any money and in fact the law arguably is on the owners side the law is designed to protect the taxpayers that's we're going to talk about what the laws design do it can help you remember how to do it correctly the law is designed to protect taxpayers and if you don't have all the required public readings taxpayers haven't been protected and therefore we risk we risk paying something out that should so again if you if you do have questions as we go I know the chat bubble is Erin just let you know is active and when I see a little red dot I will jump on that so you want to have the beginning of the project know who everybody is where the money is coming from imagine if this was a private project that pot of cash wouldn't exist on a private project you get to lean the valley improvement so we had a client as well looking to do this was 2009 hot into the last time we were in a recession the Great Recession they were looking to build a mountaintop resort and our client was going to put in a package plant a sanitary Stewart packaged plant at the beginning of the project and it was a pay of paid clause so we didn't get paid unless the general contractor got paid no surprised but the mountaintop resort was owned by a single asset entity so our client said well Aaron is this a good deal and I said well here's what you got to think about number one the single asset editing all they owns that mountaintop project number two the general contract doesn't have to pay you because it's pay if paid so if you go and put that package plant in and then the economy continues to be bad and the owner of that that single asset and he says you know we're going to stop and they don't pay the general contractor you won't get paid so you need something to protect yourself and guarantee you're getting paid and we tried negotiating that the end of the day the client decided you know what we're not going to move forward with it the risk was too great so on any of these projects you always need to know who the owner is where the money is coming from when you're the general contractor on a public project that risk is not as great but certainly on a private project knowing who the owner is if your single asset LLC you have somebody who's going to sign personally how much time do they have to pay you have they try to condition payment to you on their obtaining financing from a bank all of these things are things to think about to make sure that you get paid that's why you all work as hard as you do it's a front under the project then we've talked about making sure you have that tree the notice of commencement on both a public or private project is in a detail who all the parties are so on a public project the notice of commencement scan lists the owners ODOT is going to say who the general contractor is Melissa general contractor surety and that makes it easy on a public project to know who you have to send your notice to burn achievement on a private project the notice of commencement is generally recorded and that makes it easy obtain sometimes it's not recorded and you have to ask for a copy of it and you can find these things online most most counties have their own online records search if you ever need help finding one you can call us and we'll help you find it so let me go back it's like one of the concepts I'm going to jump through here and put another box out one of the concepts we're going to see is pardon me is who has the risk of double payment who takes the risk of somebody not not paying the bill so let's draw a chart my computer's not as fast as my hand will contrast that draw another one over here this is the key lien law if you bear with me so on a private project the owner has a building the owner's name is on the notice of commencement if the owner will write n LC and OC well the notice of commencement will list the owner in a list the general contractor on private projects if a sub sub isn't paid they put a lien against the building so at any given time when the private owner is paying the general contractor the private owner obviously knows the general contractor exists because they have a contract together but the private owner will not know whether a subcontractor or a sub subcontractor exists they just know the general contractor exists so what the law has done is said private owner you put out there a notice of commencement and that will tell everybody who's working on your project you exist then all of the people who we don't know about can give notices of furnishing n Oh F so in this instance on a private job it is the the general nos they pardon me to sub and the sub sub who have to give a notice of furnishing because the private owner doesn't know that they're there so the sub and sub-sub both send the notice of furnishing the private owner and the general contractor to tell everybody in the contract train I'm here so that means for the general contractor if they get a notice of furnishing from a sub sub when that general wants to pay the sub they need to confirm that the sub has paid the sub sub now how do you do that by getting lien waivers that show if you for example if you're the general contract and you paid the sub through the end of April of last month and now comes time to pay for may you want to get a lien waiver from the sub sub two tiers down that shows they were also paid in full to the extent you made payment so again on a private project the risk of double payment is on the private owner but on a public project public owner has a pot of cash when that cash is gone that cash is gone that's the private owners of public owners sole risk in order to protect everybody the law requires that a prime contractor have the surety their surety and a bond is there to make sure that the it promises performance to the public owner right so if the prime contractor goes out of business the the public owner tells a surety perform the surety steps up again to Tec protect the taxpayers and it promises payment to everybody downstream so who do we care about who has the risk of double payment on a public project