In this series of blog posts I will explain, or at least TRY to, the California Mechanics Lien Process in a way that us mere contractors can understand. I will explain the specific forms that are required like the California 20 Day Notice Form, the California Mechanics Lien Form, and the California Release of Mechanics Lien Form. With the right CA contractors forms and the right guidance, it should be a DIY project for any California Contractor to protect their lien rights and to perform many of the steps necessary in the CA mechanics lien process. Often, just filing the mechanics lien itself is all it takes to get a stubborn customer that won't pay, "negotiating", and bringing the situation to an end. However, should it go that far, filing the lawsuit and bringing the lawsuit before the court is, without question, the job for a construction attorney.
Here are the topics of the blogs in this series about the California Mechanics Lien Process:
- Part 1 Definitions needed to understand CA Mechanics Lien Law!
- Part 2 What is required to file a mechanics lien in California? Deadlines are important!
- Part 3 The California Preliminary Notice, 20 Day Notice or Pre-Lien
- Part 4 Mechanics Lien Strategy for Dummies
- Part 5 The Mechanics Lien Form, Filling and Filing
- Part 6 The Lawsuit and The Lis Pendens not DIY
- Part 7 The Release of Mechanics Lien Form, Filling and Filing
California Mechanics lien laws are full of confusing terms. What is a "general, prime, sub or original" contractor for instance. Before we start, some definitions are necessary:
PRIME CONTRACTOR: The contractor who has a contract directly with the project owner to do and be responsible for that entire contract is sometimes called a Prime Contractor. ANY contractor can be a PRIME CONTRACTOR if they have a "direct contractual relationship" with the property owner. Bear in mind that even small projects can be broken down into smaller parts. An owner of a commercial warehouse, for example, could contract directly with a general contractor to do most of the remodeling project while also contracting directly with a painting contractor to be responsible for the painting. Since both the general contractor AND the painting contractor have a contract directly with the property owner or have a "direct contractual relationship" with the property owner, both the general contractor and the painting contractor are PRIME CONTRACTORS! Being a Prime Contractor is not necessarily exclusive since there can be many Prime Contractors on any project. This is an important concept for California Mechanics Lien Laws. A general contractor, or any other contractor, is a prime contractor if they have a contract directly with the property owner. A general contractor is not automatically a prime contractor. If a general contractor has a contract with another contractor to do the framing and carpentry work on a project, for example, then this general contractor is not a prime contractor. Why? Because this general contractor does not have a contract directly with the property owner and because of this, there is no direct contractual relationship between the property owner and this general contractor!
ORIGINAL CONTRACTOR: Another name for a Prime Contractor.
DIRECT CONTRACTOR: This is a New TERM DEFINED in the new laws that went into effect July 1, 2012. Direct Contractor is also another name for a Prime or Original Contractor.
GENERAL CONTRACTOR: A California Licensed Construction Contractor holding a CSLB classification (B1) License, whose primary contracting business is in connection with any structure built, being built, or to be built requiring at least two unrelated building trades to complete the project. The general contractor is usually hired by the project owner to oversee the entire job, to coordinate and direct the activities of all other contractors, and to assume full responsibility for the delivery of the finished project within the time frame agreed upon. The general contractor might also be responsible for only part of the overall project. In California, a (B1) license only allows the general contractor to specifically do framing and carpentry work. To complete a project which involves other trades such as plumbers, electricians, HVAC etc, the general contractor must hire a licensed specialty contractor, in that trade, to do that portion of the project. Just because the general contractor has a contract for the "entire job" does not give the general the right to do any part of the project other than framing and carpentry work, unless the general contractor holds additional license classifications covering the other work on the project.
SPECIALTY CONTRACTOR: A California Licensed Construction Contractor holding one or more CSLB specialty classification license(s) (C) or limited specialty classification license(s) (D), whose primary contracting business is in connection with any structure built, being built, or to be built requiring a specific building trade, or "specialty", to complete the project. The specialty contractor is a PRIME OR ORIGINAL CONTRACTOR only if hired directly by the property owner to do specific projects involving the work the specialty contractor is licensed for.
SUBCONTRACTOR: The term "subcontractor" is often misused. Any contractor can be a PRIME or ORIGINAL Contractor and any contractor can be a SUBCONTRACTOR. I have heard specialty contractors referring to themselves as "subcontractors" when they really should say that on this particular project, I am a subcontractor. Simply put, any contractor who signs a contract with another contractor to do part of or all of the other contractors work on a particular contract for a job the other contractor has, is a subcontractor on that project. In California, a subcontractor can be ANY licensed California contractor that signs a contract with another licensed contractor. Construction Subcontractors are usually specialty contractors hired by the General or Prime Contractor to perform certain tasks required to complete the entire project and may include, for example, trades such as plumbing (C36) , electrical (C10), roofing (C39), cement work (C8), and drywall (C9). A subcontractor can be hired by a Prime or Original Contractor, by a general contractor, or by ANY OTHER Contractor on the project including another subcontractor.
