Getting Paid Using Mechanic’s Liens and Bond Claims - Webinar

From the Beginning - History of Ohio's Mechanic’s Lien Laws  

Back in 1991, Ohio changed its mechanic’s lien law from an odd duck way of doing it to a combination of the laws in Michigan and Florida. That says a couple of things like:  

• they had a pretty good construction law,
• many didn’t like the way it was, so many individuals worked on it and polished it in their own way,
• it gives you the hint that every state has different mechanic’s lien laws.  

Mechanic's liens are creatures of statute, which means that virtually every state is going to have something different. So, just because you know construction law in one state does not mean you know what happens in another.  

Notice of Furnishing  

So you really need someone who knows the laws in different states, particularly for Notices of Furnishing. Someone like that is SunRay who works in all the states.

The Notice of Furnishing is your entry into the mechanic’s lien system. But it is not just an entry point to give you the opportunity to file a construction lien. Further down the line you do not want to file a mechanic’s lien if you can avoid it.  

Why would you want to? Because you got paid. The Notice of Furnishing, Ohio gets you on the list to be paid. Contractors and material suppliers will ask when they should do a Notice of Furnishing, whether to do it on every job. That depends.  

If you are working and have been hired for a company that has paid you every time within 10 days of your invoice and this is a $5,000 invoice, why would you bother? If it is a person who pays you every time within 10 days, and it is a $100,000 invoice, now you have a different situation.  

Because the person who always pays you every time can probably float $5,000. But when it gets to $100,000, let us say that something goes wrong with the project. Your friend cannot front you $100,000 and just to make sure that you are going to get paid, he will take it out of his pocket. You want to have the opportunity to be able to tag the people ahead of him.  

The original contractor is what they are called in Ohio on a private project, and a principal contractor is what they are called on a public project. But you know the prime contractor that has the direct contract with the owner, so you want to be able to tag them. You want to be able to tag the owner of the project so that you can get paid. Well, those people do not want liens on the project either.  

The Notice of Furnishing is probably the most important thing you can do to protect not the right to get paid, but to protect the likelihood that you are going to get paid on time and in full every time. Basically, it gets you on the list.  

For example, if you are supplying to a subcontractor or you are a subcontractor and you are working for a general contractor, the person two steps ahead of you does not necessarily know that you are working on the project. The property owner probably does not know that you are working on the project.  

And the owner is the one who is going to pay the general contractor, to pay the subcontractor to pay you. This Notice of Furnishing puts the contractor on notice to wait before they pay the person below them. They want to make sure that there are no liens on the project.  

Who has lien rights on the project? The individuals who do the Notice of Furnishing do. So if you do, the other side will be thinking that you:  

• are professional  
• have stepped up and you have gotten on their list.  

So they know to ask the person below them (the contractor or the subcontractor, (whoever is ahead of you) for your lien waiver to make sure that they are paying him, and that he is paying you. If you are happy, you are not going to file a lien, so get that Notice of Furnishing out every time.  

Appropriate Lien and Bond Claim Waivers  

The other thing you need to do is in the middle of the project. Watch out for your lien waivers. You will be made to sign these lien waivers and the problem with them is they are frequently way over-broad. Have you gotten paid in full on this draw?  

In full means, did they take any retainage out? Did they hold back any money for anything? Yet they gave you a lien waiver which almost always says that you are waiving all liens, claims, bond claims, choses in action, and a whole line of things from the date of this waivers.  

So have you been paid in full including your retainage? If not, you are already over-waiving the second one is through the date of this waiver. You are not getting paid through the date of this waiver.  

Let us say you are a materialman and you supplied your material on Day 1 of the month. You get to the end of the month and you have got your pay application in or your invoices sent to the people ahead of you. They get it all in line and so now you have to send it up to the owner. A whole month goes by, the owner is not going to pay the general contractor until the end of the next month.  

