The basics about Mechanics Liens
The first time I had any dealings with Mechanics Liens was almost 10 years ago. Here in California when the construction industry was booming (before the recession) subcontractors and suppliers did not worry about not getting paid for their services rendered or materials delivered to any of their job sites. Jobs were completed and payments was received, as simple as that. When the recession hit cases started to appear in which the suppliers did not get paid for materials provided and by 2009 â€“ as I remember it â€“ every job had to go through this mechanics lien process mostly for the sake of the supplier, although contractors also pursued the benefits of this process to ensure payment after work was completed.
What is a Mechanics Lien?Â
As stated on the CSLB website:
â€œA mechanics lien is a “hold” against your property, filed by an unpaid contractor, subcontractor, laborer, or material supplier, and is recorded with the county recorder’s office. If unpaid, it allows a foreclosure action, forcing the sale of the property in lieu of compensation.Â
A lien can result when the prime contractor (referred to as a “direct contractor” in mechanics lien revision statutes, effective July 1, 2012) has not paid subcontractors, laborers, or suppliers. Legally, the homeowner is ultimately responsible for payment â€” even if they already have paid the direct contractor.â€
Ultimately the property owner is responsible for making sure everyone gets paid, otherwise your property might get a â€œholdâ€ put against it. This can lead to foreclosure, double payment on improvements performed to the property, or a lien can be recorded on the property which would prevent the owner from borrowing money against the property, refinancing and selling the property.
How is it done?Â
- A preliminary notice has to be served (this is usually done by certified mail) by the suppliers and contractors working on the property to the property owner, lender and general contractor. From the contractor or supplier point of view this will be a notification letting the involved parties know you will be performing work on â€œtheirâ€ property. This usually occurs with 20 days (before or after) of initial work or first materials delivered on site.
- Direct contractors can file a lien before 90 days after the completion of the project or before the 60-day mark after the property owner files a notice of completion or cessation of the work (for cases in which the project will not be fully completed).
- Subcontractors can file a lien before 90 days after the completion of the project or before the 30-day mark after the property owner files a notice of completion or cessation of the work (for cases in which the project will not be fully completed).
- A lien must be served properly (guidelines can be found at the CSLB website) to the owner and foreclosure must be within the following 90 days for the mechanics lien to retain its valid claim.
Ignoring this information could proof to be very costly, especially for the property owner. All parties involved in a construction project should have some knowledge about the mechanics lien process to ensure or to maximize the chances of getting paid for work completed on all their projects. Here at Edifica, we think this a very important part of the construction industry and we are researching ways to expedite this process for our customers. We expect to have a solution (at least for California) in the next coming weeks. I obtained some of the information on this note here at the California State Licensing Board website and here.