Burrwood Law Group, PLLC

Preventing Payment Disputes – Best Practices for Contractors

2024-10-29T09:12:33Z

Preventing Payment Disputes: Best Practices for Contractors in Washington State Contractors face a wide range of challenges on construction projects, from ensuring quality workmanship to managing timelines and client expectations. In addition to delivering quality work on schedule, in order to succeed in this competitive business, contractors must also consider how to best prevent payment disputes in order to protect the financial wellbeing of their company. In Washington State, there are legal requirements and practical steps contractors should follow to safeguard their earnings and avoid costly disputes. Below, we outline the best practices every contractor should implement to protect themselves financially on construction projects. 1. Register with the State as Required by RCW 18.27 One of the most fundamental steps for contractors in Washington State is to ensure they are properly registered under the Washington Contractor Registration Act (RCW 18.27). This law requires all general and specialty contractors performing work in Washington to be registered with the Department of Labor & Industries (L&I). Failing to comply with this requirement can result in penalties, fines, and ineligibility to enforce contracts in court. Key Takeaway: Ensure your contractor registration is up to date, as it’s the foundation for your legal standing in contract disputes and to obtain payment for work performed. 2. Document All Contracts in Writing A written contract is essential for protecting your rights and defining the scope of work. Even for small projects, having a well-drafted agreement helps clarify expectations for both you and the client. At a minimum, your contract should cover:

The scope of work
Project timelines and milestones
Payment terms and schedule
Procedures for change orders
Warranties or guarantees

Washington State law favors contractors who have written agreements in disputes with clients. A clear and well-structured contract minimizes the risk of misunderstandings or financial disputes. Key Takeaway: Always use written contracts, and ensure they include detailed provisions to avoid future disagreements over payment or scope of work. 3. Bill Promptly According to the Billing Schedule An essential aspect of protecting your financial interests is adhering strictly to the billing schedule outlined in your contract. Prompt billing ensures that you maintain a steady cash flow throughout the project and allows for timely identification of potential payment issues. If the client is late on a payment or disputes an invoice, you’ll want to address it immediately rather than letting it affect future work. To further protect your right to payment, Washington law provides contractors with lien rights under the mechanics' lien statute (RCW 60.04). To preserve these rights, contractors must follow the statutory requirements, including sending a preliminary lien notice to the property owner within the specified time limits. Key Takeaway: Bill according to the agreed schedule and monitor payments closely to avoid falling behind or waiving your lien rights. 4. Clearly Communicate with Clients Maintaining clear, open communication with clients is essential to avoid misunderstandings. This becomes particularly important when unexpected issues arise on a project, such as delays, material shortages, or unforeseen conditions. Proactively communicating these challenges and the potential financial impact helps prevent disputes later on. Additionally, use professional language in emails, and confirm verbal agreements in writing to ensure there is no miscommunication. Key Takeaway: Clear communication fosters trust and helps reduce conflicts, especially when the project hits bumps in the road. 5. Document Change Orders, Delays, and Modifications Construction projects rarely go exactly as planned, and changes to the scope of work are common. However, any change to the original contract—whether it’s a change order, delay, or modification—needs to be properly documented and approved in writing by the client. Verbal agreements are not sufficient to protect your interests if a dispute arises later. Each change order should outline the additional work, revised costs, and how it impacts the project’s timeline. This level of detail ensures that you are compensated for extra work and that the client is fully aware of the changes. Key Takeaway: Always document any changes to the project scope, cost, or schedule in writing, with client approval. 6. Keep Detailed Records From start to finish, keeping detailed project records is key to avoiding disputes and protecting your financial interests. Maintain records of:

Contracts and change orders
Communications with the client (emails, letters, and meeting notes)
Work progress reports
Billing statements and payment receipts
Lien notices and releases

Having a well-organized paper trail can make a substantial difference in the event of a disagreement or legal action. Key Takeaway: Meticulous record-keeping is a crucial defense mechanism that can help you avoid or resolve disputes efficiently. 7. Secure Proper Insurance Coverage Construction projects involve significant risks, including property damage, injuries, and delays. Having comprehensive insurance coverage can help shield your business from unexpected costs that could harm your financial health. Some key types of insurance to consider include:

General Liability Insurance: Protects against claims of bodily injury or property damage.
Workers' Compensation Insurance: Required by law if you have employees, this insurance covers work-related injuries or illnesses.
Builders Risk Insurance: Covers damage to the project while it’s under construction.
Professional Liability Insurance: Protects against claims of negligence in design or consulting work.