Now you are two months behind and the owner is going to pay the contractor. The contractor has ten days under the Prompt Pay Law to pay the subcontractor who has ten days to pay you. So now you are signing a lien waiver today and you have already lost how much – four weeks, eight weeks, or ten weeks if everything just went according to time.  

So pay attention to your lien waivers. They should be conditional lien waivers. You can tell the difference because at the beginning, the unconditional waivers usually start out and say something like, in consideration of the sum of $XX, the receipt and sufficiency of what is hereby acknowledged, the undersigned does hereby waive this and that through the date hereof.  

But that is not something that you want to sign unless it is the final lien waiver on the final draw including your retainage. What you want to sign is the conditional lien waiver that says something like, on receipt of a check in the amount of $XX and when that check clears, the bank on which it is drawn, this shall serve as a lien waiver for this amount of money through this date.  

That is the right one and when you get that check give them an unconditional lien waiver through the same date. That is the way it ought to work. You want a conditional lien waiver before you get paid and the appropriate lien waiver that is unconditional after the check clears.  

Do it that way and you will be in a better position to claim all of your money, and not worry that someone is going to jump up and say, “I’m sorry you waived your liens and because you waived them, you have no more opportunity to file your mechanic’s lien.”  

What to Do When You Are Not Paid

So you did all that you needed to do and now you are not getting paid, and you are angry. The line of things that you can do if you do not want to be extraordinarily aggressive.  

Sometimes, it is like of like when The US had détente with the USS (not to drudge up old things), but there was a mutually assured destruction. So no one would push the button. Well a mechanic’s lien is sometimes like the atomic bomb on a project does. It does a whole lot of things for you.  

a. Notice of Intent to Lien  

The Notice of Intent to Lien does a couple of things – it says to the people above you that you are running out of time to file a lien, you have a lawyer involved, and you are ready to file a lien. They will take a look at the lien waivers, see that you have lien rights, and that you did not waive the liens. So they will pay attention and now everybody will start pushing down on the people below them to you.  

b. File a mechanic’s lien  

The owner pushes on the contractor, who pushes on the subcontractor, who is going to get you paid. If you still are not paid, now you file the lien. You told the other side you were going to file and then you do it. There are some contractors who the higher up individuals respect, and the higher ups know the contractors who pay their people on time, because they are that kind of contractor. They will have good relationships with their contractors because the contractors call them ahead of time.  

For example, a contractor has a dispute and has not been paid, and he wants to file a mechanic’s lien. He was warning the owner that if they do not pay him, a mechanic’s lien was going to be filed. Or there was a dispute and he wanted to file a lien.  

Filing a lien gets you in the better line now – the line where everything falls apart. You can at least claim the money that is left. If a project really does fall apart, the first one that is going to get paid is the bank. And after the bank gets paid, then the tax man will get paid, and then all the mechanic’s liens filed on the same project have the same priority – that means the order in which they are paid.  

Why that is important is because, just because you are an early finishing contractor and you do the site work, does not mean that you have a better right to be paid and that you should be paid in full before, let us say, the painter or the landscaper.  

Everyone who files a lien gets thrown into the same bucket, and if there is enough money to pay everyone a hundred cents on a dollar, everybody gets a hundred cents in a dollar. If there is enough to pay 50 cents on the dollar, everybody gets their pro rata share of those 50 cents.  

c. Serve your bond claim 

If you are on a public project and some private projects, there are also bond claims by statute on state and local projects, and by federal statutes on federal projects. It is also important to note that there are no mechanic’s liens on federal projects, you just have bond claims.  

The bond claim is a kind of belt- and suspenders-type of remedy. Now, the mechanic’s lien tends to be a faster remedy. So if you are making a claim and you have put a wrench in the machinery that gets everyone paid, the other side wants to look at you right now but if there is not enough money and there is a payment bond, you want to be sure that you file a payment bond claim too.  

Because bond money is slower money, but it is more concrete. The surety has this payment bond which is for the contract value usually. This means that there is still money around. It does not matter that the bank got paid, there is still money around to pay you.  

