Category Archives: California Mechanics Lien


California’a Mechanic Lien Guidelines

In California, liens filed on private property are known as Mechanic’s Liens. When a California mechanics lien is filed with regard to work performed on privately owned property, it attaches to and encumbers the fee simple ownership of property.

In most circumstances, California does not allow mechanics liens to be filed on government owned property.  However, nearly every project on government owned project is required to have a payment bond in place to protect subcontractors and suppliers. Filing a claim against the payment bond secures your claim for money in a way that is similar to filing a lien claim. In addition to the payment bond, stop notices may also be filed.  Both bond claims and stop notices are discussed in more detail below.

Contractors, as well as subcontractors, design professionals, sub-subcontractors and material suppliers can file a California mechanics lien. If a company supplies material to a material supplier, they are not eligible to file a California mechanics lien claim.

Within 20 days of the commencement of work on the property, subcontractors and suppliers should provide written notice to the owner, the general contractor and the construction lender that they are performing work on the property. If the notice is served late, then the claimant can claim a California construction lien for the value of the labor or materials provided in the 20 days preceding the service of the notice and thereafter.

Prime contractors must file a California claim of lien within 60 days after a notice of completion or notice of cessation is recorded, or if no recording of completion or cessation is accomplished, within 90 days after the completion of the work of improvement. Subcontractors and materialmen must file a California claim of lien within 30 days after a notice of completion or notice of cessation is recorded, or if no recording of completion or cessation is accomplished, within 90 days after the completion of the work of improvement.

For more information, please visit us at LienItNow.

California’s Mechanic Lien

In California, liens filed on private property are known as Mechanic’s Liens. When a California mechanics lien is filed with regard to work performed on privately owned property, it attaches to and encumbers the fee simple ownership of property.

In most circumstances, California does not allow mechanics liens to be filed on government owned property.  However, nearly every project on government owned project is required to have a payment bond in place to protect subcontractors and suppliers. Filing a claim against the payment bond secures your claim for money in a way that is similar to filing a lien claim. In addition to the payment bond, stop notices may also be filed.  Both bond claims and stop notices are discussed in more detail below.

Contractors, as well as subcontractors, design professionals, sub-subcontractors and material suppliers can file a California mechanics lien. If a company supplies material to a material supplier, they are not eligible to file a California mechanics lien claim.
Within 20 days of the commencement of work on the property, subcontractors and suppliers should provide written notice to the owner, the general contractor and the construction lender that they are performing work on the property. If the notice is served late, then the claimant can claim a California construction lien for the value of the labor or materials provided in the 20 days preceding the service of the notice and thereafter.

For more information on California’s Mechanic Liens, please visit LienItNow.

California’s Mechanic Lien Requirements

In California, liens filed on private property are known as Mechanic’s Liens. When a California mechanics lien is filed with regard to work performed on privately owned property, it attaches to and encumbers the fee simple ownership of property.

In most circumstances, California does not allow mechanics liens to be filed on government owned property.  However, nearly every project on government owned project is required to have a payment bond in place to protect subcontractors and suppliers. Filing a claim against the payment bond secures your claim for money in a way that is similar to filing a lien claim. In addition to the payment bond, stop notices may also be filed.  Both bond claims and stop notices are discussed in more detail below.

Contractors, as well as subcontractors, design professionals, sub-subcontractors and material suppliers can file a California mechanics lien. If a company supplies material to a material supplier, they are not eligible to file a California mechanics lien claim.

Within 20 days of the commencement of work on the property, subcontractors and suppliers should provide written notice to the owner, the general contractor and the construction lender that they are performing work on the property. If the notice is served late, then the claimant can claim a California construction lien for the value of the labor or materials provided in the 20 days preceding the service of the notice and thereafter.

Prime contractors must file a California claim of lien within 60 days after a notice of completion or notice of cessation is recorded, or if no recording of completion or cessation is accomplished, within 90 days after the completion of the work of improvement. Subcontractors and materialmen must file a California claim of lien within 30 days after a notice of completion or notice of cessation is recorded, or if no recording of completion or cessation is accomplished, within 90 days after the completion of the work of improvement.