Working without adequate insurance exposes your business to lawsuits, which can be financially crippling. Key Takeaway: Ensure you have appropriate insurance coverage to mitigate the financial risks associated with construction projects. 8. Vet Clients and Partners Thoroughly Before signing any contract, it’s important to perform due diligence on the client or any subcontractors and suppliers you plan to work with. You can research a client’s financial health, reputation, and history of project payments. A simple credit check or reviewing public records can alert you to red flags that may indicate potential payment issues or project delays. Likewise, thoroughly vet subcontractors and suppliers to ensure they are reliable and financially stable, as their performance directly impacts your ability to complete the project on time and within budget. Key Takeaway: Conduct background checks on clients, subcontractors, and suppliers to reduce the risk of payment issues and performance delays. 9. Protect Lien Rights Washington’s mechanics' lien laws provide contractors with a powerful tool to secure payment for work performed. However, to take advantage of lien rights, contractors must follow specific steps. Securing and enforcing of liens is a complex area of law and should be discussed with legal counsel, but consider the following as a starting point:

Send a Preliminary Notice to the property owner if you do not have a direct contract with them. This notice informs the owner of your involvement in the project and preserves your right to file a lien if necessary.
If payment issues arise, you must file a Claim of Lien within 90 days of the last day you performed work or supplied materials.
You have an additional 8 months to file a lawsuit to enforce the lien.

By properly utilizing lien rights, you create additional pressure for clients to settle unpaid balances, as a lien can cloud the title of the property and hinder its sale or refinancing. Key Takeaway: Understand and use your lien rights to secure payment, but be sure to follow the strict legal requirements to avoid waiving these rights. Conclusion By following these best practices, contractors in Washington State can better protect their financial interests and avoid unnecessary disputes. Contact Burrwood Law Group for assistance with ensuring compliance with registration requirements, developing clear written contracts, and protecting your lien rights. When these practices are in place, you’re better positioned to focus on delivering quality work and growing your business with confidence.

Understanding Seller Financing in Real Estate

2024-08-02T06:49:17Z

Are you considering buying or selling a property but finding traditional financing options too complex or restrictive? Seller financing might be the solution you're looking for. At Burrwood Law Group, we specialize in helping clients navigate the nuances of real estate transactions, including seller financing. In this post, we'll break down what seller financing is, how it works, and the benefits it can offer both buyers and sellers.

What is Seller Financing?

Seller financing, also known as owner financing, is a real estate transaction where the seller extends credit to the buyer to cover a portion or the entire purchase price of the property. Instead of obtaining a mortgage from a traditional lender like a bank, the buyer makes payments directly to the seller under agreed-upon terms.

How Does Seller Financing Work?

Agreement on Terms: The buyer and seller negotiate the terms of the financing arrangement, including the interest rate, repayment schedule, and any other relevant conditions.
Promissory Note: A legally binding promissory note is drafted, outlining the terms of the loan. This note acts as a contract between the buyer and seller. An attorney can assist in ensuring that the terms of the loan comply with applicable laws.
Down Payment: The buyer typically makes a down payment, which is a percentage of the purchase price.
Monthly Payments: The buyer makes regular payments to the seller, similar to how they would with a traditional mortgage.
Title Transfer: The title to the property may be transferred to the buyer immediately or upon full repayment, depending on the terms of the agreement.

Benefits of Seller Financing

For Buyers:

Easier Qualification: Buyers who may not qualify for traditional mortgages due to credit issues or lack of employment history can still purchase property.
Flexible Terms: Seller financing allows for more flexibility in negotiating interest rates, down payments, and repayment schedules.
Faster Closing: Without the need to navigate the traditional mortgage approval process, transactions can close more quickly.

For Sellers:

Attractive to More Buyers: Offering seller financing can attract a broader pool of potential buyers, including those who might not qualify for traditional loans. The ability offer lower interest rates can broaden the pool of potential purchasers.
Potential for Higher Returns: Sellers can earn interest on the loan, potentially resulting in higher overall returns compared to a lump-sum sale.
Faster Sale: Properties may sell faster since the financing is in place, reducing the time the property sits on the market.

