Private Works Mechanics’ Liens

Private Works Mechanics’ Liens

A Mechanic’s Lien is a powerful tool for persons who contract with and provide materials to property owners for works of improvement. Appropriately utilized, a Mechanic’s Lien attaches to the property upon which the improvement is being made limiting the property owner’s ability to refinance or convey the property until the lien is removed. While this is not necessarily a quick remedy for someone who hasn’t been paid for work performed or materials provided, it is powerful. It is also subject to very strict rules related to timing, notice content, and parties to be notified. This blog will walk you through the general rules regarding Mechanics’ Liens allowing you to avoid its common pitfalls.

Note that the rules for Mechanics’ Liens are littered with words that I will use throughout that have specific meaning within the lien context. Mechanic’s Lien rules are also applicable only to certain individuals in certain contexts. This blog will offer generally applicable information and if you are unsure of any meaning or the applicability of a particular rule, please reach out to trusted counsel.

Preliminary Notice

Fortunately for contractors and material suppliers, most people pay their bills for works of improvement; that is the construction, alteration, repair or demolition of various structures. As a result, many contractors and material suppliers will never need to file a lien. However, this does not justify failure to take the first step necessary to file a lien should a customer or other obligated party fail to pay, which won’t likely be known until work has commenced or been completed. This first step being issuance of the preliminary notice which should be done in all instances.

A preliminary notice alerts the property owner and general contractor, each of whom must be notified, that someone is contracted for work or materials for a work of improvement on the property. Notice must be served by anyone who does not contract directly with the property owner. Persons who don’t generally contract directly with a property owner include subcontractors and material suppliers.

Finance lenders must be put on notice whether financing the work of improvement in whole or in part. While a person who contracts directly with the property owner is not required to provide a preliminary notice to the property owner, notice must be provided by the direct contractor to any lender financing the project. Practically speaking, if contracted to provide labor or materials for a work of improvement, identifying the lender at the outset of work is critical. A property owner has a duty to inform all other parties who provided a preliminary notice if financing is secured after work is started. Nonetheless, it is worthwhile to periodically check with the property owner to see if any financing has occurred.

Civil Code section 8202 defines the information that must be included in the notice. This section specifically calls for the following information to be provided in bold font.

NOTICE TO PROPERTY OWNER

EVEN THOUGH YOU HAVE PAID YOUR CONTRACTOR IN FULL, if the person or firm that has given you this notice is not paid in full for labor, service, equipment, or material provided or to be provided to your construction project, a lien may be placed on your property. Foreclosure of the lien may lead to loss of all or part of your property. You may wish to protect yourself against this by (1) requiring your contractor to provide a signed release by the person or firm that has given you this notice before making payment to your contractor, or (2) any other method that is appropriate under the circumstances.

This notice is required by law to be served by the undersigned as a statement of your legal rights. This notice is not intended to reflect upon the financial condition of the contractor or the person employed by you on the construction project.

If you record a notice of cessation or completion of your construction project, you must within 10 days after recording, send a copy of the notice of completion to your contractor and the person or firm that has given you this notice. The notice must be sent by registered or certified mail. Failure to send the notice will extend the deadline to record a claim of lien. You are not required to send the notice if you are a residential homeowner of a dwelling containing four or fewer units.

In addition to that above, a preliminary notice should include the name and address of the property owner, name and address of the direct contractor, name and address of the construction lender, a general description of the property, and a general description of the work provided.

The preliminary notice must be given within 20 days of first furnishing work or materials on the work of improvement. If a person required to give a preliminary notice fails to provide notice within this time period, not all is lost. Even if the 20 days lapses, immediately provide notice upon discovery of the lapse. This will at least preserve the right to record a lien for the work performed within the 20 days preceding the issuance of the preliminary notice.

Notice can be provided by personal delivery or registered/certified mail. The serving party should prepare a proof of service and keep copies of the returned receipts.

Any person who issues a preliminary notice should also file the same with the county recorder in which the property being improved is located.

