There are few things more frustrating than not getting paid for services and/or goods provided to a customer. It is especially frustrating when the amounts owed are fairly modest because multiple, small delinquent accounts can add up to a hefty sum and affect cash flow. Plus, a provider of services and/or goods should be paid for what it delivered! So, what are the options for obtaining payment from a delinquent customer/client?

First, consider whether the amount is worth pursuit. As an attorney, I am often told that the quickest way to get sued by a client/customer (warranted or not) is to sue the client/customer to recover a debt owed for services provided. Thus, before undertaking collection action against a delinquent customer, consider whether the account is a “problem” account that has a heightened risk for a claim. If so, it may be better to forgo a collection action and “hold” the balance owed on the account as potential leverage, or an offset, in any future adverse action.

For all delinquent accounts, it is also likely best to wait to pursue a collection action until the statute of limitations for a negligence/malpractice claim has run. By way of example, in Oregon and Washington, the statute of limitations for a malpractice claim runs several years before the statute of limitations runs for a breach of contract claim. Filing a collection action after the statute of limitations for the negligence claim has run should reduce potential exposure to such a claim. Therefore, it is prudent to determine the applicable statute of limitations in one’s state for each of these types of claims before undertaking collection action, particularly for a “problem” matter.

Having a clear and concise written agreement with the customer that sets forth the terms and conditions that govern the services and/or goods provided will significantly enhance the likelihood of success in any collection action. Such an agreement can also provide the right to recover attorney fees, collection agency fees and/or collection costs incurred in collecting on a delinquent account. It can also establish where a lawsuit must be filed and, potentially, be used to limit liability to a customer.

Depending on the amount owed, the venues for a collection action can either be in small claims court, where parties can represent themselves, or in state district or circuit/superior courts. In the latter forum, a corporation or a limited liability company likely will need to hire counsel for representation. In Oregon, for example, such business entities cannot represent themselves in circuit court.

Rather than pursue the claim oneself, a party could tender the delinquent account to a collection agency. Most agencies operate on a contingent fee basis, so only the hard costs associated with collection must be paid. While paying a contingent fee can be unpalatable, 75 percent of something is better than 100 percent of nothing. Indeed, in some instances, employing a collection agency can be a preferable alternative to paying an attorney on an hourly basis to pursue collection. Things to consider when deciding whether to use a collection agency or an attorney are: the amount at issue (a higher amount disfavors a contingent fee arrangement); the likelihood of collecting the amount owed (lower collectability favors a contingent fee arrangement); and whether the matter will be “hotly” contested (if yes, a contingent fee arrangement is usually better because litigation costs are higher). In any event, hiring a third party to handle the collection matter is usually a better business decision because it allows one to spend time running the business rather than sitting in small claims court.

Once a court enters a judgment against the delinquent customer, the most popular (and usually most cost-effective) collection tool is a writ of garnishment. A writ of garnishment, generally speaking, typically allows money to be “taken” from the customer’s bank account or paycheck to pay the amount owed to you. In Oregon, a writ of garnishment issued to banks is particularly effective because the writ may be issued by an attorney, and the writ hits all accounts held by the debtor at the garnished bank. In Washington, writs of garnishment are more complicated, must be issued by the court, and are less cost-effective.

The issuance of a writ of garnishment, whether successful or not in “hitting funds,” often persuades a customer with assets to pay the debt to avoid further collection action. Of course, if the customer has no assets, the judgment may not be worth the paper it is printed on. Regardless of the states you do business in, the old adage is true – you can’t get blood from a stone.

William Fig is a partner in Sussman Shank LLP’s litigation and construction practice groups. Contact him at 503-227-1111 or wfig@sussmanshank.com.

The post OP-ED: Practical collection alternatives in non-lien situations appeared first on Daily Journal of Commerce.

In June 2013, the Oregon Supreme Court, in Brandrup v. ReconTrust Company, addressed whether Mortgage Electronic Registration Systems Inc. (MERS), as nominee for the original lender and the lender’s successors and assigns, could be identified as the beneficiary of record of a deed of trust.

In this case, the court made several rulings that ended up affecting other parties in the foreclosure industry. First, the court defined a deed of trust beneficiary as “the person to whom the obligation that the trust deed secures is owed.” The court also held that, when a note is transferred from party A to party B, regardless of who is the named beneficiary in the deed of trust, the beneficial interest in the deed of trust securing the note is, as a matter of law, assigned to party B. The court found that assignments that occurred as a matter of law did not need to be recorded with the county recorder’s office.

