ACT Contractors Forms... From The Paper Side of Contracting.
One of the most commonly requested forms for California is the California Preliminary Notice, sometimes called the CPN Form, California 20 Day Notice or California Pre-Lien or California Pre-Lim. Five different names for the same form. The CPN or California Preliminary Notice, is often the first step in the California Mechanics Lien process so it is no wonder these forms are popular!
Putting the pieces together... 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!
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.
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!