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ACT Contractors Forms... From The Paper Side of Contracting.

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Contractor Form: The California Mechanics Lien II... What is Required

Posted by Bill Baird on Tue, Nov 03, 2009 @ 05:50 PM

    Putting the pieces together... Putting the pieces together, California Mechanics lien.In the first part of this series on the California Mechanics Lien, we defined some legal terms that are important to know if you want to understand the California Mechanics Lien Process. In this, part 2, the concept and requirements for a mechanics lien in California, are the topic.

What is a California Mechanics Lien?

     The Mechanic's Lien is a NOTICE of a charge, hold, claim, or encumbrance upon property. The term implies the right which California law gives to have a debt satisfied out of the property. The California State Constitution provides Mechanic's Lien law to help assure that a mechanic gets paid for labor and/or materials supplied to erect, repair or otherwise improve the property of another. A mechanic, for contractors purposes, is anyone (individual, company or corporation), other than the property owner themselves, who supplies materials or who furnishes labor to improve real property.

 

     A mechanics lien is recorded with the county recorder and is public information. Anyone who does a property title search at the county recorders office will "see" the mechanic's lien. The mechanic's lien gives notice to any interested party that the lien claimant (the person or company that claims the mechanic's lien) has reserved right to pursue a lawsuit to have their debt satisfied "out of the property."

 

     Mechanic's liens are valid even after the property is sold so most potential buyers of the property would insist that the property be "free and clear" before making a purchase. Also, lenders will not want to lend money on any property that has a mechanic's lien against it since the lien claimant would have a higher "priority" position on the property title than the lender. Having a higher "priority" determines who gets paid first, next, and so on. The lien claimant might win a judgement and foreclose on the property to get paid out of the proceeds. Depending on the situation, this could mean the proceeds from a foreclosure might not be enough to pay the lien claimant AND the lender in which case the lower priority lender would lose out!

 

     When a mechanic's lien is "perfected", the lien claimant has taken his case to court and received a judgment. The lien claimant then has the right to foreclose on the property and to use the proceeds to satisfy the judgment... taking into account that "others" with a higher position on the property title, like the first or second mortgage holders (if any), must be paid first.

 

     Realistically, mechanic's lien judgements rarely result in foreclosure. The judgement creditor is usually very enthusiastic about paying the judgement long before it goes that far.

 

Note: Mechanic's Lien Law varies significantly between projects on private property & projects on public works. The information contained in this document refers to labor & materials supplied on privately owned projects.

Requirements you MUST meet BEFORE you can place or File a California Mechanics Lien.

  • You must be a California Licensed Contractor with a license that was current and in good standing during the period starting when the contract was signed through when the labor or materials were furnished. California DOES NOT allow an illegally operating, un-licensed contractor to lien! If your license has expired because you forgot to pay your renewal fees, before California Law, you are un-licensed and have no lien rights!

  • You must have a valid contract that is both legal and enforceable between you and the property owner. This is critical. Your contract form must comply with ALL laws in effect at the time it was signed (like these California Construction Forms)! Be extremely careful with whom you purchase your contract forms. Be extremely careful that all required notices are given. Make sure you have complied with ALL the requirements of the consumers right to cancel any home improvement contract. A mistake here can cost you ALL THE MONEY rightfully due you!

  • You must have actually furnished labor or materials to erect, repair or otherwise improve the owner's property. You cannot file a lien for intangibles such as "lost profit." You can only lien for the value of ACTUAL furnished labor or materials at the time the job was completed or work ceased.

  • Unless you have a direct contractual relationship with the property owner, you must timely give notice to the property owner of your right to lien by providing the owner with a proper, statutory California Preliminary Notice (aka 20-Day notice, CPN, Pre-Lien, Preliminary Notice).

  • You must follow and comply with the timeline set forth in California Law. This is the real key to the entire process. Timing is everything! If you miss any single deadline, your lien rights will be lost or at least greatly impaired!

