Stop Payment Notices

 

 A stop payment notice is the second most misunderstood document used in the construction business. It is the name that is confusing. A logical assumption is that a contractor is stopping work for non payment. Not even close. A stop payment notice stops the flow of the construction funds.

    When a subcontractor or material supplier has not been paid and serves a stop payment notice on the property owner, a lien is created on the money owed to the prime contractor by the owner. Thus, the owner must pay off the stop notice or file a stop payment notice release bond before paying the prime contractor.

    A prime contractor, subcontractor or material supplier can serve a stop payment notice on the construction lender. This places a lien on the construction loan funds. A bonded stop payment notice is required when a stop payment notice is filed on a construction lender. The stop payment notice claimant has to post a bond for 125% of the amount of the stop payment notice. Most bonding companies will not issue stop payment notice bonds unless their payment and performance bonds are in place on the project.

    In the right circumstances, a stop payment notice is a more effective collection tool than a Smith and Wesson.

    A blank stop payment notice is available here, and a blank stop payment notice release is available here.