Stop Notices and Mechanics Liens as Alternatives to a Claim in Bankruptcy

When a fund is owed money by a bankrupt signatory employer, the prospects of collection via the bankruptcy process can be unknown.  For these reasons, it is crucial to consider other avenues for collection and to act quickly.  Obtaining as much information as possible regarding the actual projects on which contributions are due and owing is also beneficial, as that information must often be gathered from other entities.

A mechanics lien is essentially a “hold” against property.  If unpaid, it allows a foreclosure action, potentially forcing sale of the property.  A stop notice is also a security device which creates a lien against construction funds. 

If contributions are owed on a private “work of improvement,” a fund may assert both a mechanics lien and a stop notice.  If contributions are owed on a public work of improvement, the fund may only assert a stop notice.  The deadline for doing so depends on whether a Notice of Completion or Notice of Cessation has been recorded.  You can check this with the local Recorder’s Office. 

It is also prudent to determine whether there was a bond on the project.  If so, a claim on the bond may be made directly to the bond company, and the deadline could be as soon as 15 days if a Notice of Completion or Notice of Cessation has been filed. 

There are many strict time limits and requirements that must be met to perfect your mechanics lien, stop notice and payment bond rights, so consultation with an attorney is necessary. 

These options may be much more likely to yield payment than the bankruptcy process, and should be considered in all cases where benefit contributions are not forthcoming.  In addition, even if you pursue other collections options, you may still file a proof of claim or pursue remedies in the bankruptcy action.  Attempts to collect from all potential debtors as quickly as possible will help maximize the likelihood of payment.

For more information about stop notices and mechanics liens, please contact your Trust Fund counsel.

By Jolene Kramer | February 26, 2014

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