That is why you want to get a bond claim too. Sometimes you may look at the situation and think you should do both of them. Should you do one of them. If you do not need your money right away and you do not want to spend the money on doing both of them, it depends on how much money it is.  

If you are chasing $5,000, doing both may be overkill. So you pick the one you know that there is enough money left in, and you file a lien. If you are not sure there is enough money, and you do not need the money in the near term, you are going to be out at least 90 days before you get paid on a bond claim.  

The fastest we have ever seen someone get paid on a bond claim is around four weeks. The subcontractor/contractor went out of business. It was clear that the subcontractor supplied equipment to the project, and it was installed and working. Nobody had any issue, nobody raised any fuss, and the subcontractor was paid.  

That is the fastest ever, because the surety has to assure that the claim is a good claim. Because if they pay without finding out if it is a good claim, and it turns out to be a bad claim, then the principal (contractor) does not have to refund the money. Because bonds get guarantees from the company that they are going to get paid back.

Respond to Proof of Claim request 

Bonds are slow money but if you do not want to spend that much money (it is not a whole lot of money), you will get a Proof of Claim. When you file a bond claim, sometimes it goes directly to you. When that happens, if you have not done one before, it is really pretty easy.  

Enforce the claim by ‘civil action’  

If you are still not paid after all of that, now you will enforce the claims by a civil action, which means a lawsuit. If you are chasing a bond, it is just a regular lawsuit. If you are chasing the mechanic’s lien, then it is a foreclosure action.  

The other side could have been bonded off which is a different bond – the mechanic’s lien, Ohio. If they do that, it takes the lien off of the real estate and puts your claim on a different bond, which is also a good thing. Because now you do not have to go to foreclosure. You just go directly to a lawsuit naming the parties who owe you, the chain depending on what your position is, and the surety.  

So, if you want to get paid, this is what you have to do.  

Why Do I Need to See the Notice of Commencement?  

Now why do you need to see the Ohio Notice of Commencement? Because it has everything in it that you need to file/serve a:  

(a) lien,

(b) bond claim, and

(c) Notice of Furnishing

Serve Your Notice of Furnishing 

Serve that Notice of Furnishing because you need to do it in Ohio within 21 days of your first day of work or supply to the job. If you do not do it within the first 21 days, you will lose one day of lien rights for every day that you are late.  

So, if you serve it on Day 1, you are good. If you serve it on Day 21, you are still good. If you serve it and serve it means depositing in certified mail, let us say you serve it on the 22nd day. Now you lost lien rights for the first day.  

If you are a subcontractor does that matter? Probably not that much, because if anything gets paid, it is your first draw. You only lost one day. Well, what if you are a material supplier and you had one day to supply all of your equipment, and you dropped it all off on Day 1. You would have been good if you served it within 21 days, but now you are on 22 days.  

You just lost your lien rights. Can you get them back? Well, it is a little tricky. But if you send a request for a Notice of Commencement Ohio and you serve it on the owner, and the owner does not get the Notice of Commencement back to you within 10 days of the day they received the request, then your time to serve your Notice of Furnishing stops. It does not start again anew until they get it to you.  

So, if you are on the 22nd day, you serve this request for Notice of Commencement, they get it to you on Day 12, you have 21 new days to serve your Notice of Furnishing. So keep that in your quiver as something that you may be able to do.  

It is not recommended to do it every time. You are going to get a lot of fight on it. You are probably going to go to the Ohio supreme court about it, if it is a big deal lien. Because everyone is going to fight it, but it is right in the statute. So use it sparingly and use it only when you have truly messed up.  

Watch Out for Lien and Bond Waivers

When you get a contract, send your request to do a Notice of Furnishing over to SunRay and we will get it going for you. If you work on this right away, there is plenty of time.

