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What is a mechanics lien?

Posted by on in Real Estate Law
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A mechanics lien is a legal claim, known as a secured interest in your property, which can be filed and recorded with the county recorder's office by an unpaid contractor, subcontractor, laborer, or material supplier. If filed and unpaid, it allows the filing party to pursue a foreclosure action, forcing the sale of the property to satisfy any unpaid debts.

From a historical perspective, mechanics liens are dated at least as far back as Roman times when construction lenders would receive a lien not only on the land, but on the structure built. They were also enforced in old maritime law for the labor and materials in the improvement of a vessel. Unlike most American laws, mechanics liens did not exist under English common law and are somewhat unique in their modern origin. Mechanics liens were meant to give contractors a preference over other creditors so that our nation could sustain the type of growth and building that our forefathers envisioned. First conceived by Thomas Jefferson to encourage construction of the then new capital city of Washington, D.C., the long history of mechanics liens also extends throughout the history of California, which is the only state to guarantee mechanics lien rights in its constitution.

The fact that most people are unfamiliar with a mechanics lien can cause tension in contractor/homeowner relations. When a homeowner finds out a lien has been placed on their property, their reaction can be one of surprise or even anger. Therefore, it is a good idea for contractors to be able to explain the situation to their owners and for owners to seek to become better informed with potential financial ramifications before undertaking home construction projects.

When contracting construction or repair work on their property, homeowners will generally enter a contractual agreement with a contractor (called a “direct contractor” in the mechanics lien statutes). If the contractor is not paid, he or she can sue on the contract and/or record a mechanics lien against the property. Things become complicated, however, when direct contractors hire subcontractors, laborers and suppliers (as they often do). These workers and suppliers do not have a direct contract with the homeowner since the direct contractor pays them. However, a problem can occur even if you have paid the direct contractor. If he or she fails to pay his or her subcontractors, laborers and suppliers, they too can record a mechanics lien against the homeowner’s property.

The resulting lien can create the following problems for the homeowner:

  • Foreclosure upon the property to satisfy the unpaid parties.
  • Double payment for the same job – if the direct contractor has already been paid but fails to pay the subs, forcing the homeowner to pay them as well.
  • An encumbrance on the property’s title, which can affect the homeowner’s ability to borrow against, refinance or sell the property.

As a homeowner, how can you protect yourself and avoid this?     

1) Carefully choose your contractor and manage your construction project responsibly.

  • Hire only licensed contractors and check the contractor's license status on Contractors State License Board website: www.cslb.ca.gov.
  • Get a list of all subcontractors, laborers, and material suppliers to be used by your direct contractor.
  • Make sure your contractor hires only licensed subcontractors and check their licenses, too.
  • Check your local county courthouse’s website to see if the direct contractor has a history of litigation.

2) Be sure you have a written contract with the direct contractor that includes:

  • A payment schedule that states when specific phases of the work start and end, and the price for each of these activities.
  • Identification of subcontractors or laborers for each specific activity.
  • Identification of suppliers who are providing the project materials.

3) Keep track of Preliminary Notices.

  • Don’t worry if you receive a Preliminary Notice. Subcontractors and suppliers are required to present you with a Preliminary Notice if they wish to maintain their right to record a lien (direct contractor’s usually include this in the contract and laborers are not required to present one).
  • The notice should state 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.
  • Keep an eye on the timing. They have up to 20 days to provide the Preliminary Notice upon starting work or delivery of supplies.

4) Pay with joint checks.

  • Compare the contractor's materials or labor bill to the schedule of payments in your contract and any Preliminary Notices you receive.
  • Make sure that work was done as described.
  • Make the check payable to both the contractor and the supplier or subcontractor/laborer.

5) Utilize the lien release system to track when potential lien claimants have been paid.

  • This works for both progress payments or upon completion of the entire project.
  • Before making a payment, get a signed conditional release from the possible lien claimants.
  • Lien release forms are available from the Contractors State License Board website. You or your contractor can download a copy of the release, but the direct contractor is required to get release signatures for you from the potential lien claimants if you request it.
  • After you pay, request that the contractor give you an unconditional release signed by each of the possible claimants paid for that portion of the job. Make sure the actual possible claimant signs the release.
  • By law, you may withhold the next payment until you get the unconditional releases for the previous payment.

6) File a Notice of Completion with the county recorder's office after work is completed.

  • This is done at the completion of the entire project. Homeowners have 15 days from the date of completion to do so.
  • Filing a Notice of Completion reduces the amount of time a contractor (from 90 to 60 days), subcontractor, laborer, or materials supplier (from 90 days to 30 days) has to record a mechanics lien.
  • 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.

Even upon taking these precautions, a lien may still be recorded on your property. A lien stays in the county records and on your property title until you take action to remove it. Even an invalid lien can make it difficult or impossible to sell, refinance, or obtain a line of credit on your property. There are some steps you can take to remove the lien if it is invalid. An attorney can help you assess the validity of a lien and take steps to remove it.

First, check to see if the lien may be invalid. Liens may be invalid for a number of reasons.

1) It may not be valid if the work was not completed or supplies were not included in the plans or contracts.

2) Often lien claims are invalid because the contractor, subcontractor, laborer, or material supplier has failed to meet the required timelines for filing the claim.

  • Check to see if a Preliminary Notice was given to you within the specific time frames.
  • Be sure the Notice of Mechanics Lien and Proof of Service Affidavit were completed and signed by the person serving the Notice and the claim 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, and the claimant's address.
  • 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.

Second, remove the invalid lien.

1) Send the claimant a written request by certified mail to remove the lien. Sometimes sending a letter is enough to persuade the claimant to release the lien. The letter is most effective if you include:

  • Deviations you've identified in job completion or the timeline requirements discussed above.
  • A request for the claimant to remove the lien by a specific date.
  • A statement informing the claimant that if the lien is not removed and you have to get an attorney to remove it, the court can award you the attorney fees deemed reasonable to release the lien.

2) If the claimant does not remove the lien, you may have to petition the court for an order to release the property from the lien. This becomes a more complicated process and you may need an attorney. However, you can greatly help yourself by taking the steps outlined above and maintaining all of your records. You may need to demonstrate to the court that the lien is invalid and that the lien claimant is unable or unwilling to execute a release.

When dealing with a mechanics lien, it is advisable to seek the assistance of an attorney, particularly if it gets to the point of foreclosure.

 

 

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Guest Sunday, 17 December 2017

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