After the Brandrup decision, most MERS deeds of trust are judicially foreclosed and, as a result, MERS-related litigation in Oregon now seems to have largely run its course. However, the court’s decision, particularly the ruling regarding assignment as a matter of law ruling, has generated a new round of litigation, this time against lenders and loan servicers.

This new litigation focuses on whether a loan servicer may act as the beneficiary of a deed of trust and whether, upon the transfer of a note, the servicer for the new note owner may be assigned a deed of trust. The answer lies in the interplay between, and harmonization of, the definition of a beneficiary, the Oregon Trust Deed Act’s criteria, and Oregon’s “servicer statute,” which allows a servicer to take certain actions on behalf of a lender.

The OTDA provides that a nonjudicial foreclosure may not be initiated unless “the trust deed, any assignments of the trust deed by the trustee or the beneficiary and any appointment of a successor trustee are recorded in the mortgage records in the counties in which the property described in the deed is situated.” Oregon’s statutes generally allow a servicer, in its own name or in the name of the lender/owner of the note, to bring and maintain “a suit or action to collect amounts owed on a mortgage banking loan or mortgage loan, including but not limited to exercising contractual, statutory or common law remedies such as injunction, specific performance, judicial or nonjudicial foreclosure or receivership.”

The Oregon courts have routinely held that a servicer may file a judicial foreclosure action in its own name, so long as the party for whom it is servicing owns or holds the promissory note at the time the suit is filed. Proving that the owner or holder of the note authorized the servicer to bring the lawsuit may be required to establish the servicer’s standing to act as the plaintiff of the foreclosure suit.

There is no state court appellate decision regarding the proper role of a servicer in a nonjudicial foreclosure. However, the Oregon federal district court has held that the servicer, with the note owner’s permission, may act as the beneficiary of a deed of trust. The Oregon federal district court further held that when a note is transferred to a new owner, the recording of an assignment of the deed of trust to the new note owner’s servicer satisfies the OTDA’s recording prerequisite to initiate a nonjudicial foreclosure. In other words, in such an instance, there is no need to record an assignment of the deed of trust to the note owner.

The federal court’s rulings harmonize the OTDA’s foreclosure requirements with the servicer’s right, under Oregon law, to initiate a nonjudicial foreclosure in its own name. Moreover, because a servicer collects payments and enforces the terms of a note and the deed of trust, it meets the Brandrup court’s description of a beneficiary. These issues, which have important implications regarding a servicer’s handling of a loan owned by the Federal National Mortgage Association, are currently pending before the Ninth Circuit Court of Appeals, with oral argument presented to the court on Nov. 6, 2015.

William Fig is a partner in Sussman Shank LLP’s litigation and construction practice groups. Contact him at 503-227-1111 or wfig@sussmanshank.com.

The post OP-ED: Oregon foreclosure litigation — round two appeared first on Daily Journal of Commerce.

In the construction industry, “substantial completion” is a loosely and often-used phrase. However, this term has a specific and significant meaning in the context of construction lien claims.

Oregon statutes set forth a specific notice procedure for declaring a project “substantially complete.” Once the statutory procedure has been properly completed, a rebuttable presumption is established that the project is, in fact, substantially complete. If a lien claimant’s 75-day deadline to record a construction lien has not already begun to run, the designation of the project as substantially complete will start the clock. Because the failure to timely record a lien is an absolute defense to a lien claim, as one might suspect, there has been significant lien-related litigation regarding the issue of substantial completion.

However, in April of this year, the Oregon Supreme Court issued two decisions regarding “substantial completion” in the area of claim preclusion. Both of the cases show the importance of a contractor obtaining the owner’s written acceptance of a project in order to trigger any contractual or statutory time limits on construction-related claims.

In the first case, PIH Beaverton LLC v. Super One Inc., the court addressed whether the plaintiff’s construction defect claim was barred under ORS 12.135, the applicable statute of limitations for such claims. The 10-year limitation under ORS 12.135 begins to run upon the “substantial completion” of the project, which the statute defines as “the date when the contractee accepts in writing the construction, alteration or repair of the improvement to real property or any designated portion thereof as having reached that state of completion when it may be used or occupied for its intended purpose or, if there is no such written acceptance, the date of acceptance of the completed construction, alteration or repair of such improvement by the contractee.” The court held that the posting and filing of a notice of completion by the owner pursuant to the Oregon lien statutes did not necessarily establish that the owner accepted construction of the improvement as complete. The notice of completion only established that the owner was taking responsibility for the use and maintenance of the portion of the project that was sufficiently complete for its intended use and occupancy. Thus, the court concluded that the completion notice did not conclusively establish the date that the statute of limitations began to run regarding the plaintiff’s construction defect claims.