SUBCONTRACT TIERS: Subcontractors may, in turn, hire their own subcontractors to do part of the work they have contracted to perform. The "level" any subcontractor has in the Prime or Original contract is called their "tier." To illustrate this, take Joe, a masonry contractor (C29), who signs a contract with a homeowner to re-do the outside walls of a house. Joe is the Prime Contractor on the job because he has a contract directly with the property owner. The front and the bottom of the house is to receive brick veneer over the existing stucco while the remainder of the house will receive paint. To prepare the surface, the old paint needs to be removed from the existing stucco. Joe, who is the prime contractor on the job, hires Phil, who holds a Painting Contractor (C33) license, to do the sandblasting and painting. Phil is a subcontractor on this job because Phil has a contract with another contractor and not with the property owner. Phil does not have a "direct contractual relationship" with the property owner. Phil, after sandblasting and seeing the condition of the stucco surface, gets a change order to re-float and texture the stucco, which must be done before paint can be applied. Phil, in order to execute the change order, in turn hires Eddie, who is a Plastering Contractor (C35), to re-float and texture the walls for painting. Eddie does not have a direct contractual relationship with the property owner and instead, has a contract directly with a subcontractor on the job who, in this case, is Phil. That makes Eddie a subcontractor or more accurately, a sub-subcontractor, on this project. So the contract tier goes like this: The first tier, the highest tier, belongs to the prime contractor on the project... Joe. The next, lower tier belongs to Phil who has a subcontract with Joe to do the sandblasting and painting. The next lower tier, the lowest on this particular job, belongs to Eddie who has a sub-subcontract with Phil to do the stucco work necessary to prepare the stucco walls for painting. Both Phil and Eddie are subcontractors on the job and you would say that Phil is a subcontractor on a higher "tier" than Eddie. Now you can see that on more complicated projects, there can be subcontractors, sub-subcontractors, sub-sub-subcontractors and so on... and that each of these are on a different tier, higher or lower, than the other!
Whew! Glad that part is over aren't you. In the next post I'll discuss what you absolutely MUST have to be able to file a mechanics lien in California and the critical timeline you must follow! I'll also give you a link to download a California timeline reference card to help keep you out of trouble in your quest to get paid through the California Mechanics Lien Process!
Oh, and by the way, please sign up for our newletter and email notifications of new posts from ACT Contractors Forms using the form above to the right.
Please post any comments you may have on the topic of mechanics liens in California. Do you have a question you would like answered? Do you have a mechanics lien experience you wish to share? Post it below. Oh, and by the way, please sign up for our newletter and email notifications of new posts from ACT Contractors Forms using the form above to the right.
A profitable way to "recession proof" your contracting business is to focus a part of... or even ALL OF your efforts on insurance restoration work.
FIRE, WIND, WATER, MAN It doesn't matter what the economy does, most homes and other properties will still be insured and accidents, calamities, natural disasters and destructive acts of man will always occur.
One of the most important contract forms, mandatory for any insurance restoration contractor, is an Insurance Restoration Contingency Agreement such as our Authorization of Insured Form. This form creates an agreement with the insured that states that he authorizes you to negotiate as his agent, with the adjuster. The AOI states that you will do the job for whatever the insurance company allows and the insured will only have to pay his deductible plus any upgrades he chooses. BUT, most importantly, the Insurance Contingency Agreement also provides that YOU WILL DO THE WORK!
To illustrate why this form is so important, let me give you this scenario:
A hail storm appears out of nowhere in Oklahoma and damages the roof of the house owned by "Joe Homeowner." Joe calls your roofing company, right after the storm, and asks you to come look at his roof. After Joe gets off the phone with you, Joe calls his homeowners insurance company and after finding that this type of damage is "covered" by his policy, places a claim.
You go out to Joe's house, get out your ladder, crawl up on the roof, inspect the damage, take some measurements, take some photos, then tell Joe that he should relax, you will negotiate with the insurance adjuster to get Joe the best settlement so the job can be done right. You tell Joe that, best of all, you'll do the repairs for whatever the insurance company pays and the ONLY out of pocket expense Joe will have is the deductible on his insurance policy. Joe tells you to go ahead, you shake Joe's hand, get the adjusters name and number and go back to your office to start "negotiating."
