A Payment Demand Letter is an informal request for payment sent to the debtor and all other parties who may be affected by the recording of a Mechanics Lien or a Lawsuit to foreclose (the Lender, Property Owner, General Contractor, and/or Subcontractors). It is not a prerequisite to serving a Pre-Lien Notice, filing a Lien, serving Notice of the Lien Filing, or filing a Lawsuit. However, it is an extremely effective tool to enforce payment and should be considered at every step of the Mechanics Lien process; failure to take advantage of the Payment Demand Letter may very well increase the amount of time it takes to get paid and result in having to take additional unnecessary steps to enforce payment.
To be effective, you should consider incorporating a Payment Demand into every step of the Mechanics Lien Filing Process. A strong Payment Demand should include at least the following allegations: (1) that the contract has been breached by nonpayment; (2) that the Prompt Payment Act has been or will be violated if the Contractor and/or Subcontractor received your progress payment and fails to remit the payment to you within the statutory deadline; (3) that if the Prompt Payment Act has been violated, then notice that interest is accruing on the unpaid amount at eighteen percent (18%) a year; (4) a calculation and demand for the accrued interest; (5) if suspected, an allegation that payments have been wrongfully withheld or diverted from the Project in violation of the Trust Fund Statute; (6) a presentment for future attorneys’ fees in the event an attorney is later obtained to enforce payment; (7) a representation that a Mechanics Lien or a Lawsuit to foreclose on the Mechanics Lien will be filed if payment is not immediately made; and (8) that if a Lawsuit is filed to collect the debt, that you will sue the Property Owner and the contractor who hired you to seek an award for the principal amount owed, accrued interest, attorneys’ fees, costs, and punitive damages (if applicable).
Finally, a Payment Demand Letter can be sent by anyone before or after filing a Lien or a Lawsuit if you believe doing so will resolve the dispute without having to take the aforementioned formal steps to enforce payment. The Lien Professor’s Mechanics Lien Kit includes independent Payment Demand Letters and Payment Demands incorporated into the various Pre-Lien and Post Mechanics Lien Notices. any question about how to use a Payment Demand Letter to enforce payment.
Inside Tip 1
Since a Payment Demand Letter is not a prerequisite to filing a Lien or a Lawsuit, it can be sent at any step in the collection process and as many times as you deem necessary; however, do not send a Payment Demand Letter without following through with the threats made in the previous letter, or you will lose credibility and the demand will become less effective. Also, if you set a deadline for a response to your demand, be sure to set a date that allows you sufficient time to prepare, record, and serve either the Mechanics Lien or file a Lawsuit before the applicable deadline.
Inside Tip 2
If you are sending a Demand Letter just prior to filing a Lawsuit, you should consider retaining a Construction Lawyer to prepare and send the letter for you. Doing so will make you appear more credible and let the debtor know that you are serious about your threat to file a Lawsuit. To learn more about retaining Lovein | Ribman, P.C. to prepare your Documents, click here.