Category Archives: California Stop Notice


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 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

California Mechanics Liens and Stop Notices “How To”

In California, the construction lien law is very specific. In addition to simply filing a construction lien, a claimant needs to make sure that it complied with all the pre-requisites that the mechanics’ lien law requires.

Liens filed on private property or on funds relating to a public project are known as Mechanic’s Liens. When a lien is filed with regard to work performed on privately owned property, it attaches to and encumbers the fee simple ownership of property.  On a private project, the mechanics’ lien places an encumbrance on the property that makes it difficult to resell or re-finance the property without first removing the lien.

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

In California, in order to file a lien, some claimants must fulfill some prerequisites.  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 lien for the value of the labor or materials provided in the 20 days preceding the service of the notice and thereafter.  Pre-notices are required to be served prior to filing a mechanics’ lien claim.

With regard to the lien filing itself, there are timing restrictions.  Prime contractors must file a 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 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 does not require that, in order to file a lien, a claimant have a written contract.  Oral contracts are sufficient if the lienor has sufficient documentation to show the existence of an agreement or that it performed the work for which it is filing a construction lien.

Another effective tool to collect receivables on a construction project, in addition to a lien, is a Stop Notice.  A Stop Notice can be filed on both public and private projects, and is a notification that has the ability to enhance the effectiveness of a mechanic’s lien. A Stop Notice, or a notice to withhold funds, is sent to the company that is financing or funding the construction funds for a project. Once that company receives the Stop Notice, that company has notice that it should withhold sufficient money to satisfy the stop notice claim. The purpose of the Stop Notice is to provide the lender, financiers or funders of the construction project notice that there is money owed to a contractor, subcontractor or supplier so that an inquiry can be made as to why that money is not being paid. The 20 day pre-notice is required to be eligible to file a Stop Notice.

For more information on filing a California Construction Lien, a California Mechanics Lien, or a California pre-lien notice, please visit http://www.lienitnow.com/california-faq.asp.