When you have to serve your Notice of Furnishing, the statute says that at any time after the Notice of Commencement is filed, but within 21 days after your first day of work on the job, the Notice of Furnishing has to be sent. Back in 2011, there was an awful case that said you have to wait until you were on the job before you could serve it. That is just not what the statute says at all.  

In 2019, a case was taken to appeal in Summit County Court of Appeals which said that the statute says at any time after the Notice of Commencement is filed, but within 21 days after, the Notice of Furnishing has to be sent.  

For example, there is an elevator contractor who sends their Notice of Furnishing right away. But they are not going to install for six months. The other side has to wait until the six months are up because of that old case. Now because of the new case, you can do the notices right away.  

If you are telling a service like SunRay that you are not on the job yet, that you do not want to do it yet, and all of a sudden you are out of luck. Get your contract, send it over to us. If you want to wait to file the preliminary notice, tell us to wait to file it. We advise not waiting though, get it done right away.  

Avoid death by waiver. This was spoken about before. Watch out for those lien and bond claim waivers, they are everywhere. They are included and sometimes you get change orders. In a change order, all you are looking at is the time for your change order and the money. It also says that you waive all your lien rights and bond rights.  

Be careful and read this stuff. If you are concerned about it, just call an attorney. Let them see the lien waiver and they will tell you.  

So Your Lien is Filed or Bond Claim is Served. Now What?

Whether it is a lien, bond claim, both, or neither, discuss it with your attorney and figure out exactly what you want to do.  

a. Who should negotiate a resolution?

So your lien is filed or your bond claim is served. What do you do now? Well at this point you are going to negotiate for a resolution. Sometimes the other side is just going to say, “Here is your money.” Frequently, more often than not, that is what happens.  

This is a simplification – basically, there is not a whole lot of negotiation other than when you are going to get paid. But you will frequently get paid.  

b. Assume that everything you say is being recorded

If you are negotiating with someone, just assume that everything you say is being recorded. So consider recording it yourself. If you are sitting down face to face, turn the record button on on your cell phone. Or if you are on a phone call and everybody is within Ohio, get an app that lets you record your telephone call.  

If they are across state lines, be careful because now you are in federal law. Maybe you have to look at both states. That is how Linda Tripp got caught up black with the ‘blue dress incident.’ There was a telephone call to Linda Tripp who was the whistleblower there and she was across state lines. But she turned everything in and she is the one who recorded it.  

Maybe she did not make the call, but she recorded it. It was an illegal call because one of the people was sitting in DC, and one was in Viriginia. They had different rules so if it goes across state lines, be careful.  

After You File the Lien or Make the Bond Claim 

What happens when you get that first call from their attorney?  

a. Contractor owes you nothing

The attorney is probably the one who is going to call. If you are an owner, he will say that the contractor owes you nothing, and that the claim is a slander title.  

This is frequently heard and so is “take the lien off right now, and we will pay.” What they will say is to take the lien off or you will never get another job from them again. This is probably true – you are never going to get another job from them unless you are loved. Then you will get the work.  

b. Your claim is a slander of title and you will pay

It is probably not a slander title. Every once in a while, something is wrong, but before you take it off, if you get that call from their attorney, call your attorney, and have him or her deal with the other attorney. Because attorneys can detect things better than a lot of people, not better than people who are not lawyers or people who are not construction lawyers.

If you are not going to hire a lawyer, do not call your Cousin Eddie to do your construction work if Cousin Eddie the lawyer is a personal injury lawyer, or Cousin Vinnie who is a criminal lawyer. Do not call an attorney to do your criminal work (hopefully you do not have any).  

Some attorneys do not know criminal law but they know people in their law firms who do, so they will shift you over to them. But they do not want to do that. Call the right lawyer, so if you have a great construction lawyer, call them and have them do it for you.  

The price you are going to pay them to do the work is nothing compared to what you can give up because you got buffaloed by the lawyer.  

c. Prove you did ALL of your paperwork right  

They are also going to ask you to prove that you did all of your paperwork right. The number one thing that attorneys hear is a request for a copy of the green card that you served your Notice of Furnishing, and that is going to be vital. That is why you need to serve it by certified mail, get it done on time, and you need to have everything done right.  