California’s New Mechanics Lien Law Changes In Effect

The most significant changes to California construction law in decades will became law on July 1, 2012. Owners, builders, developers, design professionals, contractors, subcontractors, suppliers and laborers rely on california mechanics liens, stop notices and/or bond claims to preserve their rights to payment. The changes attempt to simplify the legal rules and procedures for utilizing these remedies.

New Definitions, New Rules, New Procedures
Most important, all mechanics liens, stop notices and bond claims recorded after July 1, 2012 must use the new standardized forms and follow the new definitions, notice prerequisites and statutory release form language. The main substantive changes were meant to make it easier to understand the requirements, standardizing notice requirements and forms, and updating key terminology to reflect actual use of terminology, parties and documents.

Designed to Simplify the Old Statutes
Beyond renumbering, reorganizing and relocating the previous statutes governing mechanics liens, stop notices and bond claims, many of the changes to the overall scheme are not substantive, and are primarily designed to simplify the old statutes. Thus case law interpreting such language under the old statutes should continue to apply.
The new statutes governing mechanics liens, stop notices and bond claims can be found in California Civil Code Sections 8000-9566. There are three distinct groups within the statutory scheme:

For a more detailed explanation of the changes, take a look at LienItNow.com‘s prior blog posintg regarding Calfornia Mechanics Lien Changes – 2012.

California Lien Law Changes Effective July 1st, 2012

How California’s Changing Lien Law Affects You

As of 7/1/12, the existing California statutes for mechanic’s liens, stop notices, and bond claims will be replaced by updated statutes.  It is important to understand these changes, as they could determine whether or not your lien filing is valid.

Preliminary Notices: Under the current laws, the 20-Day Notice must be served by all subontractors and lower tier contractors or suppliers.  On July 1st, this will simply be called a “Preliminary Notice.”  Subcontractors and lower tier Claimants must serve the notice on the owner and prime contractor, however laborers are not required to serve this notice.  The prime contractor is now required to serve the notice on the lender, if any.  The Preliminary Notice must be served within 20 days of first furnishing labor or material.  If it is served after this point, your lien claim may be limited to 20 days before the notice was served along with everything done after service.  Aside from a slightly altered Notice to Owner section on the document, the required job information is identical to the 20-Day Notice.

Terminology: Under the new statutes, some of the terminology has been changed.  A Stop Notice is now called a Stop Payment Notice.  The term original contractor will become Direct Contractor.  Materialman has been replaced with material supplier.  Completion now means the following: (1) actual completion of the work of improvement; (2) occupation or use by the owner accompanied by cessation of labor; (3) cessation of labor for a continuous period of 60 days; or (4) recordation of a notice of cessation after cessation of labor for a continuous period of 30 days. “Completion” has not been redefined on public works and a project will not be deemed completed unless accepted as complete by the public entity.

Who Can File: Design professionals will be able to file liens once the changes take effect.

Deadlines: The deadline for service of a Stop Notice is currently 90 days from completion.  Under the new laws, completion will be at 60 days of job cessation rather than 30 days.

Mechanic’s Lien Filing: In California, the unfiled lien must be served upon the owner along with a Notice of Mechanic’s Lien before it can be filed with the clerk.  Under the new statutes, a mechanic’s lien may not be recorded unless it has been accompanied by a proof of service of the lien and the Notice of Mechanic’s Lien on the property owner.

Taking the Surprise Out of a Mechanics Lien Claim

Mechanics liens are great ways for a supplier, subcontractor, or even a contractor to take a step to ensure compensation for the work they perform on a construction Project. Usually, after the mechanics lien has been filed, the lien claimant can file a lawsuit to foreclose on the property. The mechanics lien filing and the subsequent foreclosure proceedings can be a huge surprise to owners who may not have know of any payment issues until receiving the mechanics lien.

To avoid the surprise, California, and many other states, have instituted prelien notice filing or serving requirements.  These recent changes to the mechanics lien law are generally billed as “consumer friendly” legislation because they aim to take some of the “surprise” out of the mechanics lien filing process.

