eNews August 13


In the News

August 13, 2020


Education is an essential building block in the fundamental foundation for growth, especially if that growth pertains to becoming a leader in credit. There are many ways to become knowledgeable on a subject, but several credit managers agree it is the combination of “book smarts” and “street smarts” that pave the way for success in the business credit industry. 

The idea of “book smart versus street smart” has been around for quite some time as people often define one another’s level of knowledge based on how they learn. From his perspective, Steven Hopkins, CCE, CCRA, said book smarts are based off somebody else’s thought process, opinion or experience, whereas street smarts are based off your own. This coincides with author and speaker Scott Berkun’s assessment that “the prime distinction between street smarts and book smarts is who is at the center of the knowledge.” While the former is based on a “sense of what works and what doesn’t,” Berkun says, the latter comes from “following the rules.” 

Book smarts are often the first to develop, said Hopkins, who not only pushed himself to earn his CCE designation, but also graduated from NACM’s Graduate School of Credit and Financial Management (GSCFM). It was in the classroom setting where Hopkins learned from experienced instructors on subjects including accounting, finance, domestic and international credit concepts, management and law. 

“When I was satisfied with earning my CCE, I pushed myself to go to grad school and that’s given me the foundation to look credible,” said Hopkins, the western district credit manager for Stoneway Electric Supply Co. “You become more credible with your colleagues and coworkers. You push yourself to grow and I think that’s what an effective leader does: They push themselves to grow in a position.” 

Participating in these educational programs also gave Hopkins that extra level of confidence, which enabled him to harness his “street smarts” by thinking outside the box in the workplace. Hopkins said one example was when his superiors were at an impasse on how much credit to give an account. The credit manager was asked for his input and used his classroom knowledge and experience as a guideline. 

“I was able to go in and say, ‘Look, here’s what the risks are, here’s what the benefits are and here’s how we can make this account profitable,’” Hopkins said. “They took me more seriously because they knew I had done the research. There’s that credibility and I’ve had my own successes and my own failures to really start to cultivate a pattern of what works for me.” 

Credibility is crucial in leadership roles, said Credit Manager David Zahller, CCE, which can be achieved through education. Although a classroom-setting education in business credit does exist, he noted, it isn’t necessarily mainstream. Therefore, credit professionals have to go one step further and seek out such education, a journey that Zahller said requires diligence, persistence and a genuine interest in the subject matter. 

“You better be factually accurate as a credit professional because if not, you get unmasked pretty quickly,” he said. “Once you lose your credibility, whether you’re a credit manager or not, you will have problems. You have to have an inquisitive mind and understand the entire order-to-cash process.” 

Hopkins and Zahller agreed that most of what credit professionals learn is from other professionals over the course of their careers. If someone is fresh out of school and has limited or no business background—whether it’s manufacturing, distribution, agriculture, mining, etc.—Zahller said they typically don’t understand any of the production processes or cost structures of those businesses. 

“But the street smarts come with time and being around really good people,” Zahller said. “There’s that old saying, ‘It’s not what you say, it’s how you say it.’ It’s totally true.” 

Catch up with more on the Stepping into Leadership series in past eNews publications.


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Two Paths for Security in California


—Michael Miller, managing editor

Organization is key for credit departments whether there’s a pandemic or not. Having a system in place can help with issues down the line especially when paperwork is now scattered at the office and at the home office—two locations for problems. Trying to find that one piece of paper with the name of the surety company at the last minute to keep bond claim rights is a headache that no credit department wants or needs. 

Despite the impacts of the COVID-19 pandemic, credit departments in the construction industry still have guidelines, rules and regulations to follow. Being organized is only part of the solution; having the correct information, such as the project’s location, is also part of the puzzle. 

In a recent webinar on California’s mechanic’s lien, bond claim and stop notice provisions, presenter Chris Ring of NACM’s Secured Transaction Services said potential claimants can take two bites of the apple on privately owned pieces of property. The two ways claimants can secure an interest are in the property with a mechanic’s lien, and “the second bite of the apple” is the private stop notice also known as public improvement liens in other states. While the lien on the property makes the owner accountable, the stop notice, which halts funds between the owner and general contractor, makes the general contractor accountable. 

So, with two avenues to security, which one makes the most sense to follow? Unfortunately, Ring said, at the start of a project, it might not be known what carries more weight to push money down stream. He recommended following both paths. Both require sending the preliminary notice within 20 days of first furnishing; however, there are some speed bumps, such as unlicensed contractors being barred from enforcing mechanic’s lien. Those supplying material to an unlicensed party still have lien rights. 

Other speed bumps to consider in California are, if the value stated on the original preliminary notice is exceeded by 10% or more, a new notice must be served. Construction lenders, if any, must also receive a copy of the preliminary notice, and the lack of knowledge of the construction lender does not relieve this responsibility. More than one lien can be filed—a second lien can be filed if the first lien was voluntarily released, and the second lien met the statutory deadline. A cessation of labor for a continuous 60 days can trigger the need to file a mechanic’s lien. 