The second case, Sunset Presbyterian Church v. Brockamp & Jaeger Inc., involved a construction contract in which it was specified that any claims arising from the construction would accrue on the “date of substantial completion”. The trial court granted the defendants’ motions for summary judgment based on the grounds that the plaintiff failed to file its claim within the time specified by the contract, or within the time allowed under ORS 12.135. The plaintiff appealed. The Supreme Court held that the plaintiff occupying the property for its intended purpose on a particular date did not necessarily establish that the project was substantially complete at that time and, therefore, was not conclusive proof that the plaintiff’s claims started to accrue on that date. Absent a certificate of substantial completion from the architect, whether the plaintiff’s claims accrued under the contract’s limitation clause was a question of fact for the trier of fact. Because the owner contested the date that it accepted the project, the court held that the occupation of the property, by itself, did not trigger the 10-year statute of limitations under ORS 12.135.

Both of these cases may be examples of “good facts make bad law,” but they nevertheless show the importance of a contractor establishing, in writing, the date the owner accepts the project as complete. A contractor may no longer rely on an owner’s completion notice to establish “substantial completion” of the project needed to trigger the statute of limitations on a claim. Thus, absent the owner’s written acceptance of completion, when asserting a statute of limitations defense to a construction-related claim, it appears a contractor may well be stuck litigating a potentially expensive factual dispute regarding when the owner accepted the project.

William G. Fig is a partner in Sussman Shank LLP’s litigation and construction practice groups. Contact him at 503-227-1111 or wfig@sussmanshank.com.

The post OP-ED: Beware elusiveness of substantial completion appeared first on Daily Journal of Commerce.

The landscape for residential lenders in Oregon and Washington is changing quickly. Three recent appellate court opinions have the potential to significantly impact how residential lenders do business in the Pacific Northwest.

Two of the opinions involve whether Mortgage Electronic Registration Systems Inc. may be a beneficiary of a deed of trust – and if not, what effect, if any, MERS’ involvement has on the non-judicial foreclosure of a deed of trust where it is named the beneficiary. The third opinion involves condominium homeowners association liens.

The Washington Supreme Court and the Oregon Court of Appeals both ruled recently that MERS did not meet the statutory definition of a “beneficiary,” as set forth in each state’s respective trust deed acts. Thus, under the current state of law in Oregon and Washington, MERS can no longer non-judicially foreclose a deed of trust as the beneficiary of the deed of trust.

The Oregon court went a step further by stating that each transfer or sale of the promissory note secured by the deed of trust resulted in an assignment of the deed of trust. The court’s opinion appears to say that, prior to non-judicially foreclosing a deed of trust, each transfer or sale of the note must be recorded in the real property records of the county in which the subject property is located.

This raises the question whether it is possible (or practical) in Oregon to non-judicially foreclose a deed of trust that has been securitized or where MERS is in the chain of title. The Court of Appeals’ decision has been appealed to the Oregon Supreme Court.

The Washington Supreme Court did not rule on the question regarding the legal effect of MERS being named as the beneficiary of a deed of trust; however, it did comment that “having MERS convey its interest” to the current lender prior to a non-judicial foreclosure would not establish that the lender owns the loan – a requirement for foreclosure. The court’s less-than-clear opinion will surely generate more litigation in this area.

With respect to HOA liens, the Washington Court of Appeals recently held that a purchase money lender/mortgagor does not have a statutory right to redeem a judicially-foreclosed HOA condominium lien.

Washington’s redemption statute, written in the late 1800s when first in time meant first in priority, requires the redeeming party’s interest to be subsequent in time to the foreclosed party’s interest. The condominium statutes, enacted much later, give an HOA lien partial “super priority” over existing encumbrances.

The court strictly construed the statutes and held that “time” did not equate to “priority.” Therefore, a lender with a deed of trust recorded prior in time, but partially subordinate in priority to a later-in-time HOA lien, is not a redeemer under the Washington statute.

This means that the lender cannot ignore the lawsuit brought to judicially foreclose the HOA lien. The HOA lien must be paid prior to the entry of a judgment foreclosing the lien, or the lender’s security against the condominium will be lost.