Some of you, particularly those without experience in this, are going to ask WHY didn't the contractor get a repair contract signed RIGHT THEN? Simple, to create a contract you would need things that you just don't have. For example, you can't create a scope of the work until you see what the insurance company will "cover" to settle the claim! AND... since you don't have a scope, there is no way to give a PRICE and even if you could, you just told Joe, and this is the standard in insurance restoration, that you would do the work for whatever the insurance settlement was! If you can get Joe to sign a contract for what YOU think should be done for YOUR price to do this work, you could be way off from the insurance settlement. You could, for example, tell joe that the whole roof needs to be torn off and replaced and for $10K, which the insurance company should pay for, you'll do the job . What happens if the insurance company only authorizes a $5K repair? You've just sold Joe on a complete re-roof and the adjuster is now telling Joe that this is unnecessary and replacing the damages shingles is all that is necessary. Do you still want to do the repair job? Now that Joe thinks you don't know you're a** from a hole in the ground, the better question is ...Will Joe Let You DO The Repair Job?
Now lets get back to our scenario:
OK so you've made 5 trips out to Joe's house with the adjuster, have emailed the adjuster two different sets of photos of the damage, written the adjuster 10 emails, gotten pricing and checked availability of the existing shingles on Joe's roof and pleaded Joe's and your case to the "stupid" adjuster for two weeks. The adjuster wants to do a repair and you tell them the whole roof is damaged and a repair will not put the roof back to the condition it was in before the storm and the repair will not match the existing. From the ground, because adjusters are above being a roof monkey and NEVER climb roofs, the adjuster says it looks like a repair will do fine. You climb up on the roof again and take more pictures. You go back and forth and finally the adjuster agrees with you and authorizes a re-roof ! You're so proud of yourself, because you just got Joe a $10K re-roof job when he was expecting a $5K repair. Yay! You tell Joe you have great news and make an appointment to see him day after tomorrow.
Now, in the meantime, some "roofer" from out of state drove by Joe's house, saw the damage and, looking for work, knocked on Joe's door. He gave Joe a price of $6k to do a complete re-roof, scientifically basing his bid on the materials plus his truck payment, plus his alimony and child support payment, plus two months past due rent on his apartment... you know, a real businessman!??
You meet up with Joe and tell him the good news. He politely thanks you for getting him more money than he ever thought possible, then tells you "thanks, but I got a bid for $6k to do the re-roof and I am going to go with that one." The part he doesn't say is that you just made him $4000 because he will still get $10K from the insurance company and the job is now costing him only $6K so Joe gets to pocket the difference! What can you do about this? Nothing. You didn't get Joe to sign anything so he is not obligated to accept your "bid".
You just spent days of running around, meetings, emails, photos, crawling up on Joe's roof not once but three times and your payday for this...NOTHING! KISS IT GOOD BYE!
An Insurance Repair Contingency Agreement like our Authorization of Insured Form, helps keep this from happening to YOU!
Contractors, do you have questions about Insurance Restoration Contingency Agreements like this? Please share your comments, questions and experiences below!
You know that contractor from Tennessee I discussed in yesterdays blog post about the length of contractor forms, specifically, the length of your home improvement contract? Well he did end up faxing over a copy of the home improvement contract form he was using for re-siding a house... You know the one that was 8 PAGES long without the federal cancellation form! .... You know, the contract form that cost the contractor a $9000 re-siding job because the customer "needed to look it over" before signing and never called back?
When I pulled the papers from the fax machine, I expected to see a generic, "try to do everything", contract form that was overly long and "scary" because it included much more than was necessary for home improvement work. I was right... and I was wrong.
What I saw was a wordprocessor based form, downloaded from the internet as a contract for all "construction and improvement projects" sold to a Licensed Tennessee Home Improvement Contractor, that had notices and terms from at least TWO other states! and... This same Tennessee Home Improvement Contract, was missing the Tennessee required notices. It did not even have the the most basic TN notice... the notice giving contact information for the Tennessee Home Improvement Commission (THIC)!
Why was this Home Improvement Contract 8 Pages Long?
It had notices that the creator typed in from not just one, but two other states!
Instead of using the correct, home improvement 3-day cancellation notice, a single, small paragraph, the creator incorrectly used a "recission" notice for the sale of merchandise that took up half a page by itself.