the prime contractor and the surety therefore nos need to come from folks that the prime contractor and the surety or the prime contractor don't have a contract with so here that would be from a sub sub because the prime contractor has a contract with a subcontractor the prime contractor knows they're there you don't need to get a notice of furniture now that said this stuff's confusing and took me that drawing to help explain it some of you might know this already I tell everybody working on projects but unless your name is listed as the general contractor on the notice of commencement you ought to send the notice of furnishing to everybody up the contract chain including people who know there you are there so if you're for example a subcontractor on a public project the people in our office doing this hopefully they're on a call today learning it with me in you but sometimes they're not and so we have a County Clerk's doing this who don't fully understand it and to the end don't understand these exceptions and so the exceptions really are there for when you call me and tell me Aaron I'm not sure we did it right and I can say don't worry there's an exception the the advice there's only one thing you get out of this call today it's you need to give a send a notice of furnishing up the contract chain at all times it does two things number one it's not adversarial but it tells everybody I'm serious about getting paid make sure that I'm paid number two it protects the lien and bond right and you are the recipients because I know many of you are general contractors when you're the recipient of notice of furnishings you ought to keep a list I know some of you do for the project and have a spreadsheet that shows okay time to make Mays payment do I have a waiver of lien from every lower tier that sent me a notice of furnishing for everything on April's payment those waivers of lien they can bake in reserve and I know that project it might not be retention but if they're on another public project or private project and retention has been not paid because it's has not due yet so their lien waiv rs can reserve their retention amount as well so long as the retention it doesn't exceed what you're holding from their subcontractor meaning the person above them if if the sub is owed 100 grand in retention but the subs lower tiers or 200 grand in retention you know you got a problem Chad to deal with by doing this in real time it means that if your sub runs out of town with the money the biggest tip you'll take is a month or two months 60 days worth what we find are we get to the end of the project there were notice of furnishing cents the general contractors are making payments to the sub but the sub hasn't been making to their supplier who sent the notes furnishing and suddenly it splices I've been paid months and we've been paying and in fact the sub even signed lien waivers saying they're paid under oath they paid their lower tiers their line so the only way to be sure is to get a waiver of lien from the lower tier suppliers you sent notices of furnishing I don't see any questions in the box so we'll keep going so how do you get the one or what I just did I hit the wrong button sorry jump to the next slide so how do you get a notice of commencement first you ask for it on a private project via certified mail return receipt requested why do you do that you do that so you can prove service you prove that you're asked for it and send it to the owner and the party whom you're privy with and I would send it to everybody up the contract chain on a public private project that can sometimes be hard to figure out who everybody on that chain is typically because you don't always know but you can certainly go to the auditors website for the county and figure out who the owner is on a public project you want to send it to the public owner that should be easier to do and again whomever your contract with an ask for copy not adversarial tells everybody we're serious about getting paid and it makes you a priority to get paid those notice of furnishings that we talked about the notice of furnishing is once again designed to tell people who don't know you're there or might not know it subs there we are here and we're performing it's designed to smoke out and prevent hidden liens so that opportunities there throughout the project to make sure that that party is paid and not wait till the end it needs to be sent within 21 days of the first work or material supply now you state yourself well we're really responsible we're going to make sure it gets out Keeney's we sign the contract we're going to send the notice of furnishing the problem is there's a stupid case decision out there a court I think got it wrong and said if you send it more than 21 days before you start it's invalid so that's really stupid just make sure to calendar in your your processes that as soon as you start work to send a notice of furnishing and if you're late a notice of furnishing can always be sent late but it only goes back in time 21 days and once again you send it via certified mail so that we have evidence that it was sent in in the event that there's any dispute later on so on a private job as I said a notice of furnishing isn't required if your direct privity with the owner because the owner knows who its general contractor is and probably lists the name on the notice of commencement as well if your lanes not listen you're on a contract you need to send it basically every sub on a private job needs to send with the exception of the general contractor now if the notice of commencement is not yet recorded you don't have an obligation to send a notice to furnishing our advice even if there's not a record to notice of furnishing send the notice of furnishing to to your contracting party everybody up that chain send the notice of furnishing even if the information is wrong because if you get a notice of commencement later on you can then install it or you can then retract your notice of furnishing and resend it later on but it avoids what it avoids is dispute