In California in particular, the mechanics lien law requires that the lien claimant do the following:

  • serve the property owner of a mechanic’s lien when the lien is recorded;
  • serve a notice of a mechanic’s lien that explains the purpose of the lien and what it does; and
  • recording a notice that an action is pending (a “lis pendens”) within 20 days of filing a lawsuit to foreclose on the mechanic’s lien.

Lien claimants must comply with all existing procedures, such as the service of a California preliminary notice.

For help on filing a California mechanics lien, give us a call at 888-543-6765 or visit the California mechanics lien section of our website by clicking here.

Pay if Paid v. Pay When Paid Clauses – Which is Which and Who Cares?

Over the last four years we’ve all had to deal with the funding crashes that followed the 2008 financial crisis.  In those four years, many have also learned the difference between pay-if-paid clauses and pay-when-paid clauses. But what is the difference between the two, when should each one be used, and why should it matter to you?


If you’re a contractor, subcontractor, or sub-subcontractor, you should take the time to find out how and if a pay-when-paid and pay-if-paid clause will effect you. As a contractor, how you word your contract could mean financing a project for an insolvent owner that never pays you. As a subcontractor, if the owner goes out of business you may never get paid for work you do if the contractor never gets paid.  In many states, all this depends on some simple wording. 


We’ll explain what a pay-if-paid and what a pay-when-paid clause is one at a time so you can compare the differences:


Pay When Paid Clauses


The phrase “pay-when-paid” is deceiving: most people believe pay when paid means that if the contractor does not receive payment from the owner, then he has no obligation to pay his subcontractor.  However, most courts have interpreted “pay-when-paid” as timing provisions. In New York, for instance, the court has defined pay-when-paid clauses as permitting a delay in payment for a reasonable period of time.  In short, courts refuse to permit the risk of non-payment to be shifted to the subcontractor based on pay when paid provisions.  According to an article titled “Pay-If-Paid Clauses: Freedom of Contract or Protecting the Subcontractor from Itself?“,written by William M. Hill and Mary-Beth McCormack in the Construction Lawyer, Winter 2011 edition, when interpreting pay-when-paid clauses, Courts usually point to the “harsh effects of ‘conditions precedent’, and a general policy of avoiding them if other reasonable readings of a contract is possible.”

Courts have not uniformly construed “pay-when-paid” clauses. One of the premiere cases “that squarely addresses the issue is Seal Tite Corp v. Ehret, Inc., 589 F.Supp. 701 (D.N.J. 1984). In Seal Tite, the court, following the reasoning expounded in the Sixth Circuit case, Thos. J. Dyer Co. v. Bishop Int’l Engineering Co., 303 F.2d 606 (6th Cir. 1962), construed a subcontract “pay-when-paid” provision as postponing payment for a reasonable period of time rather than a conditional promise to pay by the general contractor. The court explained that because the payment clause did not make reference to the possibility of the owner’s insolvency, but did refer to the amount, a time and method of payment, the clause was merely a provision affording the general contractor a reasonable time to procure from the owner the funds necessary to pay the subcontractor. Seal Tite, 589 F.Supp. at 704 (quotations omitted). Ultimately, the court’s determination turned on whether there is any indication in the payment clause that the subcontractor would undertake any risk in the event the owner of the project would become insolvent. Id. Simply put, there must be express language clearly showing the intention of the parties to shift the risk. Id. The Dyer approach has been recognized as the leading decision in this area. Lafayette Steel Erectors, Inc. v. Roy Anderson Corp., 71 F. Supp. 2d 582, 587 (S.D. Miss. 1997) (“Dyer has been cited and relied upon repeatedly . . . .”); Mrozik Constr., Inc. v. Lovering Associates., Inc., 461 N.W.2d 49, 51 (Minn. Ct. App. 1990) (describing Dyer as “a leading case on which the Restatement [(Second) of Contracts] illustration was based”); Watson Constr. Co. v. Reppel Steel & Supply Co., 598 P.2d 116, 119 (Ariz. Ct. App. 1979) (terming Dyer “a leading decision in this area”).” See Fixture Specialists, Inc. v. Global Construction, LLC





Pay-If-Paid Clause – Majority Rule


Pay-if-paid clauses are generally enforced by courts.  Two big exceptions to the enforcement of pay-if-paid clauses are New York and California, which have held that pay-if-paid clauses are unenforceable and against public policy.  Let’s deal with the majority rule first though.


