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Mechanics Liens

This will be segment covers the rules for mechanics liens. These are important because if followed, they help us collect the debt by tying up the homeowner’s property until he pays us. However, if violated, a customer could sue us and obtain damages and legal fees in court for encumbering their property improperly.

Again, there are a few simple rules to remember that are covered here.

Under California law, persons who, at the request of the homeowner or homeowner’s agent, furnish labor, material, leasing equipment, special skills, or other necessary services to a project for constructing a work of improvement on real property are entitled to file and record a mechanics’ lien. Civil Code §3110.

This is a special notice recorded in the County Recorders office that tells prospective buyers of the property that there is a claim against it by a construction contractor. As a practical matter, the property may not be sold until the lien is either paid or released by a court.

The amount of a mechanics’ lien is limited to the claimant’s contract price or the reasonable value of the labor, services, equipment, or material furnished, whichever is less. A contractor may include in the lien any amount due for labor, services, equipment, or material furnished, based on a written modification of the contract or even on oral modifications to the contract with the homeowner. Of course, the contractor must prove that the material was actually used in the particular construction project and that any modifications to the contract were actually agreed to.

When subcontractors do not work directly for the homeowner, a preliminary 20-day notice must be served on the homeowner: this is a notice that the subcontractor is working on the property and needs to be paid. There is a standard form for this Notice and is covered by Civil Code §3097.

A preliminary notice does not cover work performed before the beginning of the 20-day period; therefore it is important for the contractor to serve the notice shortly after beginning the job.

If the contractor is not paid in full at the end of the job, he may file a mechanics lien which prevents the sale of the property until he is paid or a court finds the lien invalid. Generally, a contractor has 90 days after the work of improvement is completed to record the lien. CC §3115. The time period is shorter on jobs where a completion notice nor a cessation notice has been recorded.

The rule of thumb is that you have 90 days following the installation of the windows to record the mechanics lien. After that, it’s too late. If you file a mechanics lien after that deadline, not only does it have no effect, but it also subjects the company to potential liability for clouding the title of the property owner. A mechanics’ lien is a standard form recorded only in the office of the county recorder in the county in which the property is located. The format can be downloaded from the internet or purchased from some office supply stores.

A recorded mechanics’ lien is released by operation of law if the claimant does not bring a lawsuit to foreclose the lien within 90 days after the lien was recorded. Civil Code §3144(a). §3144 provides that if the claimant fails to file the action within 90 days, “the lien automatically shall be null and void and of no further force and effect.” This means that, as a practical matter, the contractor has to file a lawsuit within 180 days of the completion of the job or usually his lien rights are lost. The 90-day period is extended if an extension is given and notice of that fact and the terms of credit are recorded after the claim of lien has been recorded and before the 90 days has expired.

Again, this means that the company has only 90 days following the recording of the lien in which to file suit. If no lawsuit is filed in that period, the lien is worthless and may subject the company to liability if not released.

A lawsuit to foreclose the lien will continue to prevent the sale of the property until the lawsuit is resolved.

It is important to remember that, even if the lien deadline is missed, a lawsuit can be brought to collect the debt, as long as there is no attempt to tie up the customer’s title by maintaining the lien. Once a judgment is obtained, a judgment lien or abstract of judgment can be recorded against the homeowner which has the same effect as a mechanics lien.