Thursday, February 24, 2011

California Tightens Requirements Related to Mechanic’s Liens

If the past few years of chasing down money has served as a constant reminder, getting paid first –or sometimes at all– may require getting the property owner involved, especially when your contract is only with the general contractor or one of the subcontractors. A recent blog entitled Construction Contractors: Dotting Your “I”s and Crossing Your “T”s by OC Legal Buzz outlines these requirements:
Most contractors, and hopefully their attorneys, know that certain, timely notice and filing procedures can make the difference in asserting all available rights to ensure payment after the work has been done or the materials supplied. The typical scenario occurs where a debtor contractor/subcontractor has robbed Peter to pay Paul. However, one can also be an unwitting victim to issues between the lender and owner or owner and general contractor.
That said, the contractor/supplier is expected to be proactive when it comes to holding the property owner liable for one’s work and materials.
The California Civil Code requires a preliminary notice to be served on an owner within 20 days of beginning work or supplying materials. In short, if you fail to do so, you risk losing part or all of your claim against the property owner, based on the dates you provide work/materials and the date you serve the preliminary notice. This does not affect your legal claims against your direct debtor.
his is still the standard method for notice...but send it certified mail, return receipt requested.
The 90-90 Rule
Post-project rules of enforcement can be easily remembered as the “90-90 Rule.”
After the project is completed, you typically have a 90-day window (30 days in some instances) in which to record a mechanic’s lien against the property at the County Recorder’s Office. However, where only recording used to be sufficient, you must now also service a Notice of Lien to the owner and/or the construction lender or general contractor (Civil Code Sec. 3084). Failure to do so will deem your mechanic’s lien unenforceable. Just remember that, if you were the owner, you’d want to have up-front notice rather than being blind-sided.Assuming you properly record and serve your lien and notice, you then have 90 days in which to file suit against the property or your lien effectively goes stale and must be withdrawn. However, as of January 1, 2011, you must also record with the County Recorder what’s called a “lis pendens,” or action against the property, within 20 days of recording (Civil Code Sec. 3146). This is intended to put all purchasers and lenders on notice of your claim against the subject property. Though this recording used to be optional (any attorney worth his salt recorded them every time), it is now mandatory and any delay, even within the 20-day period, can cause your claim to become subordinate to a sale or encumbrance that occurs prior to this lis pendens recording. Failure to comply may result in seemingly unfair consequences.
Typically, your attorney will handle these timelines for you on the back end. However, most companies handle the preliminary notices themselves, so it’s important that company principals and their clerical staff handling the project files are aware of these changes. Don't wait until Day 88, or 91 for that matter to contact your lien filing service or your attorney...they probably won't be able to do anything for you at that point.

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