William Fig is a partner in Sussman Shank LLP’s business litigation and construction practice groups. Contact him at 503-243-1656 or billf@sussmanshank.com.

The post Court opinions could change residential lending appeared first on Daily Journal of Commerce.

Being in the construction industry is demanding enough without trying to keep up with legal changes. The last 12 to 14 months have produced a number of legal developments affecting the industry. Following are some of the more recent changes that may impact day-to-day operations of construction-related businesses.

1. Change to Oregon lien law: supplier’s customer must be licensed

As of Jan. 1, Oregon lien law changed significantly in regard to owner-occupied residences.

The new law generally provides that a subcontractor or a person supplying materials or equipment (the “claimant”) cannot file a lien against the owner’s property if the claimant has contracted with or is supplying materials or equipment to a contractor that was not licensed at the earlier of the time that: 1, the claimant contracted with the contractor; or 2, the claimant first provided labor, materials or equipment to the project.

This law imposes a new level of due diligence by supplier and subcontractors. It applies to all renovation, alteration or repair projects of owner-occupied residences.

2. Change to CCB surety bond claims: material suppliers and subcontractors benefit

In July 2010, the remedy available for a claim against a contractor’s bond based on “commercial structure” changed significantly to the benefit of a claimant.

Historically, a claim against a contractor’s surety bond filed with the Oregon Construction Contractors Board was generally not worth the effort because of the limited remedy available.

The main pitfall of such a claim was that recovery was limited to a maximum of $3,000, which applied to all subcontractor or material supplier claims made within a 90-day window. Thus, if multiple claims were made against the contractor’s bond, the $3,000 was split pro rata between all claimants.

Now, a claimant for such a project may reach the full amount of the contractor’s bond. Recovery is no longer capped at $3,000. Under the new rules, labor claims have priority over claims for materials up to the full amount of the bond.

Oregon Revised Statute 701.005 defines a “commercial structure” rather broadly. A “commercial structure” may be a “small” commercial structure or a “large” one. The definitions in ORS 701.005 are not obvious and, therefore, each definition warrants a careful reading.

Also of importance is that the amount of the contractor’s bond has increased. A contractor with a commercial endorsement must now post a bond between $20,000 and $75,000.

The amount of the bond depends on the “level” of the contractor’s endorsement and whether the contractor is a general or specialty contractor. However, a catch-22 may exist when a contractor with a residential endorsement (and bond) properly works on a small commercial structure. In that instance, the claimant’s recovery is limited to the amount of the contractor’s residential bond.

The rules regarding a CCB claim involving a residential structure have not changed and, therefore, it is generally not worth filing such a claim. However, the significant increase in the amount of the surety bonds and the ability of the claimant to reach the full amount of the bond makes a CCB claim on a commercial project a viable remedy for an unpaid subcontractor or material supplier.

3. Oregon CCB no longer adjudicating claims

As of July 1, the CCB (and the Office of Administrative Hearings) will no longer adjudicate claims. A claim or complaint may be filed with the CCB, but the CCB will only mediate or otherwise attempt to facilitate a settlement of the claim/complaint.

If the matter cannot be resolved, the claimant must file a lawsuit against the contractor to obtain a final judgment. The CCB will then issue a ruling requiring the surety to pay the judgment.

The new law particularly impacts material suppliers who historically made smaller claims on residential projects, most resolved within the CCB’s dispute resolution system. The good news for these claimants is that jurisdictional amount for small claims recently increased to $10,000.

The CCB did not adjudicate claims on commercial projects, which required the claimant to file a lawsuit. Thus, the remedy against a commercial contractor’s surety bond was not impacted by this new law.

4. Washington court confirms pro-rata rule regarding multiple claims against the same surety bond

The Washington Court of Appeals recently clarified the priority of claims against a contractor’s surety bond under RCW Chapter 18.27. The court held that “first in time, first in right” did not apply to such claims.

When multiple claimants of the same “class” (or priority) have concurrently pending claims, the claimants receive a pro rata distribution of the bond proceeds. Thus, unlike claims against a cash deposit/security, there is no “rush to judgment” on surety bond claims. All “equal” claimants asserting valid, concurrent claims will be paid pro rata from the bond proceeds.

William Fig is a partner in Sussman Shank LLP’s business litigation and construction practice groups. Contact him at 503-227-1111 or billf@sussmanshank.com.