Enforcing pay-if-paid clauses is more palatable to courts because there is no “condition precedent” to payment.  The contract’s pay-if-paid generally clearly states that payment to the subcontractor is to be directly contingent upon the receipt by the general contractor of payment from the owner.  In MidAmerica Const. Management Co., Inc. v. Mastec North America, Inc., 436 F.3d 1257 (10th Cir. 2006), the Federal Court for the Tenth Circuit first noted the distinction between “pay-when-paid” and “pay-if-paid” clauses:


A typical “pay-when-paid” clause might read: “Contractor shall pay subcontractor within seven days of contractor’s receipt of payment from the owner.” Under such a provision in a construction subcontract, a contractor’s obligation to pay the subcontractor is triggered upon receipt of payment from the owner. Most courts hold that this type of clause at least means that the contractor’s obligation to make payment is suspended for a reasonable amount of time for the contractor to receive payment from the owner. The theory is that a “pay-when-paid” clause creates a timing mechanism only. Such a clause does not create a condition precedent to the obligation to ever make payment, and it does not expressly shift the risk of the owner’s nonpayment to the subcontractor. . . .


A typical “pay-if-paid” clause might read: “Contractor’s receipt of payment from the owner is a condition precedent to contractor’s obligation to make payment to the subcontractor; the subcontractor expressly assumes the risk of the owner’s nonpayment and the subcontract price includes this risk.” Under a “pay-if-paid” provision in a construction contract, receipt of payment by the contractor from the owner is an express condition precedent to the contractor’s obligation to pay the subcontractor. A “pay-if-paid” provision in a construction subcontract is meant to shift the risk of the owner’s nonpayment under the subcontract from the contractor to the subcontractor. In many jurisdictions, courts will enforce a “pay-if-paid” provision only if that
language is clear and unequivocal. Judges generally will find that a “pay-if-paid” provision does not create a condition precedent, but rather a reasonable timing provision, where the “pay-if-paid” provision is ambiguous.


Pay-If-Paid Minority Rule


Regardless of the language used in the pay-if-paid clauses, courts in New York and California will not enforce such clauses, holding the clauses to be void and unenforceable as contrary to public policy.”  Interestingly, the courts based their decisions on New York’s mechanics lien law and California’s mechanics lien law. In so finding, the courts held that conditional payment provisions effect an indirect waiver of a subcontractor’s protected mechanics’ lien rights.  


In yet some other states, pay-if-paid clauses have been outlawed by statute: generally in the “prompt payment” acts that have been enacted throughout the country.  Over 32 states have some type of prompt payment act, which requires timely payment of amounts due from contractors to subcontractors.  Massachusetts is one of these states, voiding any pay-if-paid clauses for projects worth over three million dollars, unless the project involves residential construction consisting of 4 or fewer dwelling units.  Illinois, Maryland, Missouri, Wisconsin, North Carolina and South Carolina have banned pay-if-paid clauses for all private projects.

California Mechanics Liens: The Nutshell Version

The internet is full of long explanations regarding mechanics liens.  From Wikipedia to About.com,  Once of the best explanations we’ve found (outside our own FAQs about California mechanics liens) is from the Sacramento County Public Law Library website.   Mechanics liens and their requirements are all laid out in an easy to understand format there.  If you don’t want to take the time to go to their site, you can take a look below at what they have to say about mechanics liens, preliminary notices, stop notices, and removing a lien or stop notice.




A Mechanics’ Lien is an effective remedy for contractors, subcontractors, and others involved in the construction or improvement of real estate to resolve payment problems. If a service or materials provider records a Mechanics’ Lien against the real estate being improved, the owner can not easily sell or refinance the property without first paying off the debt secured by the lien. A Mechanics’ Lien motivates the owner to make sure the contractors get paid, and is a prerequisite to filing a foreclosure action on the property.  


