This is a good time to be a building contractor in California. A steadily increasing population that may reach 50 million by 2050 means a steady stream of new construction and renovation work in the residential, commercial, and government sectors. A growing population also means a growing pool of skilled and semi-skilled workers in the contracting industry and a growing demand for their services. The California Mechanics Lien law assists contractors when they are faced with customers who become unwilling or unable to pay them.
The reasons for non-payment can be as varied as the types of construction work available in a diverse economy. It may be a simple financial problem. It may be a dispute as to workmanship. It may be a change-order that complicated the project or exceeded the customer’s budget. It may be an issue as to whether the customer or contractor caused a project to be completed over schedule. Whatever the reason for non-payment, Mechanics Lien law in California offers a special remedy for contractors which is unavailable to professionals in other lines of work. But, before you go to the mailbox to pick up your check, there are some very important things to know.
California Mechanics Lien 101
If you are a construction industry attorney or card-carrying know-it-all, feel free to skip this section.
A lien is basically a public announcement that there is an outstanding financial claim against property, whether it be real or personal property. By filing the lien, the contractor secures his right to be paid in full or to negotiate a settlement or to foreclose on the lien. More on this in a minute.
Who Can File
Generally, any person or entity which provided materials or services during construction can file a mechanics lien, but the law contains definitions and procedures that one must be aware of in order to proceed.
Mechanics Lien law in California is covered in a long and complicated statute whose provisions must be strictly followed. At a minimum, every mechanics lien in California must contain:
- Property Information: The owner’s name and a general description, like a street address, are usually sufficient; a legal description is beneficial but generally not necessary.
- Statement of Demand: The lien must identify the hiring party, briefly describe the work performed, and state a specific monetary demand.
- Proof of Service Affidavit: Personal service is always best; substitute service by mailing or publication may be appropriate in some cases.
- Technical Requirements: There must be both a notice statement and a verification which meet the statute’s specifications.
You must be prompt! The mechanics lien form must be recorded within between thirty or ninety days of completion of the work or improvement. Most county clerks charge a nominal fee between $50 and $75 for the recordation of the lien. But if you have not complied with the mechanics lien law’s strict requirements, the clerks will not accept your attempted filing.
Mechanics Lien Priority
As a rule of thumb, mechanics liens have priority over any liens that attached after work began or were unrecorded when work began. But the issue of your mechanics lien’s priority over other claims against the property is complicated when it comes to such things as tax liens, subordinate deeds of trust and mortgages.
The California Legislature recently changed some elements of their Mechanics Lien Law. For example, if you are not paid in a situation in which you did not contract directly with the property owner, you must send preliminary notices to the lender (if any), the property owner, and the primary contractor by certified mail within twenty days after first furnishing labor or materials. A subsequently-filed notice only dates back twenty days. Furthermore, the language in the notice must exactly match the language in the statute. If not, you are exposed to the risk that a judge may throw out the notice and terminate the foreclosure proceeding.
Even if you do not plan to foreclose on the lien, (perhaps to give the owner additional time to pay or for whatever reason), it is best to go through the entire procedure because if circumstances change, it may be too late to act. If payment discussions break down or your customer appears headed toward insolvency, your diligence will have made it possible for you to foreclose on the lien. Property owners and competing creditors may try to block your path, but if you followed the law, you will have placed yourself in a strong position against your adversaries.
To relieve you of the stress of the mechanics lien process, and to free you to devote your best efforts to your core business, you may use a comprehensive service to prepare, file, and perfect your lien. If that is your choice, we are here to serve you.