Background
A mechanics’ lien is a remedy for general contractors and subcontractors to obtain payment for materials and services provided on construction projects when owners refuse to pay. If a contractor records a mechanics lien against the real estate being improved, the owner cannot 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. It should be noted that mechanic’s liens generally do not apply to public works, as public entities are typically immune from such actions.
Who can file mechanic’s liens?
Anyone who provides authorized work of improvement, including, but not limited to, the following persons, has the right to file and enforce a mechanic’s lien:
(a) General contractor.
(b) Subcontractor.
(c) Material supplier.
(d) Equipment lessor.
(e) Laborer.
(f) Design professional. California Civil Code § 8400
How much can claimants recover through mechanic’s liens?
A mechanics lien is a direct lien for either the reasonable value of the work provided by the claimant, or the price agreed on by the claimant and the person with whom the claimant contracted, whichever is less (Civ. Code § 8430(a)). The lien is not limited by the contract price unless the property owner records the contract and the direct contractor’s payment bond (Civ. Code § 8430(b); see Civ. Code § 8600; see also § 31.22(3)). The claimant may include in a claim of lien work performed based on a written contract modification, or as a result of rescission, abandonment, or breach of the contract. If the contract is rescinded, abandoned, or breached, the amount of the lien may not exceed the reasonable value of the work provided by the claimant (Civ. Code § 8430(c)). The amount that a direct contractor or subcontractor is entitled to recover on a claim of lien is net of all claims of other claimants for work provided and embraced within the contract of the direct contractor or subcontractor (Civ. Code § 8434).
A lien does not extend to work, whether or not authorized by a direct contractor or subcontractor, if the work is not included in a direct contract or a modification of that contract, and the claimant had actual knowledge or constructive notice of the provisions of that contract or modification before providing the work. Recording a contract or contract modification with the county recorder before work is commenced on a work of improvement is constructive notice of the provisions of the contract or modification to a person providing work on that work of improvement (Civ. Code § 8432).
What property is subject to mechanic’s liens?
A mechanics lien attaches to the work of improvement and to the real property on which it is situated, including as much space about the work of improvement as is required for the convenient use and occupation of the work or improvement (Civ. Code § 8440; see Pacific Coast Refrigeration, Inc. v. Badger (1975) 52 Cal. App. 3d 233, 244, 124 Cal. Rptr. 786 (in order for lien to attach to adjacent property, purpose for which the building or improvement in question was erected must be so intimately and directly connected with the operations carried on in the adjacent buildings as to constitute it an essential part and parcel of the improvement); Forsgren Associates Inc. v. Pacific Golf Community Development LLC (2010) 182 Cal. App. 4th 135, 154, 105 Cal. Rptr. 3d 654 (mechanics lien attached to golf course and portion of adjacent property that was required for convenient use and occupation of the golf course)).
The process for filing a Mechanic’s Lien is as follows:
1) Serve Preliminary Notice if Required
2) Prepare Mechanic’s Lien Form
3) Serve Mechanic’s Lien Form on Owner
4) Record Mechanic’s Lien at County Recorder Office
5) Enforce the Mechanic’s Lien by Filing Lawsuit
Step 1 - Serve Preliminary Notice
For most claimants who furnish labor, service, equipment, or material to a private work of improvement, service of a 20-day preliminary notice is required in order to enforce a mechanic’s lien. Cal Civ Code. § 8410. Preliminary Notices must be served to the owner, general contractor, and construction lender if there is one. However, laborers and some other claimants need not give prior notice. Under § 8200 (e), any claimant with a direct contractual relationship with the owner (general contractors, design professionals, etc.) is only required to give preliminary notice to the construction lender if there is one.
When Must Preliminary Notice Be Served?
For those claimants that are required to serve preliminary notice, it must be served no later than 20 days after the claimant performed work on the project. § 8204. This means that any work performed more than 20 days prior to service of the preliminary notice is not recoverable by means of a mechanic’s lien. As a result, it is a good practice to serve the preliminary notice with the project contract documents before you begin work on the project.
Step 2 - Prepare Mechanic’s Lien Form
The next step is to prepare the actual mechanic's lien document. The form is titled the "Claim of Lien" and it must be signed and verified by the claimant and contain the following:
1) A statement of the claimant’s demand after deducting all just credits and offsets.
2) The name of the owner or reputed owner, if known.
3) A general statement of the kind of work furnished by the claimant.
4) The name of the person by whom the claimant was employed or to whom the claimant furnished work.
5) A description of the site sufficient for identification.
6) The claimant’s address.
7) A proof of service affidavit completed and signed by the person serving a copy of the claim of mechanics lien.
8) The following statement, printed in at least 10-point boldface type. The letters of the last sentence shall be printed in uppercase type, excepting the Internet Web site address of the Contractors’ State License Board, which shall be printed in lowercase type:
“NOTICE OF MECHANICS LIEN
ATTENTION!
