Monday, September 25, 2017

What Does a Construction Lien, Beyonce and Jay-Z Have in Common?

Construction Lien Placed on Beyonce and Jay-Z New Home

They may have an estimated combined net worth of over $1 billion, but Beyonce and Jay-Z are still subjected to the powerful effect of construction liens. The new 30,000 square foot home the couple bought earlier this year just had a California construction lien filed against it by a pool builder who claims its was not paid for its work. The pool (which is the fourth pool installed at the estate), was actually constructed by Pool & Spa Builders for the prior homeowners. According to the construction lien documents, Pool & Spa Builders claim the prior owners failed to pay it $87,729.92 for work performed. After Pool & Spa Builder completed the work, the property was sold to the Carters, who are now stuck dealing with this lien.

Because of the transfer of ownership, there is a question as to whether the construction lien is valid against the property. In the normal course, a lien would be filed, and eventually the lienor would attempt to foreclose on it. But usually liens are filed before a property is sold...and if a property is sold after a lien is filed, the lienor is usually paid out of the sale proceeds. Does is seem fair then to allow a lienor to file a construction lien after a sale has taken place, subjecting the new owners to the previous owners' misdeeds? Probably not, but some states do allow it.

For the most part, construction lien laws do not allow the foreclosure of a construction lien if it is filed after the transfer of ownership. In some states, a lienor can file a Notice when it performs work that changes this rule because the notice gives a new owner actual knowledge that someone is working on the project and may file a lien; but most states simply protect the innocent purchaser. In that case, the lienor has the right to sue the owner of the property for whom it did work, but it will not have the security of the proceeds of the sale of a property.

In Mr. & Mrs. Carter's case, though, given that the sale is the highest recorded in Los Angeles County this year, the construction lien will probably be resolved quickly. One advantage of a construction lien is that it certainly gets the attention of property owners, and most owners work through the issue to resolve the lien.

In California, to file a construction lien you must comply with specific deadlines. If you miss these deadlines, your lien will be invalid (note that some clerks still file liens even after the deadlines, but that does not mean the lien will be determined to be valid by a court of law). 

Deadlines are as follows: General Contractor: a construction lien must be filed within 60 days of notice of completion or cessation, or 90 days after the general contractor's work is completed. Note that the time to file after the work is completed is longer, because many owner do not provide a notice of completion or cessation.  Subcontractors and suppliers: liens must be filed within 30 days of notice of completion or cessation or 90 days after entire job is completed (for a subcontractor's purposes, completion is defined as when an owner or its agent begins occupation, work is accepted by the owner, or the cessation of labor for 60 days).

When filing a California construction lien, it is important to verify property owner mailing address and legal description or property. California has strict privacy laws, so most county clerks no longer provide owner information online. For the most part, a phone call to the county clerk will help you find the correct owner information, but some clerks require that you either visit the clerk's office, or mail a request for the information.

California also requires a preliminary notice in order for construction lien claims to be valid. A Notice to the Owner that materials or labor are being delivered to the project should be sent within 20 days of the commencement of a subcontractor or supplier's work. That California Preliminary Notice does not need to be filed, but it must be sent to the owner. If a subcontractor or supplier serves a Notice to Owner late, then their lien is limited to the value of the labor and materials they supplied in the twenty days prior to serving the notice and anything after the notice is served. This can severely limit the amount of the lien claim is the notice is served late.

In addition to a preliminary notice, many potential lienors choose to file a Notice of Intent to file a construction lien, prior to actually filing the construction lien itself. The advantage of filing a Notice of Intent is that it gives a warning to the owner that a lien is going to be filed if the disputed claim is not paid or otherwise resolved. Notices of Intent can be very effective for this purpose, and allows the owner to get directly involved in any last ditch efforts to resolve a non-payment issue.

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