When you hire somebody like SunRay, we will do it right.

Having Better Leverage

You always want to have better leverage. Leverage is the way that things get settled.  

Use construction attorney if another attorney, surety, debt collector is involved  

If there is an attorney, a surety, or even a debt collector calling you, use your construction attorney to get it resolved. It is also advised to be really careful about using debt collectors yourself. Because when you sign up with them, they are not lawyers even though they will sound like lawyers.  

There is a company out of Texas that you really have to fish through to figure they are not lawyers. They will call you and say that they see you filed a lien on a project and say that they are just getting ready to do a class action. They want you to get in before you lost out.  

There are no class actions in mechanic’s lien claims. So they are not doing a class action. They are just trying to put some urgency into you signing up with them. When you sign up with them, even if you collect the money, they get paid.  

You Decide to Use a Lawyer

As discussed above, you do not want to hire Cousin Eddie or Cousin Vinnie. Choose an experienced lawyer who understands construction – not the one riding the stuffed horse.  

Helping Your Attorney Win Your case 

Give your lawyer everything – do not just give them the parts of your file that you think are important. Do not hold back things.  

a. Tell your attorney everything, the good, the bad, and the ugly 

Do not hold back things that you think are bad for your case, or embarrassing, or anything else. Your lawyer needs to know everything up front. Because if they do not, it is going to drag things out.  

For example, a lawyer is working on a case and all of a sudden, they get a nasty letter back from the other attorney who says that the lawyer is lying. The lawyer calls his client and asks why this may have happened. The client says that he thought it was not worth giving the lawyer certain information because he did not think it was important.  

b. The worst surprises are those your lawyer learns about at trial 

The worst place to find out information is at the trial. So you really really want to give your lawyer everything up front.  

Resolving Your Claim  

You have to remember that it is not because you are right.  

a. It is not that you are right, it is that you can prove you are right at a reasonable cost  

You want to prove you are right without spending too much money. It is not enough to think you are right.  

What Kind of Dispute Resolution?  

Finally, which route are you going to go?  

Negotiation, mediation, arbitration, litigation

Negotiation, mediation, arbitration, or litigation? Check your contract. It will tell you. And when you are signing that contract, be very careful about what these say. That is a whole different subject.  

Steps to Pursuing Your Lien and Bond Claim  

Your attorney is going to help you negotiate a good business judgment settlement. Are you getting paid 100 cents on the dollar? No? Well, how much is it going to cost you to try the case?  

Use your construction attorney to negotiate a good business judgement settlement if no settlement, file ‘suit’

Subtract part of that out before you decide whether you should take a settlement. If you cannot get a settlement, then you are just going to have to file suit.  

Using a ‘Service’ to Collect

If you are using a service to collect, you have to remember the following:  

• They are not your attorney  
• They cannot make legal arguments or go to court  
• There is no attorney/client privilege  
• They only get so far then hire their attorney for you  
• Hiring your own attorney first likely costs half with a better result
• Once you sign their contract, you owe the fee no matter who collects  

The ‘no attorney/client privilege’ point is one of the big ones. Because if you tell them something, they can be subpoenaed to go to court and testify. Your lawyer cannot. You only get so far and then they are going to hire their lawyer and you are going to pay for it.  

Hiring your own attorney first gets better results at lower costs. As written above, once you sign a contract, they are going to get paid no matter what.  

Getting Paid on Your Mechanic’s Liens and Bond Claims 

So how do you get paid using mechanic’s liens and bond claims?  

• Start with a good bid  
• Negotiate favorable terms in your contract  
• Serve your Notice of Furnishing  
• Be careful of lien waivers  
• Serve a ‘Notice of Intent to Lien’  
• File your lien  
• Serve your bond claim  
• Use your construction attorney to help resolve the dispute and get you paid