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

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

Posted by Bill Baird on Tue, Nov 3, 2009 @ 18:11 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.

Topics: california contractor law, CSLB laws, California Mechanics Lien, CA mechanics lien form, california construction forms, california contractor form

California Contractors forms must not show "bonded" and/or "insured"!

Posted by Bill Baird on Mon, Sep 28, 2009 @ 16:09 PM

California contractors forms cannot have insured or bonded on them.       I received a bid for a new roof on my house last week here in California.  At the top of his roofing bid form and at the bottom of the advertisement from him that I responded to, this very large roofing contractor proudly displayed "bonded and insured".

Behold... two common mistakes have just been made that we find regularly from California Contractors who purchase our contractors forms. 

MISTAKE NUMBER ONE- ADVERTISING YOU ARE BONDED!

California Contractors Law (section 7027.4 of the CA B&P) prohibits including any reference to the contractor being "bonded" in any advertisement, or on any company "paperwork" that could reasonable be considered "advertising", if the bond being refered to is the standard license bond that all California Licensed Contractors must have. Simply stated, unless you have a "special" bond other that the license bond, you are not allowed to mention that you are bonded!

Contractor bid forms or estimate forms, proposals, bid proposals, door hangers, letterheads and most of the other paperwork CA contractors use between themselves and their customers might well be considered an "advertisement" in many cases so it is best to leave the word "bonded" off these as well.

A CSLB disciplinary bond is not a "special" bond!

If you are required to carry a bond, in addition to the standard license bond, as a result of a CSLB disciplinary action against you, the same section of CA Contractors Law also prohibits you from advertising this bond! You have to wonder why any contractor would WANT to tell people about their disciplinary bond, you know the one they got from doing something WRONG, but apparently some do.

MISTAKE NUMBER TWO- ADVERTISING YOU ARE "INSURED"!

A few years ago, California added to the law, (section 7027.4) that has been in place for years, making the word "bonded" a no-no in advertising. These "new" laws state a CA licensed contractor can no longer advertise that they are "insured" unless they state what type of insurance it is! 

So, any reference to "insured" in your company ads and forms must, for example, be stated as "commercial general liability insurance" or "worker's compensation insurance" or better yet "We carry Commercial General Liability and Worker's Compensation Insurance for your protection!"

Silly mistakes like this can get you into trouble with CSLB and if included on your California contractors forms, can interfere with your legal rights as a contractor!

 

Questions or Comments?  Don't be shy! Comment below.

Topics: california contractor law, CSLB laws, roofing contractor forms

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