When contractors, subcontractors, and materials suppliers don’t get paid, they can file a California mechanics lien. A mechanics lien is a legal claim on the property for unpaid construction work or supplies. Once claimants file a mechanics lien, the owner’s property turns into collateral, allowing claimants to secure the service they rendered or the supplies they provided.
In California, mechanics liens are very effective in prompting quick payments for delinquent accounts with overdue invoices. The power of the lien stems from its ability to tie up and encumber the property. Property owners are made aware that they face financial and legal repercussions in the case the mechanics lien has been filed.
CA law ensures that liens are an option to those who worked or supplied materials to a California construction project. However, note that the state is stringent when it comes to enforcing the law, making it very important to follow instructions on what to do, where to go, and when to file. Not doing so can and likely will nullify your claim.
- Are you eligible to file a California mechanics lien?
- When can I file a mechanics lien?
- Should you file a California Mechanics Lien?
- How to file a mechanics lien
- The owner paid. What should the claimant do?
- What if they don’t pay?
- What happens next? Pursuing Lien Foreclosure
- The Owner’s Defense
- The Owner’s Move: Lien release bond
Are you eligible to file a California mechanics lien?
So you haven’t been paid, and you wonder if you’re eligible to file a California mechanics lien to recover what’s due to you.
If you are a contractor, subcontractor, or supplier in a construction project, you can file a mechanics lien in case of delayed payments or non-payment as long as you have recorded a Preliminary Notice.
In California, the Preliminary 20-Day Notice is the document that secures claimants’ right to lien. As the name suggests, the Preliminary 20-Day Notice in California must be filed within 20 days of the beginning of work. Recording the notice on time ensures the coverage of the mechanics lien in case you have to file one. In this case, it only covers work done or supplies delivered within 20 days of the Preliminary Notice, so it is best to serve it right after you start rendering a service or delivering supplies.
To whom you deliver the Preliminary Notice differs on a case to case basis. Refer to the chart below.
If you haven’t filed a Preliminary Notice yet, check out these 15 Questions on the California Preliminary 20-Day Notice that should cover all your questions regarding the Preliminary Notice.
When can I file a mechanics lien?
Filing the mechanics lien is a serious step, and the lien laws were written in such a way that ensures that claiming parties have had the chance to pursue payment and that the client has had the opportunity to make the payments.
In California, you can file the mechanics lien if your case satisfies any of the two:
- You must record the mechanics lien within 60 days of the owner filing a Notice of Completion* or Notice of Cessation*.
- In case no notice has been filed, you must record the mechanics lien within 90 days of work completion/last day of work.
It’s imperative to note this information because you cannot file a mechanics lien when too much time has already passed after the owner’s records a notice or the project has ended. Even if you do all the steps and get to record the lien with the county, it will be invalid and will not hold up in court.
Also remember that you can only file a lien for work or supplies that have already been delivered. You cannot file a claim for work or supplies that are not due yet.
*Notice of Completion A document that owners record with the county that asserts that a construction project has been completed. The Notice of Completion triggers the time period for the recording of mechanics liens and stop payment notices.
*Notice of Cessation A document that owners record with the county that asserts that work has ceased on the project and property location. The Notice of Cessation triggers the time period for the recording of mechanics liens and stop payment notices.
Should you file a California Mechanics Lien?
If you haven’t been paid, yes. The reasons why mechanics liens are powerful is emphasized by its ability to secure collateral (the property) for work performed or supplies delivered but remain unpaid.
It also puts more pressure on the client to settle their dues because when a mechanics lien is filed, the claimant can force a sale or foreclosure if he remains unpaid. This is also the reason why the Preliminary Notice puts claimants in a good position even before the situation is escalated to the point of filing a mechanics lien, because it puts financial risk on the owner as well whereas without lien rights, contractors, subcontractors, and suppliers can be left out in the cold with no resort.
How to file a mechanics lien
So, you’ve served the Preliminary Notice and the work it covers remains unpaid. You’ve decided to push through with the mechanics lien — what now?
The cost of getting things wrong
First, it’s important to understand how important it is to get everything right when it comes to filing and recording your mechanics lien. Any error will render the lien invalid, nullifying your claim and chance to get paid.
One of the most popular questions when it comes to filing mechanics liens is, “Where do I file it?” As you know, filing the lien in the wrong address or location will invalidate the lien.
Some ways people deliver or file the lien in the wrong location is by getting the addresses wrong in the first place. Before delivering and recording a lien, you must make sure that you have the correct addresses and information for all recipients, so that includes the owner, lender, general contractor, and government office.
There are many cases where claimants try to file the mechanics lien in the wrong government office. In California, mechanics liens can’t be filed through the state, city, or town offices. To make sure that your lien is properly recorded, it must be filed with the county clerk because property records are kept at county-level in CA. Also remember that it must be filed with the county clerk of the county where the property is located. If you file a California mechanics lien with the wrong county clerk, it will be invalid.
