Lock up the materials you send to the jobsite - especially the pre-fab home
If you are in the construction industry, you most certainly have been involved with the enforcement of a lien. Whether you filed the lien, enforced it, or fought against it, contractors tend to be quite apt in the use of liens.
Well, there are other means of securing payment for the value you add to the construction project. State mechanic’s liens are the most common tool used to secure your materials and virtually the only tool for securing your labor. But, there is another tool for securing your materials that you probably do not know about – the UCC security interest.
A recent article by Kelly M. Davis, a Texas construction attorney, roused my interest in contractor use of the UCC. Back in 2009, I authored an article on this topic for Christopher Hill’s iconic construction law blog, Construction Law Musings.
My article focused on the battle over “fixtures,” which are materials that are attached to the property during a construction project. The article also discusses the types of interests created and the procedure used to secure the interest. You can read more by following this link.
Ms. Davis does a great job identifying the types of goods that can be secured by a UCC interest. As she states, a proper UCC interest might trump the bank’s primary financing interest in the project, permitting you to “go get your materials.”
Here is a brief snippet on how Ms. Davis identifies the two types of materials used on construction projects:
“Fixtures” means goods that have become so related to particular real property that an interest in them arises under the real property law of the state in which the real property is situated. In other words, Fixtures are generally physically attached to the building. There are numerous examples of this on a construction project – carpet, tile, counter tops, bathtubs, … This should not be confused with the term “removable.”
Likewise, “Non-Fixtures” would be those goods which are made a part of a construction project but not permanently affixed as to become an actual part of the property. For example, furnishings, equipment such as sound systems, tvs, refrigerators and light fixtures, etc.
Your rights to the materials depend on how the goods are classified. In some cases, a UCC right in fixtures might be a much better interest than that of a construction lien. UCC Non-fixture rights are perhaps even less disputable.
Why use the UCC? If you contribute a lot of materials and typically get involved in large commercial projects, you are a perfect candidate. The bulk of your contribution to the project is in a UCC-securable item (materials) and the project is likely to have a construction financing lien and many potential state construction liens. Jump to the front, with a UCC interest.
An interesting note – pre-fabricated home builders should have a heavy interest in the UCC. Pre-fab builders sell a product that is delivered to the job site. While the home may then be installed and integrated into the land, the home builder sells a product that should be secured by a UCC interest.
Pre-fab home builders who sell on credit would be wise to develop a security procedure for each home that they sell. The UCC interest can be a wise, and cost-effective investment.