Another important item to remember is things move quickly in California. Lien claimants have 90 days once a lien is served to file suit, and a failure to file a lawsuit to enforce lien rights can cause the lien to be invalid. This can get complicated, and it might depend on how much a company is owed. Is it worth filing a lawsuit for $5,000 in unpaid bills, asked Ring. Maybe, maybe not. 

On the public side, claimants will be serving a notice to claim against the payment bond—also 20 days from first furnishing—rather than the piece of property. This holds the bonding company and general contractor accountable. Public stop payment notices work similar to the private side. 

If a preliminary notice is not sent within the 20-day time period, all is not lost. A claim can still be sent, but the bond claim will only be against unpaid balances between the owner and general contractor. Again, the question is, which path should be taken—bond claim or stop payment? 

“The stop payment notice attaches to undispersed construction funds, directly impacting the funding for a general contractor on public or private jobs,” said a California attorney. Most companies don’t know about or feel comfortable using the stop payment notice—losing out on a path to payment.


Online Courses

Keep current with today’s credit and risk management strategies. Save the dates for FCIB’s autumn online workshops: 9-10:30 am ET, Sept. 15 and 17. Sign up for one or both sessions. 

These workshops strive to answer some of the important questions now facing credit managers. How are you adapting to today’s environment? Our experienced panel of speakers will share best practices for managing the big issues and challenges affecting credit and global risk today. FCIB members register free. 

Note: FCIB members gain ICEU points, which count towards their ICCE designation. Nonmembers can register for either workshop for $75 each or $100 for both.


Fraudulently Filing Lien Backfires on Contractor

—Bradley Arant Boult Cummings LLP

Liens represent one of the primary mechanisms by which contractors, subcontractors, and other downstream parties secure payment rights under a construction contract. When utilized properly, filing a lien may induce an owner to release funds that are undisputedly owed to the lienor. However, when a party’s lien filing is delinquent or defective, and the party refuses to discharge or withdraw the defective filing, that party may be liable to the owner of the liened property. Potential lienors must avoid any knowing misrepresentations when filing liens, as the decision may come back to haunt them. The Florida Second District Court of Appeal’s recent opinion in Witters Contracting Co. v. West describes some of the pitfalls that may befall a contractor who is found to have abused the lien filing process. 

In that case, a couple entered into a cost-plus agreement with a contractor, Witters Contracting Company, to build a new home. Nine months into the build, the relationship soured, and Witters sent a demand for $30,000 to the new homeowners. Witters coupled the demand with a threat to file a lien for $100,000. Witters followed up this demand with a letter from its lawyer asking the homeowners to pay $59,706 and enclosing supporting documentation. Six days later, Witters filed a lien stating an unpaid balance of $75,000. 

The homeowners filed a complaint against Witters alleging fraud and slander of title. Witters counterclaimed for breach of contract and quantum meruit. The homeowners then moved for summary judgment on their claims and Witters’ counterclaims. The trial court granted the summary judgment motion finding: 

[T]he liens filed by Defendants were compiled with such gross negligence as to the amounts claimed therein to constitute willful exaggerations. The willful exaggerations were material and substantive in nature and the liens are deemed fraudulent by the Court. …The Defendants’ filing and recording of the fraudulent liens constitutes a slander of title upon Plaintiffs’ real property. 

After a trial on damages, the trial court awarded the homeowners over $180,000, which included punitive damages, attorneys’ fees, and costs. The contractor appealed. 

On appeal, the Second District Court of Appeal affirmed the trial court’s summary judgment ruling and damages judgment. However, the court did reverse the trial court’s finding that the owner of Witters was personally liable for the judgment. 

Takeaways from Witters Contracting 

The proliferation of lien forms and software/applications to simplify completing those forms has made the process of filing liens more accessible throughout the construction industry. However, increased accessibility may come at a cost if companies do not fully appreciate the legal implications of filing liens. 

Filling out a form with incorrect information or filing a lien after your rights have expired may subject you to substantial liability if, like Witters Contracting, you are found to have fraudulently filed and/or slandered the title of an owner through the defective filing. Whatever leverage you hope to create by filing a lien may not offset the consequences of a defective filing. 

Additionally, for upstream parties facing improper liens, the decision in Witters Contracting should provide some insight on how to navigate a dispute with a subcontractor or supplier who refuses to discharge a defective lien. If the lien is holding up a transaction or otherwise threatening the use of your property or the owner’s property (if you are a contractor), you may have an action for fraud or slander of title that ‘has some teeth.’ Consider all your options before bonding the lien off or succumbing to the demands of the lienor. 


Republished with permission. The article, “Fraudulently Filing Lien Backfires on Contractor,” was published on BuildSmart by Bradley Arant Boult Cummings LLP. Copyright 2020. 

David Pugh represents owners, general contractors, subcontractors, engineers, architects, insurance companies and sureties throughout the United States. 

