Home Credit Q&A The state of state lien laws

The state of state lien laws

The state of state lien laws

Dear Thea,

My company is located in a state that requires preliminary lien notices, but we also sell into states that do not require them. I explain the difference between states that require preliminary lien notices and those that don’t and why we do them almost on a daily basis. I explain this to sales reps, customers, and sometimes our owners. Is there a way I can address this without constantly explaining myself? Looking for any help. 

Signed, Liening on a friend in LaLa Land 

Dear Liening,

To quote John Wayne, “I am responsible for what I say, not for what you understand.” No disrespect to The Duke (who in my opinion rounds out the trio of patron saints of the credit world), but that never works for me when I remind sales reps that the explanation they repeated or understood is, alas, incorrect again. These are not MY rules. Lien laws are driven by legislation, so wiggle room does not exist. 

The mechanics lien process and all its related glory is by far the number one topic I get asked most about, and it’s the most misunderstood and under-utilized tools in the credit and sales tool kit. Sales departments fear it, CFOs think it solves everything, and customers often don’t understand it. What is a credit manager to do?

When you are constantly playing defense, you never gain real traction. Take a step back and set up a solid offense. Create a cheat sheet. Remember many moons ago when Cliff Notes were a big deal? This was long before the internet made unlimited information and research available at your fingertips. 

I encourage you to create your own quick-and-easy reference sheet for your sales team and customers. Gather an assortment of the most common questions you get and provide answers. Keep the language straight forward and basic. This is not the time to impress people with your grasp of the legal terms. Make it a user-friendly Q&A format, and have multiple ways to share it—hard copy and on your website.

Mechanic’s lien terminology is similar to visiting a foreign country or the construction industry’s version of Alice in Wonderland in that it just gets curiouser and curiouser. Nothing is as it appears. State-by-state it gets complicated and confusing, even to a lot of credit people. 

Creating a simple, one-page document that explains the basics and includes a breakdown of terminology, your mechanic’s lien common Q&A may look something like this:

Q. What is the difference between a statutory notice and a preliminary lien notice?
In layman’s terms, not much. A statutory notice means that the state statute is     requiring you to serve a notice within their specific time frame to retain your right to file a mechanics lien at a later date. Statutory refers to what a state requires, making a notice either statutory (required) and non-statutory (not required).

Q. Why are there so many names for the same thing?
States use different terminology for a notice: preliminary lien notice, statutory notice, notice of intent, notice to owner, and notice of non-payment are some examples.

Q. What benefit does a preliminary lien notice give to our customers?
A prelim allows you to assist your customer in the event payment is withheld or late. It allows you the ability to file a mechanics lien and get the customer’s product paid for.

Q. Does our preliminary lien cover our customers’ labor or other materials?
No. Your pre lien covers only materials supplied by your company on the noted project. We strongly encourage our customers to secure their lien rights as well.

Q. Do we have to tell of our customers in advance of sending a preliminary lien notice?
No, you are not required to tell anyone prior. It is advisable as a good business practice to share with your customers that you secure your lien rights.

Q. How do I approach this topic with customers?
Cover the topic in your conversation regarding terms and other information with your  customer. If you are uncomfortable, contact someone on the credit team. They are happy to help.

Now that I’ve got you started, add to this list the questions you get the most at your company. People fear what they don’t understand, and no one appreciates feeling stupid. Take away the fear, share some knowledge, and you have saved the day (and your sanity), pilgrim. 

With more than 30 years of credit management experience in the LBM industry, Thea Dudley consults with companies on a wide range of credit and financial management issues. Contact Thea at theadudley@charter.net.