Construction Law -- Frequently Asked Questions
Here are answers to the most frequently asked questions by both homeowners and contractors about construction law. Some of this information is taken from the State of California's website for contractors.
What is a mechanics lien?
A mechanic's lien is a "hold" against your property that, if unpaid, allows a foreclosure action, forcing the sale of your home. It is recorded with the County Recorder's office by the unpaid contractor, subcontractor or supplier. It means that any of these unpaid entities can claim a lien against the property until they are paid.
The prime contractor has a direct contractual agreement with the homeowner. If the contractor isn't paid, he can sue on the contract and record a mechanic's lien. But subcontractors, workers and suppliers don't have a contract with the homeowner. A problem occurs when the homeowner pays the prime contractor for all or some of the work, but the prime contractor fails to pay the laborers, subcontractors and materials suppliers that were hired to do portions of the job. If they are not paid, often their only recourse is to file a mechanic's lien on the home.
What happens when a lien is filed against your property?
A lien can result in a range of problems which include:
Foreclosure, if the homeowner doesn't pay off the lien or cannot afford to do so;
Double payment for the same job--if the homeowner pays the prime contractor--and then has to pay the sub or supplier who wasn't paid by the prime;
A cloud on the title of the property, which can affect the homeowner's ability to borrow against, refinance, or sell the property.
Who has mechanics lien rights?
In the State of California, mechanics’ liens are provided in the California Constitution. Article XIV, Section 3 of the California Constitution provides: “Mechanics, materialmen, artisans, and laborers of every class shall have a lien upon the property upon which they have bestowed labor or furnished materials, for the value of such materials, for the value of such labor done and materials furnished; and the Legislature shall provide by law, for speedy and efficient enforcement of such liens.”
This does not mean that these people must have a contract directly with the owner. However, they must have a contract with the agent of the owner and every contractor, subcontractor, architect, builder, or other person having charge of a work of improvement is held to be the agent of the owner. Due to the fact that a material supplier is not the agent of the owner, a material supplier’s supplier is not entitled to a statutory lien. Further, in order to have your lien, the work, and/or materials, etc., must be incorporated into the structure. That is to say that it has to be installed.
Is an unlicensed contractor entitled to record a mechanic's lien?
No. California Business and Professions Code §7031 prohibits a contractor from suing to recover compensation unless the contractor was duly licensed “at all times during the performance of [the] act or contract. This provision has been challenged in everyway imaginable because it sometimes seems so unfair. A contractor performs services and the homeowner fails to pay, yet the contractor cannot take any steps to collect the money owed if he or she did not hold a valid contractor's license at all times during the project. The State of California feels
that the public policy in favor of having licensed contractors is so important that this punishment is appropriate. The California Supreme Court ruled in MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Company, Inc., 36 Cal.4th 412 (2005) that the contractor could not recover unless it was licensed at all times during the project.
All persons and laborers performing labor or bestowing skill or other necessary services, or furnishing material or leasing equipment to be used or consumed in/or furnishing appliances, teams, or power contributing to a work of improvement. Further, in order to have your lien, the work, and/or materials, etc., must be incorporated into the structure. That is to say that it has to be installed. On the surface, this appears to be straight forward, but there are numerous cases that indicate that in some circumstances, equipment and that is used in the work of improvement do not qualify for mechanics lien rights.
What should I do if a mechanic's lien has been filed against me?
Determine if it is a valid lien. It may not be valid if the work was not completed or supplies were not included in the plans or contracts. Morris & Stone can help you find out if the lien is valid.
Here are some items to look for to determine if a mechanic's lien is invalid:
-- Failure to serve a Preliminary 20-Day Notice. (Note: Prime contractors and laborers do not have to file Preliminary 20-Day Notices.) A subcontractor or materials supplier has 20 days after beginning work or delivering materials to serve you a Preliminary 20-Day Lien Notice. If the notice is late, the claimant loses lien rights for work done or materials delivered more than 20 days before the notice. The claim against your property isn't valid if this time frame is not followed.
-- Check to see if the potential lien claimant filed the mechanic's lien within the legal time frame. (If the potential lien claimant fails to record the mechanic's lien within the appropriate timeframe, the lien isn't valid.) The potential lien clamant must record the mechanic's lien within 90 days of: Completion of work, when owner began using the improvement,* or when owner accepted the improvement.
I never signed a contract with my contractor, and I'm not happy with the work. How was he able to record a mechanic's lien with no proof that he is owed the money?
The process is designed to be quick and easy. If a contractor had to somehow "prove" that he is owed the money, that would make the process far more complicated. On the other hand, the process for removing an invalid lien is fairly easy, and penalties attach if the contractor fails to remove an invalid lien once requested to do so.
After recording the mechanic's lien, what is the next step?
In order to enforce a mechanics lien, the person or company that recorded the lien must file a lawsuit in superior court. A mechanic's lien cannot be enforced in small claims court. If a judgment is obtained, the property may be ordered sold in order to pay the mechanics lien.
The lawsuit must be filed with 90 days after recording the mechanics lien with the county recorders office. A surprising number of mechanic's liens are never enforced, either because of the cost or ignorance of the short time to pursue the action. If the action is not filed within 90 days, the lien becomes unenforceable and the lien rights are lost. That is not to say that the debt becomes uncollectible, but the procedure would then be to pursue a standard breach of contract action. Even though it becomes unenforceable, the lien will remain a cloud on the property until a release is recorded. Some contractors will ignore the request to remove the lien even after the 90 days, thinking it will keep the pressure on the homeowner, but this is not a wise course. The procedure for removing a stale lien is a simple one, and the homeowner will then be able to recover their attorney fees from the contractor.
What is Design Professional Lien?
Design professionals have a right to record a lien before construction begins. A design professional lien is a separate remedy available only to architects, professional engineers and land surveyors who provide services during the planning phase of a private work project under a written agreement with the owner. There are numerous elements that must be met in order to be able to use this remedy. It is similar, but distinctly different than a mechanics lien and should not be confused.
What is a stop notice?
A mechanics’ lien is a lien on property. A stop notice is a lien on construction funds. You may use one, or the other, or both. However, it should be noted that in public works, you cannot file a mechanics’ lien and therefore, your only remedy may be a Stop Notice. Since the Stop Notice is a lien on funds, it may be preferable to a mechanics’ lien in some instances.
MORRIS & STONE, LLP is located in Tustin, Orange County, California. We can be reached at (714) 954-0700, or email@example.com. The practice areas of Morris & Stone include employment law (wrongful termination, sexual harassment, wage/overtime claims), business litigation (breach of contract, trade secret, partnership dissolution, unfair business practices, etc.), real estate and construction disputes, first amendment law, Internet law, discrimination claims, defamation suits, and legal malpractice.
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