Questions about California Mechanics Liens?In the next part of this series of articles on the California Mechanics Lien Process we will discuss the all important California Preliminary Notice IN DEPTH!

 

Do you have questions or can you share your own experiences with the California Mechanics Lien process? Please comment below.

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Comments

If I am a licensed contractor and did not furnish my client with a contract, do I have lien rights? In other words, there is no signed contract, I placed a lien for money owed for labor and material, how would the judge view this when I take my client to court? Is the lien I filed invalid due to the project being incomplete and inhabitable?
Posted @ Tuesday, December 01, 2009 11:10 by Cyrus Meritorious
What state was the work done in? Mechanics Lien Laws vary greately from state to state.
Posted @ Tuesday, December 01, 2009 12:12 PM by Bill Baird
The work was done on a residence in California. The project was left incomplete after a dispute between the contractor and home owner. There was a large prepay for wage and expense to the contractor and there was a verbal arrange for the work that was to be provided (no written or signed contract). The remodel remains in limbo and is uninhabitable.
Posted @ Tuesday, December 01, 2009 12:20 PM by cyrus meritorious
Unfortunately, California Law is very specific regarding this situation. As a licensed contractor in California, you are required to use a written contract when doing home improvement (and I assume this is home improvement work, if not, this answer might be different). This very specific home improvement contract contains mandatory notices to inform the homeowner of their rights, of the contractors lien rights, and of their right to cancel in 3 days(or 7 days after a disaster). Among other things, this contract also informs the homeowner that by law, the contractor is not entitled to any money "up front", (for work not already done or materials/equipment not already furnished), other than a 10%,(up to $1000 max.),down payment. When the homeowner is not notified properly in a written, compliant home improvement contract, CA law views the improper, verbal contract as null and void. You must have a valid contract to file a mechanics lien. You do not have a valid contract so any mechanics lien would be invalid. I cannot emphasize how important the RIGHT home improvement contract is! It is not just for the owner, it is also to protect the contractors right to use the legal system and the mechanics lien process to get paid for money rightfully due them!
Posted @ Tuesday, December 01, 2009 12:59 PM by Bill Baird
The work was a remodel of a residential home. There was an expansion of living space into a garage and a reconfiguration of a bathroom and laundry. If I am a licensed General Contractor with the CSLB and I carry the appropriate bond coverage, I enter into a verbal arrangement for a residential remodel, the home owner won't pay me expense and wage I feel I am owed, can I provide the owner with a California Preliminary notice? In other words, I do not have a direct contractual relationship with the home owner, does this mean I can pursue a Pre-Lien notice and approach recovering my money that way? What happens if I signed under penalty of perjury a mechanics lien with the county recorders office on the same home owner already? Can I pursue the Pre-Lien and are their civil liabilities I should be concerned with regarding the lien I already filed? Thanks! 
 
 
 