where we can't find the notice of convention because the name is misspelled or somebody in the the recorders office didn't record a quite right or indexed record right and it was in fact recorded but you just didn't find it and you blew your notice of furniture right you blew your lien so always send it as well it's easier to go to a court and explain look we tried look how this is why we didn't find it your honor it's reasonable we find it but nonetheless we sent the notice of furnishing they knew we were there they should have protected us again who do you send it to the owner if the notice of commencement listen owner's designee many builders pardon me many many schools will list ofc C is the owner's designee many owners will list their attorneys that designee or a finance person as their designee because they have never built the building before so they want somebody else to handle this for them so not only do you send the notice from the owner but if there's a designee listed on the notice of commencement send it to them as well and our advice to send it to everybody in that contract trade draw your self that tree figure out who's on there and make sure that they get it I do see a question here so it says if the sub sub does not send a notice of furnishing and then just speech payment at or near the end of the project do they lose entitlement the answer is if the sub sub was required to send a notice of furnishing and they fail to do so there's a valid notice of commencement or recorded notice of commencement they on a private job will have no lien rights now at any point they can go in record a notice of pardon me serve a notice furnishing it record it and that will get them lien rights but only for the prior 21 days I would still rather have a small lien than no lien so keep that in mind okay notice of furnishing on a private job again not required from direct privity it's also not required if the notes commenced is not available if it hasn't been recorded you've asked for it hasn't been provided it's not posted anywhere at the site again I have that same warning in here you've got to be really certain it's not it's not posted or provided which is why I my advice is always send it up to up the contracting and if you are the general contractor and you get these requests for notice of commencements make sure you send them down timely get it and send that notice commencement down immediately because if you don't you've now opened the door for claims against you for failure to provide that anyone in the contract chain as well not that they can hit you with a lien but they'll argue that they're excused from notice to furnishing and it opens the door for hidden links and that's what you want to avoid again so what are some of the dangers if you don't send a correct notice of furnishing so for example if there is you have a copy of the notice commencement or if it's recorded and it says that the notice of furnishing needs to go to the understudy knee and you fail to send it to the understudy knee you may have waived your your lien rights what we see often is the subcontract will send a notice of furnishing only to the general contractor has a contract with well that really doesn't do you any good the general contractor already knows you're there they have a contract with you failure to send it to the owner at all invalid lien on a public job again if you don't have a notice of furnishing you're supposed to you've blown your lien right the only exception is that on a public job if your contract is under thirty thousand dollars you can make a bond claim even without a notice of furnishing of the law for public projects that we protect some of small players who might not take the time to send a notice of furnishing so if your contracts under $30,000 you can make a bond claim so again this slide I should pull it out it's here so that you all know it exists in these exceptions exist so when don't you need a notice of commencement on a private pardon me when don't you need a notice the furnishing a when there's notice notice of commencement but again my advice always spend one regardless be on a private project if you have direct contract with the owner in that instance you don't need a notice of commencement if general contractor sends a notice convention that the owner might scratch their head why am I getting a notice commencement you and I signed a contract on a private project if you sent the proper request for notice of commencement the owner and you receive no response in that instance you also don't have to send a notice of furnishing but I have that going on right now where someone sent a request for notice of furnishing pardon request for notice of commencement on a private project they got no response but it was recorded the notice of commencement so now we're going to have a fight were you excuse or were you not excused you've got to pay me to fight that why pay me to fight that when send a request from those commencement you don't get within that 21 days send a second letter while we receive no response to a request for notice commencement that request is once again repeated we send it here is our notice of furnishing based on the information we have in the event we receive a notice commencement will send a corrected notice of furnishing hugs and kisses subcontractor help them we are here to make sure we get paid on a public project the first tear sub where the direct contract with a general contractor doesn't need to send the notice of furnishing because once again remember that that general contrary to the contrary with them has the risk of double payment so they don't need a nose furnishing but subcontractors are the ones who get this confused all the times and they ought to send a notice of furnishing up the chain the general won't be offended when they get the notice of furnishing they'll understand you're being prudent again remember the notice of furnishing is designed to smoke out hidden liens that's why we send it to let everybody know we're there so when you serve a notice furnishing