Monthly Archives: March 2010


Property Values Continue to Increase…But the Numbers Are Tricky

Today it was reported that the Standard & Poor’s Case-Shiller Index rose 0.3 percent in January from December, seasonally adjusted.  This marks the index’s eighth consecutive monthly increase.

But the news was not all good.  Seasonal adjustment of data lifts the numbers in the winter months, when the number of home sales is usually much less than the rest of the year. On an unadjusted basis, the index actually fell 0.4 percent in January from December.

Increases in the number of house sales, and housing prices, were a result of homeowners attempting to close before the government’s $8,000 tax credit was scheduled to end Nov. 30. Though Congress extended the credit until April 30, it apparently did so too late, and the number of homes sold in the period after November 30 decreased markedly.

When taken with other housing indexes, the Case-Shiller Index’s numbers are not as comforting.  The First American CoreLogic Home Price Index dropped 1.9 percent in January, and the Federal Housing Finance Agency’s index dropped 0.6 percent in January.

Twelve of the cities in the Case-Shiller index went up in January from December. Los Angeles was the biggest gainer, up 1.7 percent. Chicago was the biggest loser, dropping 0.8 percent.

Want to know the best and worst cities in which to have owned real estate over the century’s first decade?  They are as follows:

The three best cities: Los Angeles, New York and Washington. All are more than 70 percent above their level in January 2000.

The worst-performing: Detroit, which is 28 percent below its January 2000 mark.  Michigan, in general, was not great place to buy a home. 

For more information, check out U.S. Home Prices Inch Up, But Worries Remain, and Case-Shiller Index Shows House Prices Rising 0.3 Percent.

LienItNow.com

Good News for Contractors…NYTimes Reports

The New York Times reports that throughout NYC and beyond, “there has been there has been an addition to the hubbub: Contractors, lines of them, waiting for authorization to ascend the elevator to the apartments they are in the process of renovating.”

For a country that has been reeling from a tough recession over the last couple of years, this is a good sign.  Renovations mean, for the most part, that home prices are stabilizing, banks are lending, mortgages are less than the value of the property, and people are starting to have faith in the value of their homes.

All of this is good news for contractors, who have been faced with little to no work in the last couple of years…and the work that they find is bargained down to cutthroat rates.

These days, bargains are harder to find for homeowners, which may be good news overall for the economy.  Getting prices back to normal means higher wages for laborers and more money for suppliers, which in turn results in more people with more spending power.

We’ll be keeping an eye out to see when commercial construction starts to pick up.  That should be a sure sign that the economy is on the mend.

California Mechanics Lien Filing Time Limitations

California has no shortage of laws and regulations, and the mechanics lien filing process is no exception.  In order to preserve the maximum amount of construction lien rights, within 20 days of the commencement of work on the property, subcontractors and suppliers should provide written notice to the owner, the general contractor and the construction lender that they are performing work on the property. If the notice is served late, then the claimant can claim a lien for the value of the labor or materials provided in the 20 days preceding the service of the notice and thereafter.

Prime contractors must file a claim of lien within 60 days after a notice of completion or notice of cessation is recorded, or if no recording of completion or cessation is accomplished, within 90 days after the completion of the work of improvement.

Subcontractors and materialmen must file a claim of lien within 30 days after a notice of completion or notice of cessation is recorded, or if no recording of completion or cessation is accomplished, within 90 days after the completion of the work of improvement.

For more information on California mechanics liens, take a look at LienItNow.com’s California Information Page.

Florida Mechanics Lien Pre-Notices

Did you know that several states require that a “pre-notice” be provided to the Owner or Contractor prior to a mechanics’ lien filing?  One of those states is Florida.  In Florida, depending on the claimant’s status, a pre-notice may be required.  Subcontractors and sub-subcontractors, including materialmen and suppliers who do not have a contract with the owner, are required to provide a Notice to Owner within the earliest of the following periods: within 45 days of commencing work or providing services for the Project or before the date of the owner’s final payment to the contractor who furnished an affidavit stating that all potential lien claimants have been paid.

While this requirement is not stringent (it basically allows the pre-notice to be filed up to the day the general contractor is paid in full), subcontractors and lower tier contractors should make sure they file the pre-notice before filing their mechanics’ lien claim.

For more information on filing mechanics’ lien claims and construction lien claims in Florida, visit http://lienitnow/florida-faq.asp.  To file a mechanics lien claim in Florida, visit http://lienitnow/florida.asp.

Are Pay If Paid Clauses Enforceable?

An age old story in construction is as follows: the owner doesn’t pay the contractor, and a subcontractor, who has performed its work diligently and according to its contract, doesn’t get paid either.

Most of these situations arise because the subcontract contains “pay when paid” or “pay-if-paid” clauses. These clauses shift the risk of nonpayment from a general contractor to its subcontractors.

What Is a “Pay-If-Paid” Provision?
When used, “pay-if-paid” provisions are typically found in contracts prepared by contractors between themselves and subcontractors. A pay-if-paid provision makes a general contractor’s payment to a subcontractor conditional-dependent on whether the owner first pays the general contractor. Some examples of these provisions are as follows:

“Receipt of funds by contractor from owner is a condition precedent to the contractor’s obligation to pay subcontractor, regardless of the reason for owner’s nonpayment. Contractor shall have no obligation, legal, equitable or otherwise, to pay subcontractor for work performed by subcontractor unless and until contractor is paid by the owner for the work performed by the subcontractor. Furthermore, in the event contractor is never paid by owner for subcontractor’s work, then subcontractor shall forever be barred from making, and hereby waives, in perpetuity, any claim against contractor therefor.”

