California Mechanic's Lien Laws - What You Don't Know Will Hurt You
by: Chad Tapp and Gwen Scott
As any well informed contractor, subcontractor or supplier already knows, the California Constitution gives you the right to a mechanic’s lien for the value of labor and materials provided for the improvement of real property. The California Constitution also authorizes the Legislature to provide for the speedy and efficient enforcement of these liens, which it has done by allowing foreclosure on a home with an unpaid lien.
However, the path for recovery through a mechanic’s lien is filled with pitfalls and traps for the unwary. That is because California’s mechanic’s lien laws are hyper-technical and if all of the procedures are not carefully followed, you will lose your right to use a mechanic’s lien as a way of getting paid for your services. Thus, it is particularly important to stay abreast of changes to the procedural requirements. By understanding how to navigate lien rights, contractors, subcontractors and suppliers will stand a much better chance of recovering and not falling victim to procedural error.
Changes to Mechanic’s Lien Requirements
On January 1, 2011, two important changes to California’s mechanic’s lien laws will become effective. First, as of January 1, 2011, California Civil Code sections 3084 and 3146 are amended to require service of a mechanic’s lien on the owner of the property at the time the mechanic’s lien is recorded. If for some reason the owner cannot be served with the mechanic’s lien, then the original contractor or the lender can be served in the owner’s place. This provides owners with notice that a mechanic’s lien has just been recorded on their property and it gives them an opportunity to quickly address the situation.
In addition, the form of the mechanic’s lien document itself is also amended to include a “Notice of Mechanic’s Lien,” which provides a brief explanation of the nature of the mechanic’s lien and what the property owner might do to address the situation. Specifically, this Notice must contain language, as dictated by Civil Code section 3084, advising the owner that a lien may lead to the foreclosure sale of the affected property within 90 days and/or may affect the owner’s ability to borrow against, refinance, or sell the property.
Finally, as part of these changes, county recorders will not accept a mechanic’s lien for recording unless it is accompanied by a proof of service affidavit evidencing that the required notice has been served. Service must be made by registered mail, certified mail, or first-class mail, evidenced by a certificate of mailing.
Failure to serve the mechanic’s lien, including the new Notice, as prescribed by the new law shall cause the lien to be unenforceable as a matter of law. Thus, the new law establishes another legal hoop for contractors to jump through, and makes available another defense to owners and lenders challenging the validity of a lien.
Changes to Lis Pendens Requirements
Second, as of January 1, 2011, where a lawsuit is filed to foreclose on the mechanic’s lien, a “Notice of Pending Action” (lis pendens) must be recorded at the local County Recorder’s Office within 20 days after the filing of the mechanic’s lien foreclosure action. The lis pendens provides notice to potential property purchasers, lenders and others that a lawsuit has been recorded in relation to the property and that the property may be sold in foreclosure to pay the underlying debt.
In addition, Civil Code section 3146, as amended, goes on to state that purchasers and lenders for the property will be deemed to have notice of the lawsuit only from the time of recording. Consequently, it appears that a contractor, subcontractor or supplier who delays filing the lis pendens runs the risk of losing the security for his payment claim if the property is sold or encumbered after the owner is served with notice of the action to enforce the lien, but before the required lis pendens has been recorded.
Under the current law, the filing of the lis pendens is permissible but not mandatory. Therefore, the change to the lis pendens requirements are designed to provide clear notice to all parties that there is a cloud on title as a result of the action to foreclose on a mechanic’s lien.
The forms currently available for filing a California mechanic’s lien will be out of date as of January 1, 2011. Therefore, contractors and suppliers should pay close attention to ensure the forms they use comply with new laws. Ignoring these new changes will have a serious impact on your ability to get paid. It is better to start thinking about them now, rather than kicking yourself for not remembering them after it is too late. Please contact us if you have any questions or need help putting together a 2011-compliant Mechanic’s Lien form or recovering funds for work you performed.