Preliminary Notices: Unique Questions And Answers That May Surprise You

Part 1 of a 2 part series

During the past 25 years of preparing preliminary notices for our clients, our team has been asked a variety of questions that while we considered different or unique, they have proven to be invaluable and helpful for our clients. The following list features some of the most unusual questions along with the answers below including:

  1. Should the amount appear on all copies of the Preliminary Notice?
  2. What happens if we supply more than we originally estimated?
  3. If a Lender is added to the project after I serve my preliminary notice, do I need to serve the Lender?
  4. If I sign a Final Waiver and Release, get paid, then asked to provide additional work or materials to the same project, am I still protected?
  5. What happens if the owner is sent a first class certified mailing of my preliminary notice and the mailing is returned undelivered?

These are just a few of the questions we are asked about preliminary notices. Knowing how to answer these properly is something you should expect from your preliminary notice service. If you’re not receiving immediate and intelligent responses, hold on to your bootstraps. You could be in for a long and rough ride through the construction project accounts receivables protection maze.

So let’s break these down one at a time.

#1 Should the amount appear on all copies of the Preliminary Notice?

This first question concerns the amount listed on the preliminary notice. Your preliminary notice service company must comply with the State Statute to properly prepare your preliminary notice. Some states require that an estimated amount of your charges for the services or materials being provided are included while other states are not concerned about the amount and have no requirement at all for a declared value.

For example, Arizona is a state with unique requirements as it insists that the estimate is declared and should it exceed 20% of the original value you must serve an amended preliminary notice.

The bottom line is that the estimate component of the Preliminary Notice is all over the ballpark. If your notice service company is not on top of these requirements you may easily end up with a compromised preliminary notice.

Please keep the following in mind when declaring a value.

  • The estimate is for the amount the real property will be improved by your participation in the construction project.
  • If you are extreme when you declare this value you can compromise the notice.

For example, a company renting a tractor to help clear land is expecting to receive 3 weeks of rental income for an estimated value of $3,000.00. However on their preliminary notice they list their estimated value as $73,000.00. This is done because they want to protect the value of the tractor in the event it is damaged or stolen. This is an extreme over estimate because the tractor will not become part of the improvement. Only the rental income should be declared because that is what it will cost the owner for the equipment being used.

When you over estimate the preliminary notice value all sorts of chaos can evolve and could ultimately throw the entire project into a construction lenders nightmare. Our best advice is to include exactly what is required by the state statute. Adding abstract amounts will not protect the value of the tractor and could cause you lots of grief with your customer.

#2 What happens if we supply more than we originally estimated?

Supplying more than you originally contracted can be tricky when it comes to protecting your lien rights. If the increased amount is just to cover unexpected overrides on the project you can usually rest upon the “good faith” estimate you included in the original notice. (Arizona is the only exception should the overrides exceed 20%.) However, if your overrides start to become substantial and beyond the scope of the original proposal, you are wise to have an amended preliminary notice served. You will want to notify all of the parties who were served the original notice that your amount has increased substantially and that you want them to be aware of their liability for the expanded amount of your potential lien claim.

One key point when serving an amended preliminary notice is that you never want to compromise the date the original notice was served. Therefore, your amended notice must declare that you are amending a preliminary notice that was originally served at a prior time.

We will cover the next four questions in part 2 of this series. Remember, if you have any questions regarding your Preliminary Notice, please let us know. We would be glad to help you! For more information about our services or to receive a proposal for your notice preparation needs, click here.

Aaron Blum

Director of Business Services at CRM Lien Services Inc.