How to Record a valid Mechanics Lien; How to Maintain, Perfect & Enforce a Mechanics Lien per California Law.
Time Deadlines, Procedures and Traps for Contractors and Subcontractors on Mechanics Liens under California Laws
Steps, Issues, Deadlines, and Requirements for Valid California Contractors Mechanics Liens
Step 1: What are you?
Are you a prime contractor or a subcontractor?
Even if you are a licensed general contractor, you are considered to be a “subcontractor” for certain purposes under the California Mechanics Lien Law when your contract is not a direct contract with owner of the prop erty, such as when a general contractor contracts with a tenant of the owner of the property.
All persons who do not have a direct contract with the owner of the property - including material suppliers to a contractor or subcontractors - are considered "subcontractors" for purposes of meeting the requirements of the Mechanics Lien Law.
When in doubt, serve a preliminary notice immediately after shorting work.
Step 2: If you are considered a "Subcontractor", have you timely and properly served a Preliminary 20-day Notice or Pre – Lien Notice?
All persons considered "subcontractors" must have served either personally or by certified or registered mail a "20-day Preliminary Notice" on the owner of the property, the construction lender, General Contractor, and the “owner” (which may be the owner's tenant, if the tenant has contracted for the work) within 20 days of the date on which you start work on the property, in the form provided in Civil Code §309.
If you did not serve the notice at the beginning of your work, you may still serve such a notice if you did work within 20 days prior to serving the Notice, but your mechanics lien may only cover work done in the 20 days before serving the Notice, and for all days thereafter.
A Preliminary Notice may / should also be recorded.
Step 3: Determine whether and when "Completion" of the project or "Cessation of work" on the project has occurred.
"Completion" of the project occurs typically when the entire project is done, not just when your own work is done or ceased.
When the owner moves in or accepts the work, or when a Final Inspection or Certificate of Occupancy is received, may mean that "completion" has occurred.
Cessation of Work for 60 days can also be deemed “completion”.
"Cessation of Work" occurs only when all work by all contractors and subcontractors has stopped for a continuous, uninterrupted period of 60 days.
Mechanics Liens must be recorded by a "subcontractor" within 90 days of "completion" or "cessation of work" and a general contractor who has a direct contract with the owner must record within 90 days of completion or of cessation of labor, unless “completion” or “cessation of labor” has occurred.
Do not wait until the last day to record your lien, as when "completion" or "cessation of work " have occurred may often be unclear or disputed, and you could forever lose your mechanics lien rights if you are mistaken or delay too long.
Step 4: Determine if the Owner has Recorded a "Notice of Completion" or a "Notice of Cessation".
The owner can shorten the above day deadlines for you to record a Mechanics Lien by 30 or 60 days by recording a "Notice of Completion" or "Notice of Cessation" with the County Recorder within 10 days of when those events occurred.
If you served a Preliminary Notice, the Owner is required to send you a Notice within 10 days that these have been recorded. Otherwise you will head to check frequently with the County Recorder.
Warning: If the job has stopped or is near completion, record your Mechanics Lien even if the owner or general contractor has promised to pay you, as this will protect your rights best and avoid disputes over whether your Mechanics Lien was timely recorded. Such disputes can be costly and even fatal to your rights to collect payment for your hard work.
Step 5: Record your Mechanics Lien.
Within the time periods described above-which refer to calendar days, and not to working days or business days, you must record your lien with the county recorder where your work the property is located starting in 2011 you must also previously have served a copy of the lien - before recording it – on the owner of the property. New legal forms for establishing that you served the owner must now be used, and old mechanics lien forms may not be valid or recordable!!
Please seek advice from a competent, experienced construction lawyer re these new lien recording procedures, as failing to follow them may result in your lien being not recordable or invalid.
When your work was performed on more than one legal parcel (e.g. separate lots, separate condominium units, you may be required to record liens against each separate lot or parcel, based on the value of work you performed on each separate lot, parcel or unit, and not the total amount owed on your entire contract.
Calculations of these amounts can be complex where many parcels are involved.
Step 6: Sue to Enforce your Mechanics Lien.
Mechanics liens expire unless you file a lawsuit to enforce your Lien within 90 days of when the lien was recorded.
Just recording a lien does not get you paid, if you do not sue to collect on it in 90 days. This is known as “perfecting” your lien.
This time to file suit on your lien can be extended beyond this 90 days of the owner agrees to record a Extension before the expiration of the original 90 days.
And if you allow the lien to expire after 90 days without suing on it becomes invalid, the Owner can file suit against you in Court on a Petition to Release the Property from the Lien, and you may be liable for paying the owners attorney fees and costs if you do not record a release of your expired Mechanics Lien. If your lien has expired, it is thus best to record a lien release voluntarily.
If the above deadlines for recording a new lien have not yet expired, you might still be able to record a new Mechanics Lien even if your prior lien has expired or been released, but do not keep recording untimely or invalid liens, as this could subject you to liability or subject you to discipline from the Contractors State License Board.
Once you file suit on the Mechanics Lien, you should also record a “lis pendens “ or Notice of Action Pending on the Lien.
Even though you must file suit on the Lien to avoid it expiring, the case may proceed to mediation, Arbitration, trial, or even settlement, and could be joined with other suits of other contractors, subcontractors, or material suppliers on the same job.
All liens on a project usually have the same priority and share proportionately in the proceeds from any lien foreclosure sale.
In some instances, you may be able to recover your attorney sees in connection with a mechanics lien case.
Note: the effective July 1, 2012 the entire stop notice, payment bond and mechanics lien law and statutory enforcement system has been revised by the Legislature. This article does NOT address these changes, so consult a construction attorney re work done or liens to be recorded after that date.
This discussion only addresses to contractors lien, not design professional liens or other liens.
NB. This is not legal advice and you may not rely on it.
ABOUT THE AUTHOR: George Wolff
Mr. Wolff is "AV" rated by his peers under Martindale-Hubbell's Independent Lawyer Rating system, which evaluates lawyers and law firms by asking other attorneys. The firm is also listed in the Directory of Pre-eminent Attorneys in San Francisco, California.
Born Aurora, Illinois; admitted to bar, 1973, Illinois; 1977, U.S. Supreme Court; 1978, California; 1982, New York, U.S. District Court, Northern District of California, U.S. Court of Appeals, Ninth Circuit; 1983, Trial Bar, U.s. District Court, Northern District of Illinois. Education: Purdue University (B.S., in Civil Engineering, 1964); Stanford University (M.S., in Civil Engineering and Construction Management, 1965); University of California at Berkeley (M.B.A., in Finance and Real Estate, 1970); Northwestern University, School of Law, Chicago (1972-1973); University of California, Hastings College of the Law, San Francisco (J.D., 1973); Institute on International and Comparative Law, Paris, France (1981)
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.