Stop Notices, also known as Lender Notices, are part of the credit manager’s arsenal. These important credit tools are often the least used and least understood of any remedy that is available to contractors and suppliers.
These documents, sent to the construction lender, cause them to withhold 150% of the claim amount from the general contractor’s next construction draw. As with all construction claims created by the statute, there are many technical issues that must be followed in order to produce a valid stop notice. In some states, the notice must be bonded or the lender is not obligated to withhold the funds. Also, the notice must be given to the lender shortly after the invoice becomes past due. Again, there are specific timelines that must be followed.
In addition to Stop Notices, many states provide a mechanism for attaching unpaid contract funds. These are often confused with Stop Notices, but the concept is similar. That is, contractors and suppliers can attach unused funds and force the holding party to pay their claims.