* * *

“Subcontractor agrees and acknowledges that payment of the subcontract sum shall be made only from funds which are due from owner that contractor has actually received in hand from owner and designated by owner for disbursement to subcontractor. Subcontractor agrees to look solely to such funds for payment. Subcontractor agrees that contractor shall have no liability or responsibility for any reason whatsoever for any amounts due or claimed to be due to subcontractor except to the extent that contractor has actually received funds from owner that are due from owner specifically designated for disbursement to subcontractor. “

* * *

“Subcontractor agrees that contractor shall never be obligated to pay subcontractor under any circumstances, unless and until funds are in hand received by contractor in full, less any applicable retainage, covering the work or material for which subcontractor has submitted an application for payment. This is a condition precedent to any obligation of contractor, and shall not be construed as a time-of-payment clause.”

These provisions are popular among contractors because they shift the risk of an owner’s nonpayment down the chain to subcontractors. While subcontractors try to avoid these provisions, the provisions have become standard in the construction industry and subcontractors usually have the choice of agreeing to “pay when paid” or not taking the job.

The question is whether these clauses are even enforceable, and the answer depends on what state you are in, and how the clause is written.

Courts are generally split on whether pay-if-paid provisions are enforceable. New York, Nevada and California have found pay if paid provisions unenforceable because they constitute waivers of mechanics’ lien rights. The reasoning used by the California court was that pay-if-paid provisions have the practical effect of acting as an express waiver of statutory lien rights-rights that could not be waived, except in limited circumstances, according to the state’s statute.

In addition to ruling by courts declaring pay if paid provisions unenforceable, the following states have enacted statutes have declared paid if paid contract clauses void: Nevada, Illinois, Maryland, Missouri, North Carolina, and Wisconsin.

The states that have taken the opposite approach, explicitly allowing pay if paid provisions in subcontractors, have done so on the theory that commercial enterprises should have the liberty to contract, a freedom with which the State should not interfere. Among these states are Connecticut, West Virginia, New Mexico, Texas, and New Jersey.

As always, there are states that are on the fence. Florida, Louisiana, Indiana, Iowa, Kentucky, Massachusetts, Minnesota, Nebraska and South Carolina, Ohio, and Tennessee have found that pay-if-paid provisions set a fixed time for payment to the subcontractor, but that the subcontractor does have unconditional right to payment within a reasonable time.

For more information on this topic, take a look at the following articles, which discuss “pay if paid” and “pay when paid” clauses in more detail.

Can a Contractor Shift the Risk of Nonpayment to Its Subcontractor?

Viability of “Pay When Paid” Clauses In New York & New Jersey

Current Economic Environment Leads to Shoddy Work and High Receivables?

When the economy collapsed over a year ago, the construction industry when down with it. As we’ve all heard over the past year, much of the boom was a result of a real estate bubble that was caused by loose bank lending practices. Companies and individuals were able to get lost cost mortgages, and where able to get financing to renovate existing buildings, or build new ones. 

Now that the days of easy money are gone, the contractors that are left in business are being forced to perform work at a cost much lower than 2 years ago.  But what is the effect of these new low prices?  Has it turned the construction industry into a sort of Walmart – the goods are cheaper, but the quality is low.

In an article posted on Linkedin by Jeffrey Stern entitled The Contractor’s Job is to Protect the Client, the argument is made that the low-bid environment places the contractor and client in an adversarial position, resulting in increased litigation, lower quality, excessive change orders and generally unhappy customers.

Mr. Stern’s argument may be correct, but haven’t customers of contractors complained about shoddy work for years? New construction has been something that people continue to look at with skepticism. So is construction worse now that contractors’ margins are tighter?  The argument could be made that the economic crisis has not affected the quality of construction projects because contractors are afraid of non-payment, and are doing everything possible to ensure payment in full.

What is clear is that mechanics’ lien filings are up accross the board.  Many of these lien filings are a result of banks freezing or slowing construction loan payments to commercial project owners.  When the bank freezes or slows funding, contractors have no choice but to protect their receivables and file construction liens. But that can be an expensive solution, especially when lawyers get involved.  To avoid those fees, there are lien filing services availabe, such as LienItNow.com

Since this is the first post on this blog, it might be a good idea to explain its purpose.  It is our hope to provide information on the current state of the construction industry, helpful links, news, and related discussions.  Since the blog is related to LienItNow.com, the other purpose will be to provide contractors, subcontractors, suppliers and others entitled to lien rights with information about their lien rights.  We hope the construction industry will find it to be helpful.

LienItNow.com provides lien filing services to the entire United States, and offers other services related to lien filing, such as pre-lien notices, stop notices, amendments to mechanics liens, extensions to mechanics liens, discharges of mechanics liens, pre-notices for bond claims, and bond claims.  LienItNow.com files these documents for the claimant, double checks to make sure the property upon which the lien is being filed is the correct property, and serves the documents on the appropriate parties.  All of this is done for a low, flat rate.