as I mentioned on private or public 21 days after you start work not before if you're late you can always twenty-one days and it looks back if they if you get the notice commencement so here's a here's an event right let's draw a time line you start work here there's no notice of commencement recorded you're not obligated to send a notice of furnishing but here they record a notice of commencement ten days later you have no written request to them for the notice commencement it's recorded though you're obligated to check the recorders office and see if it's recorded so what does that mean you want to request it by mail that way if they record it they've got to give it to you well if you want to request it by mail here mail and check online that's what you need to do because if it's recorded late and you don't know about it so it was recorded here ten days in and you keep working at day 31 right here day 31 you've now wave lean right because they recorded it late so you got to watch for that on on a private project if you send the request right like I said right here in the nail you send the request you don't receive response within 10 days now if you receive no response you still have 21 days from the day you actually get it serve the notice of furnishing you never get a response no known as burnishing is required but send it anyways I cannot over emphasize it send your notice of burnishing anyways up the contract chain to make sure you don't blow it another thing to think about so here work started right here's work started here's where they did the NOC on this project this is where people get themselves in trouble so here's your NOC right here's where work started work start okay on on this project lien rights for work here in this portion of time will will relate back to first visible work meaning here where it says the word work so that if a mortgage is recorded after work is started the work that is before the mortgage will prime the mortgage so what does that practically mean it means that most title companies because a title company will give them the lender a private project title insurance that that lenders mortgage is the first embezzling against the property the title insurance company will actually send someone out with a camera to the site to take a picture to make sure no works been done because if there's any visible work prior to the mortgage being recorded that visible work will prime and give the lien claimants rights on top of the lender and the lender doesn't want that and the title insurance company who's insuring the lender doesn't want that so what happened in the event where we know I've been involved in situations where the private developer has enough money to get started and grading the land they'll get their construction loan to build the building up what happens that event what happens is either the private developer has to give an indemnity to the title company for the title company to insure the mortgages first and passed because what happens is the mortgage gets recorded first the notice commencement gets recorded right after that that way the mortgages first and liens follow but in the instance where work starts before the mortgage is recorded so again the lien rights will prime some of that or what I also seen and I've worked with clients on is we're going to do two notices commencement so we're going to break the project into two so the first notice of commencement the first contract is going to be for site improvements we're going to let a contract for site improvements and that's it and the final product of that contract will be the building pad with the improvements on the ground we're able to then show the the lender and the title insurance coming look we had a contract right here for six hundred thousand dollars to do the site work and the improvements here's evidence of full payment both six hundred thousand dollars been paid here that general contractor signed a lien waiver confirming they've been paid every penny that six hundred thousand they waive any rights that project is closed out now you lender you give me the mortgage for the for the vertical improvements we're going to record the mortgage we're going to record the notice commencement and up we're going to go so if you have a clean break like that you can do that as well to avoid the problem because this this is a real problem work starts before the notice commencement is recorded lawyers like me love that because we represent a represent general contra actors and subcontractors and never really represent owners because it gives me the ability to tell the lender and the owner I prime you I got a lot of power so why do we file liens liens are filed because somebody hasn't paid us on a public project the general contractor has the right to file the lien as well to secure itself on a public project the general contractor cannot file a lien because it's the general contractors pot of cash anyway so the general contract will simply have to litigate with Adaline we file liens when they're disputed extras so if we which we feel we're entitled to money the owner refuses to pay and we gets into a project we are going to file a lien or anytime prior for those extras as well and I have clients at Aaron what can I leave for how much and I said well we can lien for all work performed your earned and unpaid retention even though it's not doing all yet and the extras that you performed work on then secures payment is that powerful bargaining chip and as I mentioned before even if there's no equity when you have a lien you get a seat at the table and in any litigation how do we file a lien liens on private work private work have to be five within 75 days of last work and what's in the lien that lists the first date first and last date of work how much is due a description the property which we're just going to cut and paste right out of the notice commencement can list your name it's going to list everybody in the contract chain up and down and it's sworn under oath so now the question is when seventy-five days of