Q. What is a mechanic’s lien?
A. A mechanic's lien is a "hold" against the owner’s property (or a cloud or encumbrance on title) that, if unpaid, allows a foreclosure action, forcing the sale of the owner’s home or other real property. It is recorded with the County Recorder's office by the unpaid contractor, subcontractor or supplier. Sometimes liens occur when the prime contractor has not paid subcontractors or suppliers. Sometimes liens are recorded when payment or the work itself is in dispute.
Contractors, subcontractors and suppliers are permitted in many instances to file what is called a mechanic's lien on an owner’s property if they do not get paid. Property owners need to be aware of the process so they can avoid the financial and legal pitfalls that can occur.
Q. How/when does one record a lien and how does one defend against it?
A. Mechanic’s lien requirements are very stringent in California. Each statutory requirement must be met for a valid lien. Likewise, many times a good defense will be the failure to follow the statutory elements.
Generally, a Preliminary 20-Day Notice is required from the subcontractor or supplier if there is a chance that they may need to file a lien. The Notice states that the subcontractor or supplier has provided or will be providing goods and services to improve your property and could file a lien claim if they are not paid. If subcontractors and suppliers do not provide the notice, they may lose the right to file a lien. (NOTE: This Notice is not required from laborers or the prime—or direct—contractor.) There are particular 20-Day notice requirements that must be met; see Civil Code section 3097 for more details.
Original Contractor. If a notice of completion or notice of cessation is recorded, the original contractor must record the lien claim within 60 days after recordation of a valid notice of completion or cessation. This period is extended to 90 days after the recordation date if the owner (except a resident owner of a dwelling of not more than four units) fails to give notice of recordation to the contractor within 10 days as required by Civil Code section 3259.5. If no notice of completion or cessation is recorded, the time limit is 90 days after the work of improvement is completed (completion may also mean cessation of labor for a continuous period of 60 days if the owner does not record a notice of cessation).
Other Claimants. The lien must be recorded by a claimant other than an original contractor within 30 days after recordation of a valid notice of completion or cessation. The period may be extended 90 days as set forth above. If no notice of completion or cessation has been recorded, a claimant other than the original contractor has 90 days after completion of the work of improvement (or the equivalent of completion per Civil Code section 3086 (a) - (c)), or 150 days after continuous cessation of work within which to record a mechanic’s lien.
A lien claimant must file a lawsuit to foreclose on the mechanic’s lien no later than 90 days after the lien is recorded. The failure to timely file the lawsuit means that the lien is invalid. If the lien claimant refuses to remove or withdraw the invalid lien, a petition can be filed with the court to remove the lien and charge the lien claimant with the costs and fees associated with removal.
The mechanic's lien area is a very statute specific and demanding; you should consult with us for your particular situation before taking any action.
Q. How can one prevent liens?
A. The easiest answer is to communicate with your contractor, subcontractor and/or supplier through out the project. Also, when an owner or contractor knows there are other trades on the project, a joint check may be the simplest way to prevent liens. Both parties will have to endorse the check, which will ensure that the subcontractors and suppliers get paid.
Q. What is a lien release?
A. The release system is designed to allow property owners to track when potential lien claimants have been paid. Before making a payment, get a signed conditional release from the possible lien claimants. The prime contractor is required to get this release for you from the potential lien claimants, if you ask for it. After you pay, the contractor should provide you an unconditional release signed by each of the claimants paid for the portion of the work being released. Make sure that the actual claimant signs the unconditional release. By law, you may withhold the next payment until you get the unconditional releases for the previous payment.
Q. What is a Notice of Completion?
A. By filing a Notice of Completion with the County Recorder's office after work is completed, an owner can reduce the amount of time a contractor, subcontractor or supplier has to record a claim. This Notice reduces the amount of time a contractor has to record a mechanic's lien from 90 to 60 days, and reduces the time a subcontractor or materials supplier has to record a mechanic's lien from 90 days to 30 days. The Notice of Completion form may be obtained through the County Recorder's office or a stationary or office supply store that stock legal forms.
Q. What is a stop notice?
A. A claimant entitled to record a mechanic’s lien, other than an original contractor, may use the stop notice remedy to reach unexpended construction funds in the hands of the owner or lender. Under Civil Code section 3159(a), contractors and any of the potential lien claimants described in Civil Code sections 3110-3112 may serve a stop notice on the construction lender. Time limits for a claimant (other than the original contractor) to serve a stop notice are the same as the periods specified for recording mechanic’s liens. There are bonded and unbonded stop notices.
Q. What other remedies do owners, contractors, subcontractors and suppliers have?
A. Depending on the project, and the parties involved, other available remedies may include actions on payment bonds and performance bonds, which are also governed by statute.
All these statutory remedies need to be carefully analyzed by the parties and their counsel. If used properly, they provide powerful tools for payment.