The Private Works: Preliminary Notice | Are You Using the Correct Form?
The Private Works – Preliminary Notice form which contractors, subcontractors and suppliers had become accustomed to using for many years changed in 2004. Despite this change in law, many in the construction industry have still not started using the correct new form. Changes in the law, championed by the American Subcontractors’ Association, gave a significant new benefit to subcontractors and suppliers by giving the subcontractor or supplier some expectation of actually receiving notice…
Will a Notice of Non-Responsibility Prevent Enforcement of a California Mechanics Lien?
The “Notice of Non-Responsibility” is one of the most misunderstood and ineffectively used of all the legal tools available to property owners in California construction law. As a result, in most cases the answer to the above question is “No”, the posting and recording of a Notice of Non-Responsibility will not prevent enforcement of a California Mechanics Lien.
A “Supplier to a Supplier” on a California Construction Project Sometimes Does Have A Right to A Mechanics Lien, Stop Payment Notice or Payment Bond Claim
For purposes of seeking payment on a construction related project in the California construction industry, the proper legal classification of the party seeking payment is of key importance. Whether one in contract with a prime contractor is a subcontractor or a material supplier determines the availability for mechanics’ liens, stop payment notices and payment bond claims. Generally, those in contract with subcontractors have the ability to assert mechanics liens, stop payment notices and payment bond claims against the owner, general contractor and/or sureties. On the other hand, those who supply materials to material suppliers are generally not entitled to assert a mechanics lien, stop payment notice or payment bond claim. The “rule” has generally been stated as: “A supplier to a supplier has no lien rights.” However, this rule is not always true.
Understand how the Mechanics’ Lien Deadline Depends on the Validity of the Notice of Completion
Working within deadlines is absolutely crucial to preserving mechanics lien rights under California law. The deadlines differ, depending on whether you are a ”direct” contractor, also known as “original” or “prime” contractor (one who contracts directly with the property owner) or a subcontractor or material supplier. The primary differences are that except as to serving the construction lender if any, the direct contractor is not required to serve a “Preliminary Notice” (Civil Code section 8200-8216), whereas the subcontractor and material supplier are required to do so. Another difference is that a direct contractor has a longer period of time in which to record a mechanics lien after a valid “notice of completion” or a “notice of cessation” has been recorded (Civil Code sections 8180-8190), (60 days for original contractors as compared to 30 days for subcontractors and suppliers – See Civil Code sections 8412 and 8414).
How to Extend the Life of a Mechanics’ Lien
Although the general rule is that an action to foreclose on the mechanics’ lien must be filed within 90 days after the lien has been recorded at the County Recorder’s office where the property is located, it is possible to extend this 90 day deadline. Civil Code section 8460 describes the means to do so.
Why Bonding Around a California Mechanics’ Lien can Unintentionally Extend the Deadline to File a Mechanics’ Lien Lawsuit by Six Months or More
Where California mechanics’ liens are concerned there are few dates, the passages of which are more appreciated by property owners than the last day to file a lawsuit to foreclose on a mechanics’ lien. This is because unless the deadline to file a lawsuit to foreclose on the mechanics lien has been extended by a properly drafted and notarized “Notice of Credit” which has been duly recorded with the County Recorder in the county where the property is located, under California Civil Code section 8460, the deadline to file such a lawsuit will expire ninety (90) days after the mechanics lien was recorded. While exceptions may possibly exist when that date falls on a holiday or weekend, for the most part the 90th day is the absolute drop dead date for filing a suit. After that date the mechanics’ lien automatically expires and is no longer enforceable.
When will a Mechanics’ Lien Claimant be Paid in Full Before the Mortgage or Deed of Trust Holder? (The “Relation Back” Doctrine)
The usual rule in California is that the first to file documents of record with the County Recorder impacting on title to property have priority over later filed documents. This general rule allows, among other things, lenders to view the title to property before granting a loan on the property. The lender can then see if there are existing encumbrances on the property in question. Unfortunately for lenders, this practice does not always work in the case of mechanics’ liens.
Addressing the Mechanics’ Lien When the Property Owner or Developer Files Bankruptcy
The California mechanics’ lien is a powerful tool for contractors, subcontractors and material suppliers to secure payment of unpaid construction related debts. The goal of the mechanics’ lien is to force a sale of the real property where the work was performed in order to obtain the funds necessary to pay the delinquent debt. Under the usual procedure, the first step is the recording of mechanics’ lien in the chain of title to the property at the County Recorder’s office. A lawsuit must then be filed in state civil court within ninety days after the mechanics’ lien is recorded. The goal of the lawsuit is to foreclose on the mechanics’ lien. A successful foreclosure lawsuit will result in a court mandated sale of the property. The proceeds of the sale will be used to pay the unpaid construction debt originally secured by the recording of the mechanics’ lien. While this may seem an oversimplification, it is necessary to grasp this basic process in order to understand the complications discussed below.