Legal Considerations

Seller financing involves legal and financial complexities that require careful consideration. Here are some key points to keep in mind:

Legal Documentation: Ensure that all agreements are documented properly. This includes the promissory note, mortgage or deed of trust, and any other relevant contracts. In Washington State, property owners using seller financing must submit to the Department of Financial Institutions for a waiver of lender licensing requirements under the Consumer Loan Act. Additionally, Washington law establishes requirements regarding information that must be disclosed to the buyer regarding the loan.
Due Diligence: Both parties should perform due diligence. Sellers should verify the buyer's financial stability, while buyers should ensure the property's title is clear and the terms are fair.
Default Consequences: Clearly outline the consequences of default. This includes potential foreclosure processes and any penalties.
Professional Guidance: Working with a knowledgeable real estate attorney is crucial to navigate the legal intricacies of seller financing and to protect your interests.

How Burrwood Law Group Can Help

At Burrwood Law Group, our team can help you:

Draft and review all necessary legal documents
Negotiate favorable terms
Ensure compliance with state and federal laws
Address any potential legal issues that may arise

Whether you're a buyer or a seller, our goal is to make the process as smooth and secure as possible. Contact us today to schedule a consultation and learn more about how we can assist you with your real estate needs.

Conclusion

Seller financing can be an excellent option for both buyers and sellers looking for flexibility and efficiency in real estate transactions. However, it's essential to understand the legal and financial implications thoroughly. At Burrwood Law Group, we're here to guide you every step of the way, ensuring a successful and legally sound transaction. Reach out to us today to learn how we can help you on your real estate journey.

Subcontractors and Lien Notices

2024-07-18T05:50:19Z

In order to protect your lien rights as a subcontractor, it is important to understand the various notice requirements and responsibilities of the parties involved with a project. The prime contractor has the responsibility to not only notify customers of their exposure to liens, but also to notify all sub-contractors of: 1) the identity of the owner of the property, and 2) relevant information about the property. The information that must be provided includes:

Tax parcel or legal description of the property;
Street address;
Owner’s name, address, and phone number;
The prime contractor’s business name, address, and phone number;
Contractor registration number, and;
Either: 1) the lender’s name, address, and phone number, or 2) the name and address of any company that has issued a payment bond to the contractor.

This information must be provided by the prime contractor to “any person who has contracted to supply materials, equipment, or professional services or who is a subcontractor on the improvement.” Additionally, it must be provided upon request from the subcontractor (the request must include the subcontractor’s identity and mailing address). For contracts valued in excess of $5,000, the prime contractor must post the information at the site of the project. Subcontractors have a separate obligation to provide notice: the Notice to Owner. This is different from the Notice to Customer provided by the prime contractor. The purpose of the Notice to Owner is to ensure that property owners are aware of the identity of contractors who may have lien rights against the property. This notice requirement does not apply to claimants who have contracted directly with the property owner. Notice may be delivered by registered or certified mail or by personal service. The subcontractor is not required to prove that notice was received by the owner in order to pursue a claim. The Notice to Owner requirements may not apply based on the type of project. Special notice requirements exist in the case of work done on residential remodels or repairs and work on properties that are not owner-occupied single family residences. In the case of residential remodels or repairs, subcontractors must provide Notice to Owner unless they contracted directly with the owner-occupant, or are laborers whose claim is limited to the labor provided. Where the project involves a residence which is not an owner-occupied single-family residence, notice must be provided by subcontractors except for those who: 1) contracted directly with the owner; 2) are claiming for labor only, or; 3) are licensed subcontractors who have contracted directly with the prime contractor. Be aware that lien claims involve strict timeframes. Contact our office for assistance with protecting your lien rights.