last work oftentimes we get people who wait and the first question I ask them is it punch-list work or is it warranty work punch-list work is considered contract work if you have a punch list and somebody gives it to you it will that's the last day of work for measurement for 75 days of last work warranty work is not contract work and therefore warranty for warranty think about it warranty we're done with the contract we've closed it out they paid us in full they call us six months later and helps to fix something post contract we should have been paid in full there are times when they'll be overlapping or unclear Punisher one key work one of the things I now religiously do is when a client calls me and says Aaron here's my date of last word I ask give me evidence of that most of you I know who's on this call you have good daily reports you can hand me evidence of your date of last work you know what it is you've got a daily report listed out no problem so my less sophisticated clients don't keep daily report so the most they have the payroll record or something we have found ourselves in the position before when I didn't ask that question where client gives me data less work and we pop it in the lien we record the lien years later in the litigation and the upper tier or the bank challenges that data last work until will tell me what it was you're doing that day and we can't find a daily report we can't find evidence and that casts a shadow on our links so even client of mine who tell me Aaron we don't have a record so we'll create a true record of what you did that day you can do it now even it's easy to remember what you did last week now then it's going to be two years from now to try to figure that so you have 75 days on a private project to file a lien that lien is recorded with the county recorder that is the key thing for a lien it is recorded that way everybody in the world can see it it is then served and you have 30 days once it's recorded to serve remember it's got to be served on the owner or their designee that's the key sometimes we see people making mistake served on the owners doesn't mean you serve it everybody up the chain once again certified mail return receipt requested we are in litigation right now where we recorded a lien the day that title transferred and so there's a lot of questions on that did we do it right who do we have to serve when do we have noticed that the title transferred it's a it's a little bit of a mess we should have one on summary judgment the court wants to have a trial on it so there's all of these issues and you got to check that's why you want to not only rely on the notes of commencement but be checking in real-time who owns the property did something change when you're doing any of these things we're constantly my paralegal Shannon is constantly on the recorders office checking for these things to see if there's anything updated now filing in a tested account claim in a tested account claim you have 120 days from your date of last work to file an attested account claim but let's remember pot of cash subcontractor fine let's remember something that this pot of cash right here every time the owner makes a payment from their pot of cash where's my pot it goes down so there's less and less cash it goes down contrast that with the so here's the notice of commencement and oh see let's pretend we're painters for a second okay so here's a time line on a private job on a private job if the painter is the last person in and they don't get paid and they file a lien it relates back in time to the notice of commencement the painter is given the same priority as the excavation contractor the clearing contractor the absolute same but on a public project up here public P you be public this pot of cash is always going down so the the painting contractor if they want to put a lien on if there's something dispute there might not be much cash left for them to leave so you want to do it as soon as possible once it's gone it's gone now don't feel too bad for that painting the club contract because there is as well the surety out here the general contractor has their surety so even if the general contractor goes out of business and the pot of cash is empty they can still make claim against certain we'll talk about that in a second again the public lien is served first you serve a copy of it to the owner or the owner's designee that is the critical thing to serve more than recording it is then also recorded we record a public lien to give it priority over non recorded liens so for example if there was a contract or default the contractor goes out business and is working on a public project the owner that public owner if a ODOT was involved in a project it was a million dollar project half was performed so this half hundred five hundred thousand dollars of cash left in the pot contractor go down as a business the public owner will say to the surety you got to step up and fix the surety doesn't the public owner has first rights to use that half-million dollar cash to go hire somebody else to finish it the surety steps up and finishes that cash is the surety collateral which is why you all see before a public owner release final cash especially where there's been liens they require consent of surety to release that in the event there were the project's done but there's still money because of a tested account claims if this half-million dollar pot of cash but there's a million dollars in liens of which they're all recorded then everybody gets 50 cents on the dollar of their liens paid pro rata if there was six hundred thousand dollars of recorded liens and $400,000 of unrecorded liens that six hundred thousand dollars or liens would get paid pro rata out of there five hundred thousand dollars sort of that percentages seventy or eighty percent of the of the money on the pennies on the dollar they would get recorded gets paid first pro rata from what's left in the pot and unrecorded if there's anything left after that they get it and oftentimes when they get nothing if there's nothing