A recent case highlights the necessity to serve a preliminary 20-day notice on the construction lender. In Shady Tree Farm v. Omni Financial, Shady Tree delivered mature trees for the landscaping of a development known as Granite Park. Omni had provided an $18 million construction loan secured by a deed of trust on the property. Omni’s DOT was recorded in January 2006.  Omni recorded a modification to this DOT March 2007.

   On August 11, 2008, Shady entered into a contract with a third-party to sell trees to the owners of Granite Park. Shady agreed to deliver 1,879 trees for a price of approximately $3.2 million. Between August 2008 and November 2008, Shady delivered 959 trees to the Granite Park development.

   Except for a $25,000 deposit, Shady was not paid for the trees. In February 2009, Shady recorded a materialman’s lien against the property. In April 2009, Shady filed suit to foreclose the materialman’s lien. Shady further requested a declaration that its lien had priority over Omni’s DOT.

   Unfortunately for Shady, its materialman’s lien was dead out of the gate because Shady did not serve a preliminary 20-day notice upon Omni, the construction lender. Continue reading →