In the construction industry, managing credit and securing payments can be particularly challenging due to the complexities of lien laws that vary from state to state. One crucial concept to grasp is double jeopardy in construction lien rights.

Handle.com’s Lori J Drake, CBA recently hosted a webinar titled “Is Your A/R Secure? How Lien & Bond Notices Can Secure Your A/R and Lower Your DSO.” Guest speaker Nicole Hicks, the Director of Credit at Elite Roofing Supply, shared insights on construction credit management, including the concept of double jeopardy.

In this article, we will explore the lessons shared by Hicks and delve into the intricacies of double jeopardy and strategies for effective lien management.

What is Double Jeopardy in Construction Credit Management?

Double jeopardy in construction lien rights refers to the ability of a subcontractor or supplier to secure payment from a property owner or general contractor, even if the initial payment was made to another party in the contracting chain. This concept is crucial for protecting your financial interests in the event of non-payment by intermediaries.

Hicks highlighted the importance of understanding this principle:

“Double jeopardy is a state that will allow you to collect a second time from a property owner or general contractor, as long as you take all the steps to protect yourself.”

Legal Framework and State-Specific Variations

Lien laws vary significantly across states, affecting how double jeopardy is applied and how construction companies manage their lien rights. For instance, some states require non-statutory notices to ensure double jeopardy protections are enforceable.

The most critical differences are timelines for filing liens, required notices, and the parties who must be notified. Each state has specific requirements for when and how these notices must be sent, affecting the enforceability of lien rights​.

For example, California requires a preliminary notice within 20 days of starting work, while Texas has different rules based on the type of property and work performed. Understanding these state-specific nuances is essential for maintaining lien rights across various jurisdictions.​

Strategies for Protecting Your Rights

To navigate the complexities of state-specific lien laws and ensure your rights are protected, consider the following strategies:

1. Send Non-Statutory Notices:
   • Even in states where non-statutory notices are not required, sending them can provide additional protection. Hicks emphasized that these notices can be crucial in states with strict lien laws, as they ensure that you can collect if the customer gets paid in full before you can execute your lien rights.
     
2. Understand Timelines and Requirements:
   • Familiarize yourself with the specific timelines and requirements for each state where you operate. This includes knowing when to file initial notices, notices of intent to lien, and the mechanics lien itself. Handle’s lien resources by state can be invaluable for this purpose​.
     
3. Utilize Technology:
   • Implement technology solutions to manage and track lien rights effectively. Platforms like Handle can automate the process, reduce errors, and ensure compliance with state-specific requirements. Hicks highlighted the benefits of such technology, noting that it significantly reduced the workload and improved accuracy in their lien management process:

Common Lien Management Pitfalls and How to Avoid Them

Despite best efforts, common pitfalls can derail lien management processes. Here are some critical mistakes to avoid:

• Incorrect Job Information:
  • Ensure accurate data entry for job information. An incorrect address or project detail can invalidate a lien. Hicks stressed the importance of accuracy, noting that small errors can have significant consequences:

“So having that little flag pop up (within the Handle app) and notify us that there’s an address mismatch on an invoice is a big deal. So that can be make or break for sure,” said Hicks.

• Missing Deadlines:
  • Missing a lien filing deadline can result in the loss of lien rights. Establish robust internal processes to track and meet all critical deadlines. Utilize reminders and automated systems to stay on top of timelines.
• Failure to Follow Through:
  • When you decide to file a lien, ensure you follow through with the necessary legal actions. Hicks shared a relevant case study where prompt and decisive action led to a successful resolution despite initial challenges:

“We just had a situation with a customer that’s going under, hasn’t officially filed bankruptcy or anything yet, but we were having a heck of a time getting the customer to communicate, respond to any payment demands. So we ended up executing on a nice high six-figure lien which got the property owner involved,” Hicks shared.

Conclusion

Understanding and managing double jeopardy in construction lien rights is essential for protecting your financial interests. By familiarizing yourself with state-specific lien laws, sending necessary notices, and utilizing technology, you can navigate the complexities of lien management effectively.

Remember, thorough job research, accurate data entry, and timely actions are key to maintaining and enforcing your lien rights.

For more detailed information on state-specific lien laws, consider resources like Handle’s lien resources by state to help you stay compliant across multiple jurisdictions​.

By taking proactive steps and understanding the legal landscape, you can secure your accounts receivable and lower your days sales outstanding (DSO), ensuring your construction projects’ financial stability and success.