left so it is a good idea to record it's not necessary but it's a good idea to record the attested account claim as well so what happens after a lien this is where we tend to get involved and I think this stuff's fascinating so a lien on a private project is an event of default the lender will find out hey there's a lien on this project the lender will not say well you mr. general contract mr. only need to get rid of that lien and if the general contractor especially if it's general contractor's lien is unwilling or unable to bond it off and we'll talk about that in a second and that leads to time there now the lender says we're not lending any more money till that lien is gone so the lenders not lending the owners not getting the money the owner can't pay the general the general can't pay the subs what happens more liens go on it becomes a nasty cycle till the project shuts down because nobody getting paid and we got to go to court sometimes and get it cleaned up so a private owner who doesn't very quickly take care of liens especially where there's a lender in place it's going to find themselves in trouble again this goes back to my first slide we talked about where's the money coming from right Jerry show me the money on a on a private project is it coming from a lender a lot of products we all do today I know some of you have been on these public-private projects we don't know who the hell the lien anymore you have a you were working on the - who do you lean over there we have a project on a shopping center where the public owner gave money for some of the parking garages so the subcontractor filed a public lean and privately because it's not really clear on these public-private partnerships these are this is the future these public-private partnerships especially now as an economy start to shrink down and cities want and governments want things happening and they're going to put money in and you're going to have to do both type of liens so you've got to watch for that as I say sophisticated clients lean both so the lower chair you've got to investigate and know how you're going to get paid again what are some of the risks there's a single asset entity on a high-risk project you got to know this is the only thing they have and if it doesn't go well remember the term we have in 2008 jingle mail put it put your keys in the mail mail in the bank they're going to let it go pay if paid as well I know most of you want to call her are my clients and when you put the pay of paid provisions in to protect yourself from an upper tier default so you don't pay the lower tiers if you're a subcontractor that becomes more of an issue but as a general contractor you want pay if paid provisions because they protect you from having to pay when you don't get paid so again we've talked about what's the purpose of lien law to smoke out hidden liens that prevents it permits the owner and in general make sure everybody down down the title chain is getting paid step one if you're an owner got to do the notice commencement it needs to be drafted and recorded before work starts ideally after the mortgage the law is that if a mortgage and notice a commencement are recorded on the same day the law deems the mortgage recorded first the law acknowledge that a County Recorder might have a clerk who gets it wrong ignores it in a direction and doesn't want to have a bunch of litigation where the hoops the notice commencement got recorded first if it's a few days before now you got a big problem and the title companies require an indemnity it gets messy on a private project again so let's go through some of these no notice of commencement if the lien so if there's no notice commencement I said before the leaning relates back in time the first visible work here is a fun case this Huntington National Bank case the lender and borrower executed the loan agreement recorded the mortgage and the notice of commencement and this is again the largest mention of the mortgage and notice convention recorded the same day the mortgage is always considered recorded first year the lien claimant recorded a lien that claimed a date of first work before the mortgage and notice of commencement they said they were there first that would give them priority so let's look at the law on that if a notice of commencement is recorded late and that's thirteen 11.1 3a1 any work before the notice commencement I said relates back to first visible work after so if you record it in the middle it relates back to notice of commencement so if you were to file a lien the court would look at your lien use your lien and they break it up they draw a line say okay this part up here this Prime's the mortgage the part there that is before the notice of commencement I should get the textual but that Prime's the mortgage up here but this part down here this part down here is junior to the mortgage so the mortgage you would get paid perk so if we were to foreclose the order of payment would be up here this would be paid first the mortgage worth the mortgage wherever the mortgages is going to get paid second and then down here the junior part of lien gets paid third so if it's both public is I say if you will have worked both before and after the law is that the payments get applied first to the pre notice of commencement work why is that again the law wants to protect lenders the law knows that if we don't protect lenders when they lend on project if it's too easy for lien claimants the primal mortgage the lenders are going to not be willing to lend so we need to protect the lenders you need to protect contractors well but just understand that's why the the law is how it is now here Huntington Bank won the battle remember it was a battle between the saline claimant right here we said that they're their first rows of work here the the mortgage was recorded on December 23rd the lien claimant recorded a lien seven days later and claimed that their first date of work was a year prior so they claimed that they were over a year before the the mortgage record and that would give