Liens and Notice Requirements

2024-06-26T21:52:35Z

In order to preserve lien rights, contractors in Washington State are required to provide notice to property owners under certain conditions. Various requirements exist based on the nature of the property as well as the type of contractor involved. In situations where the contractor has performed repair, alteration, or construction of a residential building with four units or fewer, or the repair, alteration or construction of a commercial building where the contract price for the work done is greater than $1,000, but less than $60,000, in order to preserve lien rights, the contractor must provide a “Notice to Customer.” This notice is intended to provide a warning to owners, prior to performance of the work, that their property may be liened if payment is not made. Language for this type of notice is provided in the applicable statute (RCW 18.27.114). Residential buildings with five or more units are considered commercial property for the purposes of this section. In addition to giving the Notice to the customer, the contractor must obtain a signed copy from the owner and retain a copy of the signed notice for three years. The Washington Department of Labor and Industries has authority to request production of the Notice. There are no requirements as to how the Notice must be delivered to the customer, but it must be received by the customer in order to preserve lien rights. Timing of the Notice is also important, as it must be given before the start of work. Failure to provide notice prevents the contractor from bringing suit to enforce the lien. In our next article, we will discuss the notice that the prime contractor must provide to their subcontractors, as well as the required Notice to Owner from subcontractors.

Seller Financing and the Dodd-Frank Act

2024-06-06T03:40:45Z

Sellers who personally finance a transaction and allow the buyer to make payments directly to them over time can be impacted by certain aspects of the Dodd-Frank Act, particularly Title XIV, the Mortgage Reform and Anti-Predatory Lending Act. The Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly referred to as the Dodd-Frank Act, is a comprehensive piece of financial reform legislation enacted in 2010. The act was a response to the 2007-2008 financial crisis, which exposed significant weaknesses in the regulatory framework governing the financial industry. The Dodd-Frank Act introduced a wide range of measures aimed at addressing various issues within the financial system and promoting stability, transparency, and consumer protection. These measures impact many services offered to consumers, such as mortgages, credit cards, and other financial products. The mortgage reforms included in the Act promote responsible lending and borrowing practices by implementing rules related to mortgage underwriting and the securitization of mortgages. Among other provisions, the Act establishes requirements for when a licensed loan officer must be involved in the transaction. Sellers who provide financing are exempt from the requirements to involve a licensed loan officer if they do not meet the definition of a loan originator and the loan meets certain requirements. The Act provides a detailed definition of “loan originator,” but it generally applies to professional mortgage brokers or someone who negotiates credit terms. These exemptions apply to sellers who are financing a sale to an owner-occupant in a property with between one and four units. They do not apply if the sale involves commercial property or to an owner who will not live on the property. In addition, builders are prohibited from using owner financing. The Act creates two exempt categories of sellers who are providing financing based on the number of properties sold within a 12-month period, and applies different rules to each: The One Property Exemption:

Under the first special exclusion, if you are a seller financer that is a person, estate, or trust, you are not a loan originator if:
Seller only provides seller financing for one property in any 12-month period;
Seller owned the property securing the financing;
Seller did not construct, or act as a contractor of a residence on the property in your ordinary course of business.

Additionally, the financing must:

Not result in negative amortization;
Have a fixed rate or an adjustable rate that resets after five or more years. Based on regulatory guidance, an annual rate increase of 2 percentage points or less is reasonable. A lifetime limitation of an increase of 6 percentage points or less is reasonable.

The Three Property Exclusion Under the three-property special exclusion, if you are a seller financer (regardless of whether you are a person, estate, or trust), you are not a loan originator if:

Seller provides financing for three or fewer properties in any 12-month period;
Seller owned the properties securing the financings;
Seller did not construct, or act as a contractor for the construction of, a residence on the property in your ordinary course of business;
The financing must meet the following requirements:
- Be fully amortizing;
- Have a fixed rate or an adjustable rate that resets after five or more years. These rate adjustments may be subject to reasonable annual and lifetime limits. Further, the seller must determine in good faith that the consumer has a reasonable ability to repay the loan. If the financing agreement has an adjustable rate, the seller must determine the rate by adding a margin to an index rate. The index used must be widely available, such as the U.S. Treasury securities indices or LIBOR.

