Wednesday, April 21, 2010

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.

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