them prior to but they lost how did they lose so the court found that the work secured by the lien is really done after the notice of commencement is recorded so here if you get litigation like that they're going to want to see your daily reports there's going to run the co record so that begs a question if the work was done in 2012 how the heck did they record a lien in 2011 the court sort of said the lien didn't say was securing amounts due from that 2010 date the write the lien claimant account receiver report showed the work starting on that date so that's part of the problem and this this is why you want to have consistent documents here because their own document showed that the work that was being lien was from 2012 and that they were paid in full for all work the court found that they didn't prime so if you're going to do this you got to make sure that your stuff is compatible or 1048 and I've talked about this as well what happens when a lien is recorded or primes a mortgage and the fact that the title company require indemnity so we're not going to go through that again when you record a lien a lien is good for six years it says they notice commencement also requires after six years I don't know of any products in Ohio it takes two years again we talked about the notice of furnishing you serve it to everybody up the contract chain the people who get the notice of furnishings need to make sure that if you get it that everybody down a chain is paid you got to track that to make sure that if you're paying this person here that you have waivers from everybody down the chain Fortune extent of prior payment that will make sure that your risk is limited to one month only so here the lender is well a lender on a private project is going to look for the title company to confirm for them that lien waivers are all in place when a good lender is going to have somebody out there making sure all of this is done so again if there's no payment we're talking about lien recorded here the key dates 75 dates 75 days on a private project from last work you have to record a lien if it's a residential project and I don't think any of you do residential construction 120 days but 120 days oil lien but let's go jump back to residential what happens if you get hired to put in a brand new subdivision 100 Acre subdivision I bet some of you would put in streets and roads and utilities for a hundred acre subdivision I know you would and then suddenly you go put those in and they go record a plat right the plat to break that up into streets and Lots well arguably you now would have a lien on every one of those residential homes what a payment but that would be but you also arguably only have 60 days to get that on so watch that another thing to think about and again I don't think any of you do work on small projects with the leasehold but if you were to do work on a lease for example you want to go fix the gap and be to play small and you have a contract with the gap your right is only to lean the leasehold not the entire wall so watch out for that you can't believe as you guys know the road the school or publicly owned building so that's why we lean the pot of cash and it's always going down notice commencement we talked about notice of furnishing everybody up the contract chain we know that again I can't emphasize this enough the general contractor has the risk of double payment so they're the ones you need to make sure everybody can pay the owner doesn't even care when an owner public owner gets a nossa furnishing stick and drawers anyone look at it again if you don't do an OSHA furnishing you waive your your lien right but if your contract under $30,000 you still have a bond right what we've seen your people say well I'm only going to make a $30,000 bond claim doesn't work for contract exceeds 30,000 bucks you've you waived that right again on a public project the general contractors to ensure payments everybody downstream just like you do on a private project right here's your GC got to make sure all those people you can check the box every month are getting paid they're not paid they're going to file that a tested account claim so what happens when you get then a tested account Queen gets fined so let's jump to step our in Step five step four seventy files in a tested account claim the public owner when they get that a tested account claim will send the general contract or notice we receive this do you dispute it if a general contractor doesn't dispute if they have twenty days to do it if they do then the public owner is going to hold that pot of money indefinitely until one of two things happen either the general and a lien claimant agree and how it can be released or a court determines how it can be released otherwise it will sit there indefinitely if the general contractor or sub has not dispute it after 20 days the public owner can release the money to the lien claimant we have on behalf of lien claimants before sentence to ODOT and when we serve our liens we say hey Oh dot here's our lien further we're copying the the general contractor and / the / thirteen eleven point three one but I'm circling right there we are giving notice that the general contractor has 20 days to dispute when the general contractor doesn't just be within 21 days we've sent letters to Oh dot 0 dot they didn't dispute it they've assented to the correctness we need to get paid we've had Oda released cash to our clients on that basis again public/private project this is the new reality the Port Authority money is all over the place even on buildings that look public just outside my office window is the new beacon apartment complex privately owned I think stark was a developer along with a desk or family but there's public money in there so what does that mean it means you had to do both a lien and an attested account claim it also means that if you have an obligation to bond it off it's got to be bonded off twice how do you remove liens and I know our time here is limited but I'll just talk about as quickly on a public project or a private