The main difference between these categories of sellers is that sellers who finance one property or less per year are not required to confirm the buyer’s ability to pay. Sellers who finance more than three properties per year are not exempt from the Dodd-Frank requirements. This group of sellers must consider the borrower’s ability to repay the loan based on eight separate underwriting factors. In addition, the lender must write a “qualified loan.“ To be considered “qualified,” the loan must met multiple requirements such as not including terms resulting in negative amortization, interest-only payments, balloon payments, or a duration exceeding 30 years. “No-doc” loans where the lender relies solely on the borrower’s statements regarding income or assets without separate verification are not qualified mortgages. Finally, a loan generally cannot be a qualified mortgage if the points and fees paid by the consumer exceed three percent of the total loan amount. Other provisions that apply to this group of sellers include a required 120-day period of delinquency prior to foreclosure, and a restriction on forced arbitration clauses. And, crucially, a mortgage loan originator is required to process the transaction. Seller financers who extend credit secured by a dwelling six or more times in a 12-month period year are generally considered creditors as opposed to loan originators under the act and are subject to additional regulation. Choosing to enter an owner-financed transaction can have benefits for both buyers and sellers. Buyers who have trouble qualifying for traditional loans due to self-employment or credit issues may find sellers more lenient in credit requirements than traditional loan originators, the closing costs related to traditional loans may be reduced or eliminated, the transaction process is often faster, and flexibility in the terms of the loan including interest rate, repayment period, and down payment can allow buyers to enter the property market without a large upfront investment. Sellers who offer financing can also benefit in a number of ways: they can attract a larger pool of buyers, including the self-employed, they may be able to obtain a higher overall selling price for the property when offering financing as the terms can be customized to justify the higher value, receiving payments over time as opposed to in a lump sum can provide tax benefits in some circumstances, and seller financing often results in a faster sale. Given the potential benefits to both sellers and buyers, seller financing is a powerful tool to create value in a real estate deal. However, the applicable laws are complex and involve various sections of the United States Code, as well as regulations and commentary issued by various federal agencies. Involving an attorney who can assist with Dodd-Frank compliance will help ensure the transaction is successful and guard against civil liability. -Zach Burr, J.D. Burrwood Law Group, P.L.L.C.

The importance of obtaining legal counsel for Home Owners Associations in Washington State

2024-06-06T03:42:23Z

Washington State allows Home Owners Associations substantial independence in the performance of their duties. The State does not require that board members be trained or receive any specific education on HOA management. Associations may craft CC&Rs, declarations, and other governing documents without oversight of any outside parties. Additionally, enforcement of those documents is the responsibility of the Association. Considering the flexibility the State allows HOAs, community residents who choose to serve on the Board for their Association should also be aware of the duty of care that the law requires of them. If the HOA or its board members do not fulfill their duty to exercise reasonable care, both the HOA and the individual members may be held liable for negligence or breach of fiduciary duty. In light of the substantial liability that both the HOA and its members face in the event that they do not fulfill their obligations to act with reasonable care, it is important to ensure that actions by the Board meet the requirements established by the governing documents of the Association as well as any legal requirements. HOAs can be impacted by a complex set of Federal, State, and Municipal laws and regulations. It is recommended that HOAs work with counsel to ensure that actions taken by the Board do not fall outside the legal requirements and give rise to a potential claim which could impact both the association and its individual members.

Washington Mechanic’s Lien Foundations

2024-06-05T04:34:39Z

The mechanic’s lien is a powerful tool to protect the rights and financial interests of contractors who provide labor, professional services, materials, or equipment for the improvement of real property in Washington State. However, the lien process requires following specific guidelines, and failure to do so can result in forfeiting the protections available. Contractors providing work done at the site which improves the property are eligible to file for a lien. Examples of eligible work include: construction, alteration, repair or remodel, and demolition. Landscaping and arboreal services are also eligible. Additionally, professional services such as architectural or engineering services which are performed on the property also qualify. Operative services by superintendents or foremen are lienable, while administrative tasks such as coordination or off-site project management is not. Construction professionals able to file liens include: contractors, materials suppliers, laborers, engineers, architects, equipment suppliers, developers, cabinet installers, arborists, developers, superintendents and consultants, among others. Crucially, a prime or general contractor must be licensed in order to assert a lien claim. And, a subcontractor who is, themselves, required to be licensed, can only assert a lien claim if the prime contractor for the project is licensed. Additionally, any party providing eligible services, materials, or equipment to a licensed subcontractor can establish a lien claim, even if there is a general contractor who is not licensed. Washington statutes differentiate between the notice required for claimants to obtain a mechanic’s lien. Prime and subcontractors have differing requirements based on the nature of the work performed and relationship with the property owner. In our next article, we will examine some of these differences to help contractors and subcontractors better understand the notice requirements. Contact Burrwood Law Group for assistance with understanding your lien rights, providing notice, filing, and enforcing liens.