Posted @ Tuesday, December 01, 2009 2:05 PM by cyrus meritorious
I am licensed General Contractor and have valid contract with the home owner. I did not file 20 day lien notice. Now towards the end of the project I feel owner is not paying me full. Can I still file a mechanics lien and get my money or any other legal way to get my earned money.
Posted @ Friday, April 16, 2010 8:19 by Ajay SIngh
Depending on the time frame... You can still file a 20 day notice and place a lien for all work done prior to 20 days from the date the 20 day notice was filed. All work done before this 20 day period would not be lienable. Even though you may not be able to use the mechanic's lien process to help you get paid... You can still file a lawsuit (either in small claims court or regular court depending on the amount owed you) and, if you win, get a judgement for the amount owed you.
Posted @ Wednesday, August 11, 2010 2:18 PM by Bill Baird
We have been awarded a judgment against the homeowner for $7500. The CSLB continues to investigate the homeowners claim for substandard workmanship. Who presides over who?
Posted @ Wednesday, August 25, 2010 7:32 PM by David Burtrum
It would be a good idea to advise CSLB of your judgement, which should carry some weight in their investigation. However, the judgement you received for money owed will not likely stop the CSLB investigation since the CSLB investigation is independent!
Posted @ Wednesday, August 25, 2010 7:57 PM by Bill Baird
We are a MATERIALS supplier, in the form of custom-built wood windows. We do not do any on-site work. Do the same 20-Day notice regs. apply to material suppliers as they do to subcontractors? Also, as building the windows can take many, many weeks with several deliveries to the job-site, can we file a pre-lein up until the LAST delivery, which may be long after 20 days of actually beginning the process of building all the windows?
Posted @ Tuesday, January 18, 2011 12:47 PM by P Foreman
Please see this blog post about the California 20 Day Notice and material suppliers... ;">Click for Blog Post
Posted @ Tuesday, January 18, 2011 5:34 PM by Bill Baird
Is there a limit under which a California licensed contractor can perform minor home improvments under a verbal acceptance of a very specific contract and still retain lein rights? We write work order contracts detailing roof repair work, typically under $1000 and because the homeowner or agents to the homeowner often agree to the work over the telephone after an intial inspection, at times we do not obtain more then a verbal approval to complete the work durring a time when the owner is not home (ie at work).
Posted @ Wednesday, January 26, 2011 6:23 PM by E Guerra
The short answer is no... CA law states that you must have a valid contract as a pre-requisite to using the lien process. The way you are doing this work, without following CA Contractors law, frankly, scares the heck out of me! Apart from all the specific CA REQUIREMENTS for a Home Improvement contract that you are not following… any agreement for home improvement over $25 in value, in EVERY STATE, made in-home, must properly notify the homeowner that they have 3 business days to cancel. If this is an emergency repair, the customer can, in their own WRITTEN words, waive this right under certain situations. In CA, you can start a home improvement job, immediately, under the specific circumstances of the Service and Repair laws, using a Service and Repair Contract (only for jobs under $750). But in every case, for Home Improvement work like this, you must give specific written notice(s) to the customer! Obviously, you can’t do this “over the phone.” So… the way you are doing business, without a legal contract, prevents you from using a lien to have a debt owed to you, paid out of the property! This does not prevent you from using small claims court to try and get a judgment against the person who owes you money. But caution here! Should the homeowner file a complaint with CSLB against you, you would not have a “leg to stand on” since the way you are operating is CLEARLY contrary to CA law and contrary to your duties as a California licensed contractor. Be very careful!
Posted @ Wednesday, January 26, 2011 9:37 PM by Bill Baird
Hi, I built and installed a set of custom cabinets for a kitchen remodel. The homeowners did not pay me and owe me about $3,000.00. I took them to court and they came up with excuses not to pay me and I LOST the case. Would it be illegal for me to renew the mechanics lean i put on their home every year? -Thank you
Posted @ Saturday, February 19, 2011 4:05 PM by Alborz
A mechanics lien, in California, is "good" for 90 days after recording. Within that 90 day period, a lawsuit must be filed in SUPERIOR COURT, not small claims court, to "win" the right to get paid "out of the property". "Out of the property" means a foreclosure sale of the property and from the proceeds, making payment to all parties who have monies owed them that are secured by the property. This includes the mortgage holder(s), your lien, and any other party with a security interest in the property. Leaving a mechanics lien and/or "renewing" a mechanics lien after this 90 day period without filing a lawsuit as required by law, is contrary to law and can be very damaging to the property owner. Should the owner, for example, seek to sell the property or get a secured loan on the property, this mechanics lien would show up and might prevent the sale or loan. The property owner might then sue YOU for the damage they sustained as a result of your "invalid" lien! At the very least, you would be responsible for any attorney fees the property owner incurred for getting the invalid lien expunged. So… if you choose not to pursue a lawsuit to foreclose within the 90 days after you record a mechanics lien, in your own interest, be sure to legally "release" the “stale” mechanic's lien to protect you!  
 
