- A California Mechanic's Lien Primer
- December 6, 2006
- Law Firm: Holland & Knight LLP - Los Angeles Office
The basic purpose of the California mechanic’s lien law is to afford security for those who enhance the property of others. The mechanic’s lien law is a remedial statute that is liberally construed in favor of the claimant. It is based on express provisions of the original California Constitution (1879). Article 14, § 3 of the California Constitution now provides: “Mechanics, persons furnishing materials, artisans, and laborers of every class, shall have a lien upon the property upon which they have bestowed labor or furnished material for the value of such labor done and material furnished; and the Legislature shall provide, by law, for the speedy and efficient enforcement of such liens.” Even if the owner pays the general contractor, but the money does not get to other parties who worked on the project, the owner is still responsible even though they already paid for the work. This means that an owner might pay twice for the same work. This is a unique aspect of the law which applies only to mechanic’s lien laws.
Surprisingly, “the mechanic’s lien is the only creditor’s remedy stemming from the constitutional command and our courts ‘have uniformly classified the mechanic’s lien laws as remedial legislation, to be liberally construed for the protection of laborers and materialmen.’ . . . ‘[S]tate policy strongly supports the preservation of laws which give the laborer and materialman security for their claims.’” Coast Central Credit Union v. Superior Court (1989) 209 Cal.App.3d 703, 708. “No other ‘creditor remedy’ in this state enjoys such a constitutionally enshrined status.” Connolly Development, Inc. v. Superior Court (1976) 17 Cal.3d 803, 808.
Maintaining Mechanic’s Lien Rights
Liens attach directly to a piece of property (“Work of Improvement,” California Civil Code Section 3106), not to a person, and unlike any other lien process there is no requirement in California for contractors to go to court prior to filing a mechanic’s lien. However, there are several steps that are required to maintain the lien rights. The basic requirements are that the owner is provided notice of work being performed, and the mechanic’s lien statutory timelines are met. If a contractor fails to give notice and/or lets deadlines expire it loses its right to place or pursue a mechanic’s lien. Once a mechanic’s lien is placed on a piece of property, the contractor must start a Lien Foreclosure Action within 90 days.
The Steps to Protecting and Enforcing Mechanic’s Lien Rights
There are three basic steps required before a contractor can recover money through a mechanic’s lien:
1) notice to the owner
2) recording the lien
3) lien foreclosure action
Issues to Remember:
• Mechanic’s liens are a claim against the Work of Improvement not people.
• Notice to the property owner must be given.
• Statutory timelines and deadlines must be met to maintain lien rights.
• The lien must be foreclosed through a lawsuit.
1) Preliminary 20-Day Notice to the Owner
California requires that the property owner must know about the specific work being done before the property owner can be held responsible. The theory is that if the property owner knows who is working on his project he can make an effort to see that they are paid. California Civil Code §§ 3097 and 3114 requires that all claimants, except the original contractor (direct contractual relationship with owner), individual laborers and union trust funds, give preliminary lien notice no later than 20 days after they first furnish labor, services, equipment or materials to the project. A claimant can give notice late, but lien rights extend “back” only 20 days, before the notice.
California mandates the use of a special 20-Day Preliminary Notice form the contents of which are set forth in Civil Code § 3097. The form must be filled out and copies sent by certified, return receipt mail to the property owner, lender and prime (general) contractor within 20 days of starting work on the project.
Issues to Remember:
• A claimant must send a 20-Day Preliminary Notice if it is not the original contractor, individual laborer, or union trust fund.
• The Notice must be sent to the Owner, General Contractor, and Lender if any.
• The preliminary notice must be sent by certified or registered mail with return receipt.
• Labor (individual worker) has lien rights without giving notice.
2) Recording the Lien
The claimant must timely record the mechanic’s lien (California Civil Code §§ 3115-3117). The lien must be recorded in the county where the work of improvement is located. The timing to record the lien is dependent on three factors:
(1) If a Notice of Completion is recorded, the original contractor has 60 days to record its lien and all others have 30 days. In order for the shortened period to apply, the owner must serve notice on all the contractors that served preliminary notices that it has recorded a Notice of Completion.
(2) If a Notice of Cessation (cessation of work on the work of improvement for 30 days or more) is recorded the original contractor has 60 days to record its lien and all others have 30 days.
(3) If neither Notice is recorded (or if the notice of recording is not given by owner), then all claimants have 90 days after “completion” to record their liens. “Completion” is defined in California Civil Code § 3086 as follows: (a) occupation or use of work of improvement by owner accompanied by cessation of labor; (b) acceptance of work by owner; (c) cessation of labor for a continuous period of 60 days; and (d) acceptance by public agency.
Issues to Remember:
• Record in the county in which the project is located.
• Must record lien within 90 calendar days of completion.
• Must record lien within 60 calendar days for original contractor and 30 calendar days for others should a Notice of Completion or Notice of Cessation be recorded (unless the owner fails to give notice that the Notice of Completion has been recorded).
• A Notice of Non-Responsibility protects the owner from liens, on anything except the interest on his property of the party contracting for the construction improvements. (See Owner’s Protections below).
3) Foreclosing the Lien
California Civil Code § 3144 requires a claimant to timely file a complaint to foreclose the lien within 90 days after date of recordation of lien in the proper court unless the Notice of Credit extending the time for the foreclosure action (no longer than one year from the lien date) is granted by the owner and recorded with the county recorder’s office. If the lien foreclosure action is not filed within this 90 day period the lien rights on the project can expire forever.
Issue to Remember:
• The claimant has 90 days from the lien recording date to file a foreclosure action.
An owner may post a Notice of Non-Responsibility in the event that the person ordering the work is not the owner. This usually occurs when a tenant finishes or modifies the inside of a building. The Notice of Non-Responsibility protects the owner from any liens on the property, which means that no one on the job has lien rights on the land but may have some lien rights against the value of the lease or improvements provided to the party contracting for the construction improvements. California Civil Code §3094 requires that the owner physically post this notice on the jobsite, and record it with the county recorder, within 10 days of learning of the project. Note that the posting is not related to the start of work; it is based rather upon the time the owner discovers the work is being done.
The owner can also protect itself through strong disbursement controls and joint checks. The owner should require waivers and releases following the statutory forms in California Civil Code §3262 following each payment during the progress of the project.
Mechanic’s liens are an extremely effective mechanism for claimants to pursue payment for monies owed by clouding the title and securing interest in the property to fulfill the debt. The law does allow property owners to “bond around the lien” by placing a bond of 125 percent of the lien amount with the county recorder. The property can then be sold and the bond remains to satisfy the claim of lien.
Issues to Remember:
• A Notice of Non-Responsibility protects the owner from liens, on anything except the interest on his property of the party contracting for the construction improvements.
• An owner should require waivers and releases throughout the course of the project.
• An owner can bond around the lien for one-and-one half times the claim to maintain a clear title for its property.