Filing the Lien

Satisfying the requirements above are necessary to file a Mechanic’s Lien and if you are a person who performed work on the work of improvement you are entitled to file a lien if not properly paid. Those entitled to file a lien generally include the general contractor, subcontractor, material supplier, or laborer.

The timeframe in which to record a lien varies based on the role of the person in the work of improvement. A direct contractor must record a lien within 90 days of completing the work or 60 days of the owner recording a notice of completion or cessation, whichever is earlier. For anyone other than a direct contractor, the lien must be recorded after work is completed and within 90 days of completing the work or 30 days of the owner recording a notice of completion or cessation. What these requirements mean is that if the property owner does not file a notice of completion or cessation, a lien must be recorded within 90 days of completing the work.

Civil Code section 8416 defines the information that must be included in the lien. Among other requirements, the following must be included in bold face font.

NOTICE OF MECHANICS LIEN

ATTENTION!

Upon the recording of the enclosed MECHANICS LIEN with the county recorder’s office of the county where the property is located, your property is subject to the filing of a legal action seeking a court-ordered foreclosure sale of the real property on which the lien has been recorded. That legal action must be filed with the court no later than 90 days after the date the mechanics lien is recorded.

The party identified in the enclosed mechanics lien may have provided labor or materials for improvements to your property and may not have been paid for these items. You are receiving this notice because it is a required step in filing a mechanics lien foreclosure action against your property. The foreclosure action will seek a sale of your property in order to pay for unpaid labor, materials, or improvements provided to your property. This may affect your ability to borrow against, refinance, or sell the property until the mechanics lien is released.

BECAUSE THE LIEN AFFECTS YOUR PROPERTY, YOU MAY WISH TO SPEAK WITH YOUR CONTRACTOR IMMEDIATELY, OR CONTACT AN ATTORNEY, OR FOR MORE INFORMATION ON MECHANICS LIENS GO TO THE CONTRACTORS’ STATE LICENSE BOARD WEB SITE AT www.cslb.ca.gov.

The person filing the lien must do so in the county in which the work of improvement was performed. A copy of the lien must also be served on the owner of the property upon which improvements were made. Service can be made by registered, certified or first-class mail. It is also recommended that you serve the lien on other interested parties, for example the general contractor or construction lender. Service should be completed before recording the lien.

Foreclosure Lawsuit

What makes mechanics’ liens so powerful is the worker’s ability to foreclose on the improved property. This process begins by the filing of a lawsuit in the county in which the work was performed. Unfortunately, the party wishing to enforce the lien is responsible for the cost associated with the lawsuit, although the same can be asked for as part of the judgment in the lawsuit. And like with any lawsuit, the cost of litigating should be balanced against the amount owed. While it is possible to file a lawsuit without legal assistance, it is advisable to enlist an attorney who can evaluate whether all the preliminary steps to foreclosing on a mechanics’ lien have been adhered to, whether the economic realities of a lawsuit justify proceeding and who can prepare the paperwork necessary to initiate the lawsuit. Any lawsuit must be filed within 90 days of recording the lien or the right to foreclose is lost. A notice of pending action must also be filed with the county recorder within 20 days of starting the foreclosure lawsuit.

Property Sale

A successful lawsuit will result in a judgment against the property owner.  With the judgment, the party entitled to payment can then seek to have the property subject to the lien sold in order to satisfy the debt owed.  There are rules regarding who gets paid first when a property is sold and subject to multiple liens. Additionally, the value of the property and any unrelated foreclosure may impact the ability to obtain full satisfaction of any amount owed.

The mechanic’s lien process in California is complex and prone to error leaving workers without one of the most powerful tools for getting paid. Not only must timelines be strictly adhered to, notice content is also dictated by California law and failure to include the proper content can result in the inability to foreclose on the improved property. Even if you choose to manage the process yourself, I recommend speaking with an attorney who can provide a roadmap of the process, timelines that must be followed and what paperwork is necessary to ensure that a property owners failure to promptly pay does not leave the worker without a legal opportunity to recover.

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