In your case, I assume 90 days has passed since the lien was recorded. Since you did not file a lawsuit to foreclose in superior court, the lien is stale and you must voluntarily remove it. You are prohibited from filing more than one mechanic’s lien for the “same” labor and/or materials supplied. Trying to “renew” a lien by recording the “same” lien multiple times is viewed as being intentionally malicious and could cost you much more than the $3000 you lost on the job!  
 
I do not know the exact circumstances of this job but I know from my own experience just how frustrating a “deadbeat” customer can be. People will always tell you “don’t take this personally as it is just business”. The problem is that you cannot help but take this personally because while it may be “just business”, YOU ARE THE BUSINESS! The hardest thing I had to learn to keep my sanity as a contractor was to place customers like this in the “cost of doing business” category along with buying new tools and getting a new truck rather that placing them in the “personal attack on my ethics and they deserve to get punched out” list… but you have to figure out a way to do this to stay sane! 
 
Posted @ Sunday, February 20, 2011 4:45 PM by Bill Baird
Thank you so much. So in other words, I could have got a court order to forclose on the property??? But even then I would have had a chance of losing the case right?
Posted @ Sunday, February 20, 2011 5:40 PM by
Yes, you would still have to prove your case in court before the lien would be "perfected" and you would then have the right to foreclose on the property and to get paid out of the proceeds.
Posted @ Tuesday, February 22, 2011 3:41 PM by Bill Baird
I thank you for providing this very informative law information regarding California Lien--I was looking it over all the web.  
Regarding your answer in one of the msg--CA law states that you must have a valid contract as a pre-requisite to using the lien process.  
Does that mean if a contractor wants to put a lien on my property, he has to show legal contract to the court in CA? The definition of legal contract is a paper describe detail work/service with both owner and contractor's signature? Am I right? I was asking for bids for my house project. This contractor send me email and ask for providing bid. I never see any "fee" mentioned in the email and during phone call, he said it was free. Now since I did not pick his bid which is the highest among all my bids, he charges me $1200 for preparing bid service and threaten to put lien on my property. It is totally Fraud! Please let me know if my understanding of this CA law is correct. He gave me impression that anyone can just put lien on anyone's property. This is a country guard by LAW! I am so ready to fight with him in the court or superior court.
Posted @ Saturday, March 26, 2011 5:50 PM by ABeingCheatedCustomer
While nothing prevents anyone from filing a lien on any private, real property in California, the question is if a lien such as this is legally enforceable and is not being placed maliciously. From what you have told me, this threat of a lien is probably just that... a threat made in the hope to get you to pay them something when it does not sound like you are obligated to. There would be real problems validating this lien... the least of which is no written contract complying with CA law! Next time they contact you, be sure to ask for their contractor’s license number. Tell them the California CSLB (Contractor’s State License Board, their website is cslb.ca.gov) needs this information to investigate the complaint you are filing against them. Chances are they are not even licensed and that you will never hear from them again! If you are formally notified or “served” that a lien is being filed by this person (new, 2011, CA law requires the lien claimant serve you a NOTICE OF MECHANICS LIEN and a copy of the lien BEFORE they can record it with the county)... be sure to contact your attorney immediately!
Posted @ Monday, March 28, 2011 9:18 PM by Bill Baird
I have a homeowner friend who hired a licensed contractor with no written contract to build a custom home. The contractor submitted bills each month and was paid in full each month. The end of the job came and he filed a mechanics lien for $175,000. the contractor then sent details of his accounting for time and material going back 1 1/2 years on the project and said he was owed $235,000. I think the contractor is try to get more money from the homeowner. The homeowner paid every statement for 1 1/2 years that the contractor submitted. the contractor filed suit this week. Now I am a licensed contractor and I was always told you need to have a written contract to enforce a lien. But I am reading in other places that a verberal contract is also binding. "A person cannot be enriched by not making a payment due" I know the Calif contractors license law says you cannot sue without a written contract, but I also know the damn judges don't read all the laws. Do the contractors license laws override all other laws regarding liens.
Posted @ Wednesday, March 30, 2011 12:48 by wayne
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