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COVID-19: Preserving Your Payment Rights through Lien and Bond Claims

March 20, 2020

Overview

The COVID-19 pandemic has caused more than just health concerns for our community—it has also created significant economic concerns. Jobsites are shutting down across the country and contractors are afraid that project funding will dry up, leaving them holding the bag for work performed. While contractors should always be preserving their payment rights on projects, now (more than ever) is a good time to double-down on those efforts, especially when it comes to preserving lien and bond rights.

To be clear, lien and bond claims are just one way to preserve payment rights. However, since these rights are statutory in nature, lien and bond claimants must strictly comply with the statutory requirements. In light of the uncertainties in the economy and whether owners can actually pay in the next few months, it is beneficial for contractors to revisit these requirements. Thus, the following is a helpful primer on lien and bond requirements in both Oregon and Washington.

1. Liens

Contractors, laborers, materialmen, equipment suppliers, subcontractors, and professional service providers have lien rights. To perfect a claim of lien, the claimant must record the claim of lien within 90 days in Washington and 75 days in Oregon. In both states, (1) lower-tier subcontractors and materialmen on commercial projects and (2) claimants on residential projects have additional requirements. The following is a helpful bulleted list for lien and bond claims:

a) Washington (Title 60.04 RCW)

  • Again, a claim of lien in Washington must be filed within 90 days of the last day of work or abandonment of the project.
  • The claim of lien attaches on the first day of work or when materials were delivered to the project.
  • The claimant must serve a copy of the claim of lien upon the owner of the property within 14 days of filing the lien.
  • The lien must be foreclosed within 8 months of recording.
    • Can be amended and re-recorded within 90 days of the last day of work.
    • Extends the time to foreclose.
    • Only substantive work performed on the project will extend the “last day of work.”
  • The lien must contain the following:
    • Claimant name, address, and phone number
    • First and last day of claimant’s work
    • Name of person indebted
    • Name of property owner
    • Legal description of the property
    • The principal amount of lien claim
    • Signed and acknowledged by the claimant, “who shall affirmatively state they have read the notice of claim of lien and believe the notice of claim of lien to be true and correct under penalty of perjury”
  • Pre-claim “Notice to Owner” is required to be provided by persons/entities working on the project even though not present on the project site, including:
    • Sub-tier subcontractors
    • Professionals
    • Material suppliers
    • Equipment supplier
    • Persons not required to give pre-claim notice include:
      • Persons who contract directly with the owner or owner’s common law agent
      • Laborers whose lien is based solely upon providing labor
      • First‐tier subcontractors who contract directly with the prime contractor
    • When to provide pre-claim notice
      • Commercial project: 60 days
      • Residential project: 10 days
    • Serve both the owner and general contractor via certified or registered mail with return receipt
  • Notice to customer
    • Must be provided by the prime contractor to the owner on a project before the start of construction, where the project is
      • Residential (four or fewer residential units and the contract price is greater than $1,000)
      • Commercial where the bid/contract price is between $1,000 and $60,000

b) Oregon (Chapter 87 ORS)

  • Again, a claim of lien in Oregon must be filed within 75 days of the last day of substantive work on the project (punch list and warranty work are excluded).
  • Must provide notice of the claim of lien “not later than 20 days from the date of filing” by mailing it to the owner and mortgagee.
  • Must provide notice of the claim of lien “not later than 10 days prior to commencement of the suit” by mailing it to the owner and mortgagee.
    • As a best practice, include this 10-day notice in the cover letter for providing the claim of lien.
  • The lien must be foreclosed within 120 months of recording.
    • There is no statutory authority to amend a claim of lien in Oregon.
    • Notice of claim of lien to be true and correct under penalty of perjury.
    • Pre-claim “Notice to Owner” is required on all:
    • Residential projects unless contract directly with owner
    • Required on commercial projects unless subcontractor supplying labor or materials and labor
    • The “Notice to Owner” must be provided within 8 days after the start of subcontractors’ work
      • Sent by registered, certified mail
      • Must be sent to preserve lien rights
      • Should also be sent to any mortgagees on property to preserve priority of lien over any mortgages
    • Other required notices for residential projects at time of contracting:
      • Consumer Protection Notice
      • Notice of Procedure
      • Information Notice to Owner
      • Maintenance Schedule (New Homes)
      • 3-Day Notice of Buyer’s Right to Cancel (3 Copies)

2. Public Works Bond Claims

A contractor cannot place a lien on property that is publicly owned; however, there are other options in both states to preserve payment rights.

a) Washington (Title 39.08 RCW)

  • On Washington public works projects in excess of $25,000, general contractors must post a payment bond usually in the amount of the contract price.
  • Lower‐tier subcontractors and material suppliers must give pre-claim notice to the prime contractor within 10 days after starting work.
  • All claimants must provide a Notice of Claim within 30 days after “acceptance of the work.”
    • “Acceptance” is an affirmative act by the public works owner.
    • The Notice must be delivered to the public works owner via hand delivery or certified mail with return receipt.
    • No deadline is provided in the statute—foreclose by general statute of limitations.
      • Six years for written contracts.

b) Oregon (Chapter 279C.600 ORS)

  • Bonds are required on public works projects valued at $100,000 or more ($50,000 or more for highway projects).
  • Notice of Claims must be provided 180 days after the day the person last provided labor or furnished materials
    • Sent to general contractor and public agency by registered or certified mail, or hand delivered.
  • The action shall be instituted no later than two years after the person last provided labor or materials.

These opportunities to secure payment are highly technical in nature, and generally must be strictly followed to ensure claim rights. The information provided is to help guide on securing payment on public and private projects. It is best to confer (promptly) with a legal adviser over these rights, and do not abandon hope because it appears that rights have been compromised. Review with counsel to exhaust your options. These payment rights may be the difference between getting paid and abandoning a claim.

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