The post 4 changes to construction law you should know about appeared first on Daily Journal of Commerce.

In Oregon, all contractors must be licensed with the Construction Contractors Board. As part of the licensing requirement, a contractor must post a surety bond with the CCB. If a subcontractor or material supplier (collectively, the “claimant”) is not paid by the contractor, then the claimant may file a claim against the contractor’s bond with the CCB.

While the CCB process is generally user friendly, historically there were several “downsides” to asserting a CCB claim; most involved the limited remedy available to the claimant. First, for a residential project, a homeowner’s claim against the contractor’s bond had first priority and reached the entire the amount of the bond. Second, for commercial and residential projects, a claimant’s recovery was limited to a maximum of $3,000.

Moreover, the $3,000 cap applied to all subcontractor or material supplier claims made within a 90-day window. Thus, if multiple claims were made against the contractor’s bond, the $3,000 was split pro-rata between all of the claimants. As a result, in most instances, it was not economically worthwhile to file a CCB claim.

However, in July 2010, the remedy available to a claimant changed significantly, at least for commercial projects. Now, for a claim based on work performed on, or materials supplied to, a “commercial structure,” a claimant may reach the full amount of the contractor’s bond. In other words, the claimant’s recovery is no longer capped at $3,000. Under the new rules, labor claims have priority over a claim for materials up to the full amount of the bond.

Also of importance is the fact that the amount of bond the contractor is required to post with the CCB has increased significantly. A contractor with a commercial endorsement must now post a bond between $20,000 and $75,000. The amount of the bond depends on the “level” of the contractor’s endorsement and whether the contractor is a general or specialty contractor.

The different types of contractors and structures are defined in Oregon Revised Statute 701.005.  Fortunately, the definition of a “commercial structure” is rather broad. A “commercial structure” may be “small” or “large.”

A “small” commercial structure is defined as:

• A nonresidential structure with a ground area of 10,000 square feet or less, including exterior walls, and a height of not more than 20 feet from the top surface of the lowest flooring to the highest interior overhead finish of the structure;
• A nonresidential leasehold, rental unit or other unit that is part of a larger structure, if the unit has a ground area of 12,000 square feet or less, excluding exterior walls, and a height of not more than 20 feet from the top surface of the lowest flooring to the highest interior overhead finish of the unit; or
• A nonresidential structure of any size for which the contract price of all construction contractor work to be performed on the structure as part of a construction project does not total more than $250,000.

A “large” commercial structure is defined as “a structure that is not a residential structure or a small commercial structure.” The statutory definition of a residential structure is not axiomatic and warrants a careful reading. Among other things, it includes “a structure that contains one or more dwelling units and is four stories or less above grade.”

The rules have not changed for a CCB claim involving a residential structure. Claims against a contractor with only a “residential” endorsement must be filed with the CCB, regardless of the type of structure involved, and recovery against the bond is still limited to $3,000.

The new rules regarding filing a claim involving a commercial structure are somewhat convoluted. Claims against a contractor with a “commercial” and “residential” endorsement working on a “small commercial structure” may, at the election of the claimant, be asserted directly with the CCB. The CCB claim may be asserted only against the entity or person that holds the CCB license.

The claimant also may file a CCB claim, but elect to prosecute the substance of the claim via a lawsuit against the contractor. A claimant would choose this option if it wanted to concurrently assert a claim against an entity or individual other than the licensee, such as a guarantor. Upon completion of the lawsuit, the claimant may satisfy the judgment obtained against the contractor from the contractor’s CCB surety bond. For work performed on a “large commercial structure” or for claims against a contractor with only a “commercial” endorsement (regardless of the type of structure), the claimant is required to prosecute the substance of its CCB claim via a lawsuit against the contractor.

Unfortunately, the viability of a CCB claim involving a residential structure has not changed. Because of the limited remedy, in many instances it is not worth filing such a claim. However, this is no longer the case for commercial projects. The significant increase in the amount of the surety bonds and the ability of the claimant to reach the full amount of the bond gives a CCB claim on a commercial project some serious teeth. An unpaid subcontractor or material supplier involved with a commercial project should give serious consideration to filing a CCB claim.

William Fig is a partner in Sussman Shank LLP’s business litigation and construction practice groups. Contact him at 503-227-1111 or billf@sussmanshank.com

The post CCB surety bond claims: Old law gets new teeth appeared first on Daily Journal of Commerce.