Utah lien and bond law: Key essentials for securing payment 

In the high-stakes world of construction, securing timely payment is both critical and notoriously challenging for material suppliers, where delayed funds can jeopardize entire operations. To avoid these pitfalls, credit professionals can enforce their lien and bond rights on a project. 

Why it matters: Managing lien and bond laws can be intricate, but understanding the process is essential to securing payment. Staying informed on notice requirements, deadlines and enforcement strategies is key to successfully handling these challenges and safeguarding your lien and bond rights. 

Mechanic’s liens and payment bonds 

A mechanic’s lien is a legal claim on a property, typically filed by a contractor, subcontractor or supplier to secure payment for work or materials provided for the improvement of the property. “It is an involuntary encumbrance against the title to real property, allowing suppliers, subcontractors and contractors to foreclose and recover funds on a property,” Jason Robinson, Esq., shareholder at Babcock, Scott & Babcock, PC (Salt Lake City, UT), says.“A mechanic’s lien acts as an additional avenue of payment if a customer files for bankruptcy.” 

A payment bond is a financial guarantee, usually purchased by the contractor, that ensures subcontractors and suppliers will be paid for their work on a project. Payment bond claims are particularly important when lien rights may not be available or are limited, such as on public projects. 

If an owner fails to obtain a payment bond, subcontractors and suppliers who don’t have a direct contract with the general contractor may be at risk of not being paid. In such cases, the subcontractors and suppliers may consider filing a lien or a bond claim against the general contractor’s payment bond, if one exists, or pursue a breach of contract claim against the owner. 

Filing mechanic’s liens and bond claims in Utah 

To secure a mechanic’s lien in the state of Utah, credit managers must file a preliminary notice on the Utah State Construction Registry (SCR) website within 20 days of first furnishing services and materials. This is specifically done for state and private projects, both commercial and residential. Doing so will preserve the right to make a payment bond claim.  

To make a payment bond claim, credit managers should first file a preliminary notice and then a lawsuit against the bond within one year of last work. If the owner fails to obtain a payment bond, they’re required to provide a 90-day notice and then file a suit within one year.  

Communication is important to securing lien and bond rights. In the case a notice of completion (NOC) is filed—a document that formally declares a construction project is completed—credit managers should file the mechanic’s lien within 90 days. If no notice of completion is filed, they must file the mechanic’s lien within 180 days. They are required to mail a physical copy of the filed mechanic’s lien to the property owner within 30 days and should also file a lawsuit to enforce the mechanic’s lien within 180 days of recording the lien. Once payment is received, credit managers must release their lien within 10 days.  

The Utah Residence Lien Recovery Fund is an alternate payment source for contractors, laborers or suppliers whose liens are voided because a homeowner qualifies for protection under the Residence Lien Restriction and Lien Recovery Fund Act. If the Utah Residence Lien Recovery Fund is triggered and a Certificate of Compliance (CoC) is issued by mail, the lien must be released within 15 days of receiving that document. “Credit managers must first obtain a judgment and attempt collection before applying for the fund,” Robinson said. “It’s important to note that the total amount the state will pay on a project is $75,000. If you have multiple lien claimants, the lien recovery fund would divide that pro rata amongst them.” 

Ensuring compliance 

Credit managers must have as much accurate information as possible about all those involved in the project before filing a preliminary notice. “The SCR will ask for critical information from you and the person you’ve contracted, such as name, home and email address and phone number,” Robinson said. “They will also request the name of the owner of the project, the general contractor (GC) and subcontractor, the project address, the description of the location of the project and the name of the county where the project is located,” said Robinson. “I would encourage credit managers to include the tax parcel ID numbers of each location they’re performing work in for a project.” 

Accurate and timely filings are essential to avoid costly litigation. If the preliminary notice is filed late, it’s still considered valid, but its effective date is delayed. The lien or bond claim will only be effective for the amount of labor or materials supplied after the notice was filed, plus an additional five days. Failing to file a preliminary notice within the 20-day window can result in the loss of lien rights. While a late notice can still be filed and may offer some protection, it’s best to adhere to the 20-day deadline to avoid delays and potential issues. 

The bottom line: Before working on a project, credit managers must familiarize themselves with that state’s lien and bond laws to secure their rights. 

Learn more about lien and bond law by visiting NACM’s Secured Transaction Services (STS) website. Sign up now for the next free webinar on Hawaii lien and bonds on June 18!