In California, a mechanics lien is a “hold” against your property, filed by an unpaid contractor, subcontractor, or material supplier. The mechanics lien is recorded with the county recorder’s office and, if it goes unpaid, can lead to a foreclosure of the property. The foreclosure action forces the sale of the property in order for the unpaid entity to recover proceeds from the sale instead of compensation.
Unfortunately, a lien can result even if the prime contractor has not paid its subcontractors, laborers, or suppliers. This is because, generally, the homeowner is ultimately responsible for payment even if they have already paid their direct contractor.
There are several outcomes that can occur if a lien is filed against your property. For example, foreclosure (if a homeowner does nothing and does not pay the lien); a double payment for the same job (if the homeowner pays the direct or prime contractor and then does not pay the subcontractor, laborer, or supplier); and/or a recorded lien on the property title (that can affect the homeowner’s ability to borrow against, refinance, or sell the property).
Methods to prevent a Mechanics Lien
It is imperative that homeowners hire licensed contractors and check the contractor’s license status online. A homeowner can do that by a quick search at the Department of Consumer Affairs Contractors State License Board’s website.
And even though the contractor is in charge of hiring subcontractors, a homeowner should check whether the subcontractors are licensed. Furthermore, a homeowner should conduct research to determine whether the prime contractor has a good reputation for paying its subcontractors. It is very important to ask for a list of the subcontractors, laborers, and material suppliers that will be used on the property. After all, the homeowner should know who is coming and going to and from the property anyways.
Glendale real estate law firm Rodriguez Lopez, APC can help homeowners draft contracts with their contractors in a way that can help prevent mechanics liens. Schedule a consult today. For example, a contract should include a payment schedule that states when phases of the work start and end, including pricing for each segment; the identification of subcontractors and laborers for each phase; and identification of material suppliers.
If a subcontractor or supplier feels the need to file a lien, then they must serve a Preliminary Notice that states that the subcontractor or supplier has provided, or will provide, goods and services to improve the property and could file a lien if they are not paid. However, if subcontractors and suppliers do not provide a homeowner with the notice, then they lose the right to file a lien. The Preliminary Notice is not required from laborers or the direct contractor.
A homeowner should save the Preliminary Notices and take note of the date it was received. The Preliminary Notice may be delivered in person or by certified, registered, or first class mail before work begins or supplies are delivered and up to 20 days thereafter. Notice may be given after the 20 days but payment is only required for work done 20 days before the notice is delivered and anytime thereafter.
Cost Effective Way to Prevent Liens
There are several solutions to preventing liens. During the negotiation phase with a contractor, a homeowner could just propose to make payments with joint checks. That means that the contractors and its subcontractors or suppliers both have to endorse the check. A homeowner should make the check payable to both the contractor and the supplier or subcontractor.
Releasing a Mechanics Lien
After a homeowner pays a contractor, the contract should provide the homeowner with an unconditional release signed by each of the claimants paid for the portion of the work being released.
Filing a Notice of Completion with the county recorder’s office after work is completed also reduced the amount of time a contractor, subcontractor, laborer, or materials supplier has to record a claim. Homeowners have 15 days from the date of completion to do so.
The Notice of Completion reduces the amount of time a contractor has to record a mechanics lien from 90 to 60 days, and reduces the time a subcontractor or materials supplier has to record a mechanics lien from 90 days to 30 days.
If these procedural steps are not taken into account, then a homeowner might be entitled to attorney’s fees if the lien is not properly filed and you have to hire an attorney to remove it.
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