Originally published in February 2017. Download the full white paper: Alabama Lien Law Primer
Lien
A qualified property right that a creditor has in or over specific property of his debtor, as security for the debt or charge, e.g., a mortgage, a security interest in a car, a materialman’s lien.
Materialman’s Lien
A generic name for a statutory lien on real property in favor of a supplier who has furnished metals for construction or improvements on the same real property.
I. Materialman’s Lien
Two types are available to the supplier where the materials are to be incorporated into a particular project. There are no lien rights if you cannot determine where the materials are going to be used (See “Project Information Sheet – Exhibit “A”.
- Full Price” Lien – Available only (1) if the supplier has a direct contract with the Owner, or (2) if the supplier sent a notice to the Owner before supplying materials to the property. The lien is to the full extent of the “owner’s” interest in the Property” Ala. Code § 35-11-210 (1975).
– You only need to issue a Full Price Lien Notice to the Owner if the supplier does not have a direct contract with the Owner (in words, if the supplier is a subcontractor, it will need to issue a Full Price Lien Notice; otherwise, the supplier should issue an Unpaid Balance Lien Noice which is discussed below).- It is important to have the correct name, address, and legal entity of the Owner so that this notice can be properly completed and delivered.
2. “Unpaid Balance” Lien – Available if the supplier has a direct contract with the Owner. Also available where there is no contract between the Owner and the supplier, and no notice has been sent to the Owner. This lien only exists if the Owner owed the supplier money at the time the Owner received notice from the supplier of its intent to claim a Lien. Ala. Code § 35-11-218 (1975).
– The purpose of the notice to the Owner is to protect the Owner from the possibility of paying twice for the same work.
– If the owner does not owe the supplier any money on the date that the notice is given, then the supplier does not have a lien.
3. Procedure for Perfecting Lien Rights
a. Full Purchase Price
(i) If no direct contract with the Owner, send a notice to the Owner advising that you are about to supply materials to the property and if not paid by the Contractor, the supplier will look to the property to get paid (See Full Price Lien Notice attached as Exhibit “B”).
BEWARE – This Notice should be sent before delivering the material, or the Full Purchase Price may be jeopardized.
(ii) File a Verified Statement of Lien with the Probate Court in the County in which the property is located, within four (4) months of the last date materials were delivered to the property. Ala. Code § 35-11-215 (1975) (See Verified Statement of Lien attached as Exhibit “C”).
BEWARE – You must keep track of when materials were shipped to the Property, and not let the four (4) month window for filing the Verified Statement of Lien pass. Furthermore, coming back to the site to do warranty work or to replace defective items will not extend the time to file a lien.
b. Unpaid Balance Lien
(i) This is the lien form that the supplier will use most of the time.
(ii) Deliver Notice to the Owner advising of nonpayment for work performed, or materials supplied, to the property. Ala. Code § 35-11-218 (1975) (See Unpaid Balance Lien Notice attached as Exhibit “D”).
– When there is no contract with the Owner and/or no prior notice of lien rights, it is imperative that the supplier do this immediately because it fixes its rights as to whether it will have any lien. If the Owner pays the contractor before this is filed, the supplier will have no rights.
(iii) File Verified Statement of Lien in the Probate Court in which the property is located, within four (4) months of the date of last materials supplied (See Verified Statement of Lien attached as Exhibit “C”).
(iv) File suit in the County in which the property is located, within six (6) months of the date the debt became due. Ala. Code § 35-11-215 (1975).
II. Importance of Proper Information on Customer in EstablishBing a New Account
- Nothing is more helpful in collecting a debt or enforcing a lien than knowing “who” “what” “when” and “where.” This information is included in the Credit Application & Agreement, but only if it is filled out correctly.
A. “What” is the legal entity with whom you have contractual rights.
– a trade name is not a person or legal entity against which we can enforce a contract, demand payment, or file a lien.
– it has to be a person or a legal entity
-
- Proprietorship/Person
- Corporation
- Partnership
- LLC
- LLP
B. “When” was the legal entity set up and when does it change?
– Confirm that the legal entity has been duly set up and registered with the Secretary of State.
– Execute a new Credit Application and contract whenever there is any change in ownership, name, or legal entity. Otherwise, there may not be an enforceable contract.
– Change in ownership or corporate status means, for purposes of collecting a debt, that the supplier has a new customer.
C. “When” was the legal entity set up and when does it change?
2. Small outfits may not have legal entity information readily available.
– You can look up any corporation, LLC or LLP using the Alabama Secretary of State website: https://www.sos.state.al.us
– You can determine whether they are active, and who the officers/incorporators are.
III. Methods of Insuring that the Supplier Will Get Paid for the Supplies It Sells
- Selling to credit-worthy customers
– A “Sale” is not a sale until the money is collected (until then it is a gift).
– Established businesses
– Good references
– Cash flow appropriate to the credit they are provided
– Knowing exactly who and where the customer is - Personal Guaranty
– This is a contract between the supplier and a third party that says that the third party will pay if the customer cannot or will not.
– Advantage: This procedure may allow you to sell to a customer who otherwise has questionable credit.
– Disadvantage: Worthless if the third party is insolvent, which is often the case where an owner, partner, or officer of a closely held company or partnership is guarantor. - Litigation
– Last resort indicating that the account has been poorly monitored and there will be no profit on the account.
– File suit based on lien rights, contract, and other theories.
IV. Supplier’s Lien Laws State by State
The following is a very brief description of key time-frames for notice of liens in a number of Southeastern states, as might be applicable to the supplier in certain circumstances.
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