California Mechanics' Liens and Stop Notices

 

At Barron & Associates, we are experienced mechanic's lien attorneys with years of experience counseling contractors, construction companies, and real estate owners in their construction disputes and litigation matters. Given the stringent deadlines imposed by California law, it is important for lien holders to enforce their lien rights in a timely manner to avoid waiving their lien rights.  However, even if the deadlines have passed to file a lien, contractors can still recover the monies owed on a project by preparing a demand and filing a lawsuit for breach of contract.

 

Summary

For Private Work, a Mechanics' Lien is an effective remedy for contractors, subcontractors, and others involved in the construction or improvement of real estate to resolve payment problems. If a service or materials provider records a Mechanics' Lien against the real estate being improved, the owner can not 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.  The Mechanic's Lien rights are provided for in the California Constitution, and the manner in which mechanic's lien rights are perfected is based on statutes.  Thus, it is important to follow the statutory requirements when enforcing your mechanic's lien rights.

However, for Public Work Projects, given that there is no right for a contractor or supplier to place a lien on the public property, contractors and suppliers can, instead, file Stop Notices to ensure that payment is provided.  Again, given the statutory requirements to perfect the Stop Notice rights, it is important to follow the statutory requirements.

Preliminary Notices (20 Day Notice)

Preliminary 20 Day Notices were designed to protect the owner from unknown claims for subcontractors, and material suppliers who do not have any contractual relationship with the owner.  Therefore, General Contractors with a direct contractual relationship with the owner are not required to provide any preliminary notice to perfect their mechanic's lien and/or stop notice rights as the owners are already aware of the work and potential claims.

Therefore, claimants who do not have a direct contractual relationship with the owner (e.g., subcontractors) must provide a Preliminary Notice within 20 days of furnishing labor or materials to the job. This ensures that the owner is aware of a potential claimant, so that appropriate steps can be taken to confirm that the contractor is paid. Preliminary Notices must be provided to the owner, general contractor, and lender, if any.

Mechanics' Liens

Mechanics' Liens are available to almost anyone who contributes labor, services, or materials to a real estate improvement project. A Mechanics' Lien is used to exact payment out of the real estate itself by placing a lien on the property, making it difficult for the owner to sell or refinance the property, and if necessary, allowing the lien holder to go to court to have the property sold at auction.

Stop Notices

A Stop Notice attaches to the owner's undisbursed construction funds, rather than to the property itself, as is the case in a Mechanics' Lien. A Stop Notice compels the owner or lender to hold the remaining construction funds so that claimants can recover for work already completed. Stop notices are not available to claimants with a direct contractual relationship with the owner.

Removing a Lien or Stop Notice

Once a Mechanics' Lien has been recorded, the claimant must file a court action to enforce the lien within 90 days. If no court action is filed by that time, the lien is no longer valid.  The filing of a mechanic's lien, and the timely filing of a lawsuit to enforce the lien, can provide the contractor, and/or subcontractor's and/or material supplier with collateral for the monies owed.  However, even if a contractor fails to timely file a court action to enforce the lien, the contractor can still file a breach of contract claim against the appropriate party if they have a direct contractual relationship.