Upon the recording of the enclosed MECHANICS LIEN with the county recorder’s office of the county where the property is located, your property is subject to the filing of a legal action seeking a court-ordered foreclosure sale of the real property on which the lien has been recorded. That legal action must be filed with the court no later than 90 days after the date the mechanics lien is recorded.
The party identified in the enclosed mechanics lien may have provided labor or materials for improvements to your property and may not have been paid for these items. You are receiving this notice because it is a required step in filing a mechanics lien foreclosure action against your property. The foreclosure action will seek a sale of your property in order to pay for unpaid labor, materials, or improvements provided to your property. This may affect your ability to borrow against, refinance, or sell the property until the mechanics lien is released.
BECAUSE THE LIEN AFFECTS YOUR PROPERTY, YOU MAY WISH TO SPEAK WITH YOUR CONTRACTOR IMMEDIATELY, OR CONTACT AN ATTORNEY, OR FOR MORE INFORMATION ON MECHANICS LIENS GO TO THE CONTRACTORS’ STATE LICENSE BOARD WEB SITE AT www.cslb.ca.gov.” Cal Civ Code § 8416
Step 3 - Serve Mechanic’s Lien
Once the lien is prepared, you need to make a copy, sign and verify it, and mail it to the property owner. Your copy of the lien must be sent to the property owner via certified mail. Be sure to keep a record of the mailing and to draft and sign an affidavit attesting that you delivered a copy of the lien to the owner by certified mail, as this will need to be attached to and filed with your lien.
Service of the claim of mechanics lien must be completed before the lien claim is recorded. §8416 (a)(7) requires the recorded original claim for mechanics lien to contain a signed affidavit of proof of service.
Step 4 - Record the Mechanic’s Lien
The original copy of your lien, together with the affidavit of delivery upon the property owner, must then be filed with the Recorder's Office for the county where the project was located. The filing fee to record your lien will be between $95 - $125. The law regarding the timing of filing and recording your mechanic’s lien is very specific:
For direct contractors, you must file the mechanic’s lien after you complete the contract but before either of these two situations:
1) If the owner filed a Notice of Completion or Notice of Cessation, you must file the lien within 60 days; or
2) If no notice was filed, you must record the mechanics lien within 90 days of work completion or the last day of work. Cal Civ Code § 8412.
For other claimants, you must file the mechanic’s lien under the following circumstances:
1) After you cease to provide work
2) Before the earlier of the following times:
a. 90 days after completion of the work; or
b. 30 days after the owner records a Notice of Completion or a Notice of Cessation. Cal Civ Code § 8414
The last day of work does not need to be the day that the project is completed and a certificate of occupancy is issued. The contract is considered complete for purposes of commencing the recordation period when all work under the contract has been performed, excused, or otherwise discharged. This can occur when either party to the contract informs the other party that there is a breach of contract and the claimant ends work on the project, either voluntarily or involuntarily. (Howard S. Wright Construction Co. v. BBIC Investors, LLC (Cal. App. 1st Dist. Jan. 31, 2006), 136 Cal. App. 4th 228, 38 Cal. Rptr. 3d 769, 2006 Cal. App. LEXIS 122.)
Step 5 - Enforce Mechanic’s Lien
Once the lien is filed, you can contact the owner to attempt collection of the unpaid debt before filing a lawsuit to enforce the lien. If the owner agrees to pay the debt, you will file a release of lien with the county recording office and the lien will be removed. If the owner still refuses to pay the unpaid debt, you must commence a lawsuit to enforce a lien within 90 days after the lien is recorded. If an action is not filed within the 90-day period, the lien will expire and will be unenforceable (Civ. Code § 8460(a)).
The time for filing suit to enforce a lien may be extended for a period of up to one year if the owner and the claimant agree to an extension of credit within the 90-day period and notice of the extension is recorded at the county recorder’s office. The lien will then continue in force until 90 days after the credit expires, but not longer than one year from the completion of the work of improvement.
Owners can release the lien through a Mechanic’s Lien Release Bond
An owner of real property or an owner of an interest in real property that is subject to a recorded claim of lien, or a direct contractor or subcontractor that is affected by the claim of lien, that disputes the correctness or validity of the claim may obtain a release of the property from the claim of lien by recording a release bond. The principal on the bond may be the property owner, the direct contractor, or the subcontractor (Civ. Code § 8424(a)).
The bond may be recorded either before or after commencement of a lawsuit to enforce the lien. On recording, the real property will be released from the claim of lien and from any action to enforce the lien (Civ. Code § 8424(c)). Once recorded, the person who obtained the bond must give notice to the claimant. The notice must conform to the general requirements for all notices related to works of improvement and must include a copy of the bond (Civ. Code § 8424(d); see Civ. Code § 8100 et seq. (notice requirements)). The principal on the bond has six months to file an action to enforce the bond, in which the principal would have to show that the lien lacks merit.
If you or your company needs help navigating the filing, enforcing, or responding to a mechanic’s lien, please leave your contact information below and we will provide a free consultation on your case.