BASICS:
Preliminary Notices
Claimants who do not have a direct contractual relationship with the owner (e.g., subcontractors) must provide a Preliminary Notice within 20 days of furnishing labor or materials to the job. This ensures that the owner is aware of a potential claimant, so that appropriate steps can be taken to confirm that the contractor is paid. Preliminary Notices must be provided to the owner, general contractor, and lender.
Mechanics’ Liens
Mechanics’ Liens are available to almost anyone who contributes labor, services, or materials to a real estate improvement project. A Mechanics’ Lien is used to exact payment out of the real estate itself by placing a lien on the property, making it difficult for the owner to sell or refinance the property, and if necessary, allowing the lien holder to go to court to have the property sold at auction. As of January 2011, a Notice of Mechanics Lien and a Proof of Service of Affidavit is now required.
Stop Notices
A Stop Notice attaches to the owner’s undisbursed construction funds, rather than to the property itself, as is the case in a Mechanics’ Lien. A Stop Notice compels the owner or lender to hold the remaining construction funds so that claimants can recover for work already completed. Stop notices are not available to claimants with a direct contractual relationship with the owner.
Removing a Lien or Stop Notice
Once a Mechanics’ Lien has been recorded, the claimant must file a court action to enforce the lien within 90 days. If no court action is filed by that time, the lien is no longer valid. However, many title companies don’t recognize this fact, and require that the lien be removed before you can pass clear title to a buyer. The easiest way to clear this lien is to ask the lienholder to file a Release of Lien. If they will not, you can petition the court to release the property from the Mechanics’ Lien.
* adapted from Preparing and Recording Your California Mechanic’s Lien on Private Works of Improvement, James A. Steele; and Contractor’s and Homeowners’ Guide to Mechanics’ Liens Stephen R. Elias.
For more information on California Mechanics Liens, take a look at the following books and websites, including our own:
SELF HELP BOOKS
Contractors’ and Homeowners’ Guide To Mechanics’ Liens
KFC 229.Z9 E43
This book covers the topic of Mechanics’ Liens from the perspective of both the homeowner and contractor, including forms and instructions.

Handling Mechanics’ Liens and Related Remedies (Private Works) KFC 229 .H86
This CEB Action Guide describes the rights and remedies, including Mechanics’ Liens, stop notices, and bonds of the principal parties involved in a private work of improvement.

Preparing And Recording Your California Mechanics’ Lien: On Private Works Of Improvement
KFC 229. Z9 S74
This title assists contractors in preparing their Mechanics’ Liens and bonded stop notices on private works of improvement located within the state of California and includes completed sample forms.

IN DEPTH RESEARCH
California Mechanics’ Lien Law and Construction Industry Practice
KFC229 .M31
California Mechanics’ Lien Law provides in-depth treatment of the basic law and procedure relating to works of improvement, from the standpoint of the contractor.

California Mechanics’ Liens and Related Construction Remedies
KFC229 .C3
This CEB practice guide simplifies the procedural maze of Mechanics’ Liens, stop notices, and bond remedies.


FORMS

WEBSITES
LienItNow.com
LienItNow provides comprehensive California Lien Law Statutes and answers to frequently asked questions on California mechanics liens.
Click to view LienItNow’s California lien filing process.
American Subcontractors Association of California
The American Subcontractors Association of California provides information on California Lien Laws.
http://www.asacalif.com/mechanics.html
California Architects BoardThe California Architects Board is one of numerous boards, bureaus, commissions, and committees within the Department of Consumer Affairs responsible for consumer protection and the regulation of licensed professionals. This guide produced by the California Architects provides general information on Mechanics’ Liens.
http://www.cab.ca.gov/pdf/misc/mechanics_lien_law.pdf  
Contractors State License BoardThe Department of Consumer Affairs, Contractors State License Board provides a detailed guide to assist in understanding Mechanics’ Liens.
http://tinyurl.com/7k9jrm
Nolo Press Read this legal guide to learn how to protect yourself from Mechanics’ Liens if your contractor fails to pay subcontractors or suppliers.
http://tinyurl.com/k4obf