Following the law
The process of filing a mechanics lien is adequately outlined in California Civil Code Section 8416 Chapter 4. Understanding it inside and out is vital to ensure that your lien will be valid. Different situations call for specific processes, and the difference begins from filing the Preliminary Notice.
From creating the documents to ensuring the accuracy of information, there’s a lot that goes into ensuring you have a valid California mechanics lien filed.
It usually begins with getting the form from your county clerk’s office, but you can also opt for services like Handle that helps you throughout the whole lien process to get you paid quickly. Doing it yourself can certainly be done as long as you’re especially meticulous with all the information you’re using to fill out the forms and filing the documents.
Ensuring accuracy on your California Mechanics Lien
Rules and requirements for mechanics liens vary for each state and the same goes for the information required. Since accuracy is the number one concern when it comes to filing the mechanics lien, it’s critical to pay attention to differences and not be complacent even when you have experience filing liens in other states.
Unlike other states, California mechanics liens do not require notarization. However, you are required to include a signed and verified written statement that includes all the following information:
- A statement of the claimant’s demand (what is owed) after credits and offsets
- The name of the property owner
- A statement of the type of work provided by the claimant
- The name of the person who employed the claimant (client, or direct contractor in the case of subcontractors)
- The description and location of the work site
- The claimant’s address
- A proof of service affidavit completed and signed by the person serving the mechanics lien. The following information should be included in the affidavit:
- The date, place, and type of work delivered.
- Facts that support the fact that work has been delivered.
- The name, address, and title of the person or persons upon whom the lien was served.
- How the lien was mailed and tracking number.
- A statutorily mandated statement printed in 10-point boldface type.
- The last sentence must be printed in uppercase, except the website address of the California Contractors’ State License Board www.cslb.ca.gov, which shall remain in lowercase type.
NOTICE OF MECHANICS LIEN
Upon the recording of the enclosed MECHANICS LIEN with the county recorder’s office of the county where the property is located, your property is subject to the filing of a legal action seeking a court-ordered foreclosure sale of the real property on which the lien has been recorded. That legal action must be filed with the court no later than 90 days after the date the mechanics lien is recorded.
The party identified in the enclosed mechanics lien may have provided labor or materials for improvements to your property and may not have been paid for these items. You are receiving this notice because it is a required step in filing a mechanics lien foreclosure action against your property. The foreclosure action will seek a sale of your property in order to pay for unpaid labor, materials, or improvements provided to your property. This may affect your ability to borrow against, refinance, or sell the property until the mechanics lien is released.
BECAUSE THE LIEN AFFECTS YOUR PROPERTY, YOU MAY WISH TO SPEAK WITH YOUR CONTRACTOR IMMEDIATELY, OR CONTACT AN ATTORNEY, OR FOR MORE INFORMATION ON MECHANICS LIENS GO TO THE CONTRACTORS’ STATE LICENSE BOARD WEB SITE AT www.cslb.ca.gov.
The proof of service affidavit ensures that the lien is served upon the property owner or someone in the capacity to receive on their behalf. The affidavit must be filed along with the lien. Serving the lien may be done through registered mail, certified mail, or first class mail.
The claimant must keep the certificate of mailing and/or the prepaid postage that is addressed to the owner’s residence or place of business, or to the address on file in the building permit. Once the mail is sent, the lien is marked served. Create a copy of the affidavit for the owner and another for filing.
How to record a California Mechanics Lien
Once you have the document together, here are the steps you should take to make sure you have an officially recorded California mechanics lien:
- Sign and verify at least two copies of the mechanics lien
- Send a copy to the property owner and other parties that need to be notified of the lien (lenders, contractors, etc.)
- File a copy of the mechanics lien to the county recorder and pay the filing fee.
- California requires mechanics liens to be delivered to the county recorder where the work was delivered (i.e. county where the site of the project is).
- The mechanics lien may be filed via mail, private courier (FedEx, UPS, etc.), or via walk-in. Private courier and walk-in filing are encouraged in some counties where the recorder’s backlog is especially long.
- For liens sent through private courier and mail, you must include the filing fees and a self-addressed envelope with return instructions.
- You may inquire about the fees with the county recorder. It is usually a set fee for the first page of the lien and smaller, additional amounts for each page thereafter.
- Once the document is recorded, keep a stamped copy of the recorded lien.
The stamped copy of the recorded lien in your possession is proof of officially recording your California mechanics lien as long as you served the document to the property owner prior to submitting the document for recording with the county clerk.
Ensuring that you have proof of delivery and/or recording for all copies of the lien is important because non-delivery to the required recipients is a surefire way to invalidate your lien. Per CA Civil Code 8416, Article 2,
(e) Failure to serve the copy of the claim of mechanics lien as prescribed by this section, including the Notice of Mechanics Lien required by paragraph (8) of subdivision (a), shall cause the claim of mechanics lien to be unenforceable as a matter of law.