project you get a bond and the bond if it's if it's over over $5,000 it should say 5,000 not 45 it's for one hundred and fifty percent of the lien amount you then take that bond you apply to courts a court I want you to take the lien off of the private building and I want you to stick it on my bond in a court will do that the only hearing the only hearing that should go on in that instance is on whether the bond is adequate in any of you who are getting a bond from a nationally-known surety the bond is adequate and there shouldn't be any issue the law is written that way because back in the day you could bring ten cows in the public square into Hades ten cows or adequate security for this we've had courts as well I think wrongly permit only a hundred percent cash be deposited with the court instead of a bond what happens sometimes is this hearing any any lawyer who understand what's going on will waive hearing if the bonds from a National surety what happens you're going to get a pro se claimant who thinks that if I'm waiving a hearing I'm waiving a hearing on my right to my teittleman under the lien again that hearing because it's supposed to be a fast process has nothing to do with whether the lien is valid and whether you're doing online money it's only on whether the bond is adequate or not and so anybody sophisticated will be able to weigh that just like a lien the bond remains in place for six years somebody if there's a bond they'd have to file a foreclosure suit instead of naming the owner they would name the surety on a what's the benefit of that for the for a claimant if suddenly you were for the lien claimant if there was a mortgage ahead of you and the chain and there was no equity that issue goes away that's great now you have a bond who cares about equity anymore if the general contractor is out of business you get paid what are some of the challenges now in review has bonding capacity to to bond be able to bond off alone or bind off a lien pardon me sureties is all of you on this call I know because you're all bondable and have lines of credit with sureties they do a financial audit to make sure somebody is has the capacity to pay back in the event that is a claim against them otherwise you can deposit cash what's the to bonding it off if there's a disputed lien remember we had that slide before that says when a lien isn't paid or sits on a project it's going to slow payment from the lender it gets rid of that you can also send a notice commence soup I have one right now or somebody on a $40,000 lien sent me a notice to comment suit and I told them you go make me commence suit I'm going to want my attorneys fees they sent it anyways and we filed suit and our lien remains and they're going to pay my insurance my attorneys fee if they want to get a result a title company can insure over lien so if there's a lien there you might be able state a telecom they look there's a fifteen thousand dollar lien it's small let me give you $15,000 tell the lender that you will insure over it don't make me remove it right now and sometimes that will work on a public project to get rid of a lien or to bond off lien gotta do two things first you give a copy of a of a bond on one hundred fifty percent to the public owner and you send the lien claimant a notice to commence suit as soon as that goes on a public owner the lien is released as against the pot of cash and is now on the bond the lien claimant then has 60 days to file suit if they don't the bond is released what thing we see sometimes are we will say to a lien claimant look we're going to give the bottom of the public owner tell the public owner they can pass you still have the bond don't make us send you the notice commence suit because maybe with at the end of the project we be able to get this done and we've seen lien claimants and public owners have to do that we know that an arbitration you can't foreclose on a lien and arbitration but most of your contracts have arbitration and there were fans of arbitration we think it's faster and cheaper although we do see some discovery creeping in there that we have to push back on if you have a notice to commence suit and you have any arbitration provision you still have to commence litigation you don't get to just commence arbitration that probably won't do it what will do is will file suit will file demand for arbitration at the same time men will agree to stay stay the litigation pending the outcome of arbitration payment bond claims in Ohio I want to hit this really quickly I know I have two minutes these must be made within 90 days of project acceptance this is only on public project you sent a letter to the surety saying we make a claim here's what it is you then have to wait 60 days to fit a cool-off period before you can file suit and you must file suit within one year so those are the timeframes to think about I guess I drove right up 58 minutes are there any questions there are you welcome to unmute yourself or you could type them in well if there are no questions I thank everybody for a pursuit please well I think that was probably Chris - unmuted himself in that case I do want to thank everybody for participating today I hope this is helpful for we are happy to come and do this presentation again for OCA members if no charge that come in do this in your office with a whiteboard I'll wear a mask socially distance and we'll explain to make sure your accounting staff understand all this I hope this was helpful I want to thank Chris I want to thank Aaron Hawk I want to thank Ohio contractor Association for giving us multiple opportunities to present to your members we appreciate it very much and Chris I'll let you finish up but thanks everybody have a great weekend well thank you really appreciate it and and it will be doing more more of these in the future as we move forward so everybody Hume any time very good have a safe and good thanks for a long weekend here Memorial Day Thanksgiving edelman okay gals i god forbid we're home at Thanksgiving all right everybody have a great weekend and be safe