Aman Kahlon represents owners, general contractors, and subcontractors.


Online Courses

Serving a preliminary notice correctly can be the difference between getting paid in full or taking a full write-off.

Before joining the operations team, NACM’s STS managers worked in construction credit. They view your construction projects through the lens of a construction credit professional to assure the reputed owner has been verified and all aspects of the preliminary notice are triple checked. These extra steps assure the preliminary notice we file for you is statutorily compliant and can stand up to the scrutiny of opposing counsel. They’re also available to consult with you by phone or email about your project. 

The likelihood of filing a mechanic’s lien and filing suit is more prevalent during economically uncertain times. Trust the experts to assure your job accounts are paid in full! 

For more information, call Chris Ring at 410-302-0767 or visit www.nacmsts.com



What If the Contractor, Rather Than the

Owner, Signs a Notice of Commencement?

Is the Notice Defective And, Therefore,


—Matthew Meyer

Under Florida lien law, a Notice of Commencement is a form document the property owner is generally required to sign and record in the public record before commencing any improvements to real property. One of the purposes of the Notice is to provide potential lienors with information they will need to file a lien if they are not timely paid. The statute governing the Notice states that “the owner must sign the [Notice] and no one else may be permitted to sign in his or her stead.” Fla. Stat. § 713.13(1)(g). However, despite this statutory language, a Florida appellate court recently held that a Notice signed by a contractor—not by the owner—was effective. See Edwin Taylor Corp. v. Mortgage Electronic Registration Service, Inc., Case No. 2D19-1531 (Fla. 2d DCA June 17, 2020).

This issue of first impression arose because of a disagreement between a lender and a subcontractor regarding the date the subcontractor’s lien was deemed filed. In general, the effective date of a lien relates back to the date of the Notice of Commencement. The appellate court explained the issue as follows: “The issue before us is one of first impression in this court—whether the failure of the owner to sign the notice of commencement renders the notice invalid so that a lienor who strictly complies with the construction lien laws and properly perfects a claim of lien is precluded from having its lien relate back to the date of the recording of the notice of commencement under section 713.07.”

The general factual circumstances leading up to the dispute were described by the appellate court:

On January 7, 2014, the general contractor, Griffin Contracting, Inc., executed and recorded a notice of commencement. For all purposes the general contractor’s notice of commencement was complete and accurate, with the exception that it was not signed by the owner of the property. Notwithstanding, the owner was aware of the general contractor’s notice of commencement and made no objection to the same, nor did the owner terminate the general contractor’s January 7, 2014, notice of commencement. No lender was listed on the January 7, 2014, general contractor’s notice of commencement. The following day, January 8, 2014, BB&T recorded a mortgage against the subject property and recorded its own notice of commencement, listing BB&T as the lender. BB&T’s notice of commencement was signed by the owner of the property.

Edwin Taylor, who subcontracted with the general contractor to perform construction improvements on the property, served a notice to owner pursuant to section 713.06(2)(a) and eventually recorded a construction claim of lien against the property on September 25, 2014, for work performed. When efforts to collect the monies due under the lien failed, Edwin Taylor filed suit to foreclose its lien free and clear from all other claims—including BB&T’s claim.

Id. at *1. Thus, the facts of the case presented a clear question of whether the Notice of Commencement was valid. If the Notice was not valid, then the subcontractor’s claim of lien was junior to the bank’s mortgage lien.

In deciding that the Notice was valid, even though the owner did not sign the Notice as required by the governing statute, the appellate court relied primarily upon case law that requires merely substantial, rather than strict, compliance with the relevant statutory provisions. The appellate court also relied upon a general concept of fairness in this context, meaning that a subcontractor who follows the rules should not be punished by the owner’s failure to do the same. The court explained its holding:

Accordingly, we hold that a notice of commencement not signed by the owner, but instead signed by the general contractor with the owner’s authority, is not a nullity, per se, in a lien foreclosure action brought by a subcontractor where the subcontractor has strictly complied with chapter 713 and relies upon the defective notice of commencement, which is otherwise in substantial compliance with section 713.07. In other words, the lender may not use the deficient notice of commencement as a sword against a subcontractor who bears no duty to ensure the validity and accuracy of the notice of commencement. Therefore, the trial court’s entry of summary judgment in favor of the lender on this basis was error. Because there remain genuine, disputed issues of material fact, we reverse and remand for further proceedings.

Id. at *5.

The motto of this story: any subcontractor who performs work on a project should review the Notice of Commencement to determine whether the owner signed it. If the owner did not sign the Notice, the subcontractor should address the issue before performing any work. The alternative is to potentially litigate the issue later and hope for a fortunate result like the subcontractor was able to obtain in this appellate decision.


Matthew Meyer is the Managing Partner of the Tampa, Florida office of Ansa Assuncao LLP. His law practice focuses on the litigation of construction, real estate, and business disputes.