But, always remember that an officially recorded California mechanics lien doesn’t ensure that it is valid. If there were errors in the document or if your Preliminary Notice was incorrectly recorded, your mechanics lien will likely be invalidated. In case it goes through the county clerk and is deemed valid, the property owner can easily challenge it and the error ensures a decision favoring the other side, removing your claim on the property.
The owner paid. What should the claimant do?
The California mechanics lien must be canceled and removed from the county record by the claimant with the county clerk.
What if they don’t pay?
Before anything else, take note that lien foreclosures are extremely rare as the percentage of mechanics liens that get paid off fast is very high. Any enforcement of the lien or lien foreclosure is often unnecessary.
The right to claim against the client’s property is the most powerful feature of the California mechanics lien, and is why it’s essential that you’re filing everything the right way.
Putting pressure on the owner to pay while giving them a way to avoid going into court is what the lien seeks to accomplish. If they haven’t responded to previous times that you’ve tried to collect, the California mechanics lien is a surefire way to get their attention and, by extension, to get them to pay you. If not, they know they’re facing a court case.
While court cases are something that you will likely win with a properly filed mechanics lien, everybody wants to avoid the frustration and issues that are involved in them. But, as with anything, sometimes they’re not avoidable.
What happens next? Pursuing Lien Foreclosure
Still nothing? After recording the lien, you have 90 days to begin an action to foreclose the lien. If you’re not able to commence the action within 90 days, the lien expires rendering it unenforceable.
The process of filing a lien foreclosure is similar to the standard procedure of filing any other lawsuit. You need to secure a legal filing, and then present a case outlining and explaining why you’re owed the amount you state in the foreclosure.
The claimant (you) must file a Complaint for Foreclosure to the property owner and to all other claimants who have lien rights on the property. It’s common for all claimants going after the same non-paying client to merge their claims and push for a single action.
After notifying the property owner of your action to pursue lien foreclosure, you must also record a lis pendens or a Notice of Pending Action with the country recorder where the property is recorded. The Notice of Pending Action notifies prospective purchasers and lenders of the foreclosure action.
After all the notices go out, a court will schedule to hear the case to resolve the claims and decide who gets paid first, in case there are several claimants. This is very important because there are cases where the property’s sale value is not enough to pay all liens.
If at least one of the claimants can prove in court that their liens are valid and that they have a legal claim over the property, the court will facilitate a sale of the owner’s property. The proceeds will then be used to pay the claims.
The Owner’s Defense
Is a valid mechanics lien an assurance that you’ll get paid? Yes — as long as it’s valid.
Now, the validity is not only about filing the documents on time and getting the correct names and addresses on them.
The owner can and will dispute your mechanics lien. One of the most popular defenses of owners again lien foreclosure is proving that the amount a claimant has stated in the lien exceeds the actual contract price for the work or that the work claimed in the lien was not accomplished or delivered doesn’t satisfy the claimant’s part of the construction contract.
This means you shouldn’t proactively include projected lawyer’s fees in the contract price you include in the notice or the mechanics lien. Doing this will invalidate your mechanics lien. Don’t worry, if you successfully foreclose on a California mechanics lien, the court may award you the cost of filing and recording the lien and the attorney’s fees as well.
It’s essential to have a competent lawyer on your side because, despite the law being on your side, a foreclosure still involves serious litigation requiring technical expertise. Just like the whole lien process, a simple error in the requirements can invalidate your claim if the law is not followed to the t.
From filing the Preliminary 20-day notice and the California mechanics lien to, in some cases, pursuing litigation, CA law is very strictly enforced. To get paid faster and have all options secured in case a client proves delinquent, it’s important to have an ironclad process that protects you from seemingly small but dangerous errors that are fatal to your right to get paid on time and in full.
The Owner’s Move: Lien release bond
Another possible outcome is the owner moving to prevent foreclosure on their property by moving to secure a mechanics release bond. The owner can obtain a mechanics lien release bond (CA Civil Code Section 8424) by securing a surety bond in favor of a lien claimant for 125% of the lien amount. The bond must be liquid. In other words, the amount must be in cash. The way this works is that the lien will be placed on the bond instead of the property, freeing up the property to be eligible for sale or financing without liens on paper. In this case, the owner still needs to defend the foreclosure action so they don’t lose their money held in bond.
Getting paid on time and protecting your lien rights in case of a delinquent account is crucial, and you must ensure that you don’t hurt your interest by making errors in the process. Using a service like Handle will help you get paid faster and make sure you file error-free notices and mechanics liens. Embracing technology is the best way to avoid losing money on contracts due to small clerical errors when securing your lien rights and even when enforcing them.