A mechanics lien is a “hold” against your property, filed by an unpaid contractor, subcontractor, laborer, or material supplier, and is recorded with the county recorder’s office. If unpaid, it allows a foreclosure action, forcing the sale of the property in lieu of compensation.
A lien can result when the prime contractor (referred to as a “direct contractor” in mechanics lien revision statutes, effective July 1, 2012) has not paid subcontractors, laborers, or suppliers. Legally, the homeowner is ultimately responsible for payment — even if they already have paid the direct contractor.
A lien can result in a range of problems, which include: Foreclosure (if the homeowner doesn’t pay the lien); Double payment for the same job (if the homeowner pays the direct or prime contractor, and he/she does not pay the subcontractor, laborer, or supplier); and/or A recorded lien on the property title (which can affect the owner’s ability to borrow against, refinance, or sell the property).
To prevent a mechanic’s lien, do your diligence. Hire only licensed contractors and check the contractor’s license status on CSLB’s website. Make sure your contractor hires only licensed subcontractors, and check their licenses. Check your direct (prime) contractor’s reputation for paying subcontractors and materials suppliers, and check for lawsuits at the local courthouse. Get a list of all subcontractors, laborers, and material suppliers to be used by your direct contractor.
Make sure your written contract includes a payment schedule that states when specific phases of the work start and end, and the price for each segment; identifies the subcontractors or laborers for each segment; and identifies material suppliers.
A Preliminary Notice is required from subcontractors and suppliers if there is a chance they may need to file a lien. The notice states that the subcontractor or supplier has provided, or will provide, goods and services to improve your property and could file a lien claim if they are not paid. If subcontractors and suppliers don’t provide you with the notice, they lose the right to file a lien.
The simplest way to prevent liens and ensure that subcontractors and suppliers are paid is to pay with joint checks. This is when both parties endorse the check.
• Compare the contractor’s materials or labor bill to the schedule of payments in your contract and the Preliminary Notices.
• Make sure that work was done as described.
• Make the check payable to both the contractor and the supplier or subcontractor.
Lien releases allow property owners to track when potential lien claimants have been paid. Before making a payment, get a signed conditional release from the possible lien claimants.Lien release forms are available online from the CSLB. You or your contractor can download a copy of the release. The direct contractor is required to get release signatures for you from the potential lien claimants.
After you pay, the contractor should provide you with an unconditional release signed by each of the claimants paid for the portion of the work being released. Make sure that the actual claimant signs the unconditional release.
By law, you may withhold the next payment until you get the unconditional releases for the previous payment.
Filing a Notice of Completion with the county recorder’s office after work is completed reduces the amount of time a contractor, subcontractor, laborer, or materials supplier has to record a claim. Homeowners have 15 days from the date of completion to do so.
This notice reduces the amount of time a contractor has to record a mechanics lien from 90 to 60 days, and reduces the time a subcontractor or materials supplier has to record a mechanics lien from 90 days to 30 days.
The Notice of Completion form may be obtained through your county recorder’s office, or a stationary or office supply store that stocks legal forms. Some of these forms are available online.
What if a Mechanics Lien is Filed on Your Property?
Determine if it is a valid lien. It may not be valid if the work was not completed or supplies were not included in the plans or contracts. An attorney can help you find out if the lien is valid.
Often lien claims are invalid because the contractor, subcontractor, laborer, or material supplier has failed to meet the required timelines for filing the claim. Review the checklist below to determine if the claimant followed the required timelines.
Check to see if a Preliminary Notice was given to you within the specific time frames. (Remember: direct contractors and laborers do not have to file preliminary notices.)
A subcontractor or material supplier has 20 days after beginning work or delivering materials to serve you a Preliminary Notice. If the notice is late, the claimant loses lien rights for work done or materials delivered more than 20 days before the notice. The claim against your property is only valid for work done or supplies delivered 20 days before notice was given and anytime thereafter.
Be sure the Notice of Mechanics Lien accompanies the lien claim. The claim should include the amount owed, the service or products provided, the employer, the property owner, the address or description of where work was done or products delivered, the claimant’s address, and a Proof of Service Affadivit completed and signed by the person serving the Notice and the claim.
Check to see if the potential lien claimant filed the mechanics lien within the legal time frame. If the potential lien claimant fails to record the mechanics lien within the appropriate time frame, the lien isn’t valid.
The potential lien claimant must record the mechanics lien within 90 days of:
Completion of work;
When the property owner began using the improvement;* or
When the property owner accepted the improvement.
*This is sometimes hard to verify because the homeowner often occupies the residence during construction. Contact an attorney for assistance on this point.
Check with your local superior court to see if the subcontractor or material supplier filed a timely lien foreclosure action.
A lien foreclosure action is a lawsuit to foreclose the mechanics lien. The lien claimant must file a lien foreclosure action within 90 days of the date that he or she recorded the mechanics lien. Often a lien claimant with a valid claim will fail to follow through, making the lien invalid.
A lien stays in the county records and on your property title until you take action to remove it. An invalid lien can make it difficult or impossible to sell, refinance, or obtain a line of credit on your property.
If the contractor, subcontractor, laborer, or material supplier fails to follow any of the specific time frames, you can petition the court to remove the lien.
If the lien claimant doesn’t remove the invalid lien, and the time has expired to record the mechanics lien and take action to foreclose, you may petition the court for a decree to release the property from the lien. This is a complicated process that may require the services of an attorney.