It had a 3-day AND a (7-day) notice of cancellation form which the form creator included because, in their own words, the seven day notice is a "mandatory contract inclusion in many states". Guess what, the ONLY state that has a seven day notice to cancel is CALIFORNIA, so why add pages for that in an agreement for Tennessee or for any other state for that matter?
It had long detailed provisions for things like setbacks, lot lines, excavation, hard earth, things that are completely unnecessary for most home improvement jobs and certainly not needed for re-siding a house.
It was created in a wordprocessor program instead of a professional, page layout program... and wordprocessor forms are ALWAYS longer because wordprocessor programs are limited in what they can do.
The layout of the contract was very "homegrown" and not well thought out. This is the difference between typing and "typesetting". For example, things that should have been placed side by side were placed on their own line taking up twice the space.
No wonder the homeowners panicked when they saw this thing.
Be careful that the contractor forms you use meet your specific needs. Generic, "one size fits all" contractors forms can cost you much more than the forms themselves. Ask questions and look at samples before you decide on which form to use. And make sure your home improvement contract is not too long for the customer to "swallow" because it contains too much of the wrong "stuff" and too little of the right!
Have you had an experience, good or bad, with the home improvement contract form you use for your business? Do long contracts matter to the average homeowner? PLease leave your comments below so we can all learn!
Your contractor forms must take into account the federal and state laws regarding the 3-day cancellation rights of the consumer. Known by many names such as the "3-day cooling off period", "3-day right of rescission" or "3-day right to cancel", this requirement causes a lot of confusion among contractors. If you do home improvement work, your home improvement contract must comply with this consumer right.
DID YOU KNOW that it doesn't matter what state you live in, the Federal Government has ruled that ANY Home Improvement Contract signed in your customer's home must give the customer the right to cancel the contract within 3 business days after they sign FOR ANY REASON. This applies to any job whose value is $25 or more.
YOU DON'T WANT TO DO THE WORK FOR FREE! DID YOU KNOW that a customer who is entitled to the rights offered by the 3-day cancellation rule and who is not properly notified of these rights has THE RIGHT TO CANCEL the contract ANYTIME until 3 business days after they receive proper notification of this right???
So... You work on the job for a week. The customer wanted to cancel the contract the day after they signed but because you did not notify them that they can, they didn't think they could. A friend tells them about the 3-day right to cancel. They call their attorney and ask him about their rights. He explains their cancellation rights and because your contract does not include the proper notifications, tells them to go ahead and cancel NOW! You have one of two choices.
- EAT ALL YOUR EXPENSES AND COSTS ON THE JOB TO DATE
- TRY and sue them for the money they owe you for the completed work, lose, then eat all your expenses and costs on the job PLUS PAY YOUR ATTORNEY FEES, PLUS you will probably PAY THEIR ATTORNEY FEES!
It is important to understand that the FEDERAL rule regarding the 3-day right to cancel is the MINIMUM rule that every state MUST follow. Each state can ADD to the minimum federal rule to give even more rights to the consumer... and most states DO!
If you would like to know more about whether this cancellation rule applies to your business and about further requirements of this rule, please click on the following link to download our FREE white paper on the 3-day cancellation rule.
FOR MORE INFORMATION ON THE 3-DAY CANCELLATION RULE..... CLICK HERE
Pennsylvania Contractors, welcome to contractor regislation and the state laws that go along with it! This is a bad thing... right? . . . WRONG! In every state where contractor registration and/or licensing has been written into law, suprising things have occured:
- Those "unfair competitors" who operate outside the rules and because of this are able to offer cheaper prices, will start to be "weeded out".
- Overall job quality will go up as these unlawful, fringe contractors can no longer do business.
- Consumers repect your industry more because you are now all registered professionals... sounds corny but is true!
- You will be able to get more for your work as the "playing field" is leveled and prices stabilize.
As of July 1, 2009, ALL home improvement contractors in PA must be registered and must have contracts and other paperwork that comply with the many requirements set forth in the new PA Home Improvement Consumer Protection ACT (PA HICPA) for all jobs over $500.
PA Home Improvement Contractors will now have to provide the homeowner a written contract that meets all of the requirements of the new laws. If the contract forms you use do not meet these new requirements, PA courts will view the contract as invalid and unenforceable. What does this mean?
Simply stated, if you want to protect your legal rights and remedies to get paid for the work you do, you MUST have a contract that complies with the PA HICPA!
This is no joke! PA Contractors!
I have put together an informational pamphlet that will tell you everything you need to know about the new PA contractor requirements including whether you need to register and if so how and what the new laws mean for your business.
to download a copy of this PA HICPA pamphlet FREE....CLICK HERE!