Another snapshot of how the housing/mortgage slump is affecting Southern California is the quick rise in lawsuits by contractors and subs being left unpaid by new construction owners. That would be from A to Z — clearing the land, to installing infrastructure, to completing new structures.
According to research by the Southern California Building Credit Association (BICA):
- Mechanics liens in 11 Southern California counties nearly doubled in the first half of 2008 to 17,350, compared with 9,262 in 2006.
- Pending lawsuits resulting from mechanics liens more than tripled during the same period, rising to 1,478 in the first half of 2008, from 462 in the same period in 2006.
According to a recent BICA survey of credit department personnel at 54 Southern California companies in the construction industry:
- 46 percent said their credit departments were using the preliminary notice to secure lien rights on smaller sums than in recent years.
- 38 percent said they were bringing in more marginal accounts to keep up sales and retain employees.
- 61 percent said that the sales staff was increasing pressure on credit personnel to open accounts more quickly.
- 89 percent said customers with good payment histories were paying more slowly.
- 17 percent said management has instructed credit departments to raise credit limits.
"This environment is really unprecedented; this is different from previous industry downturns," says BICA President Andrea Parisi, who has been working with the construction credit industry for 19 years. "These indicators from our membership show that now more than ever companies need to secure their lien rights and be diligent about job confirmation and credit information, because more and more the credit managers are having to go through the full collection process in order to secure payment."