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What is a mechanic’s lien and how is a lien claim properly made?

A mechanic’s lien is a claim against real property which can be made without the consent of the owner of the property, a non-consensual lien. It is for that reason that the courts require strict compliance with the law concerning the enforcement of a mechanic’s lien claim.

A mechanic’s lien may be asserted only by recording the lien in the county where the project is located. Recording a mechanic’s lien in another county will not be effective to assert a claim.

When must a lien be recorded in order to be valid?

In the absence of a recorded notice of completion or notice of cessation, a lien claim must be recorded within 90 days after “completion” of the work. If a notice of completion or notice of cessation has been recorded, then that time period is shortened to 60 days for a general contractor and 30 days for a subcontractor or material supplier. The issue of when a project is “complete” and whether notices of completion and cessation are properly recorded are some of the most litigated issues in this area of law. Those issues are beyond the purview of this booklet. One last note about the lien: Sometimes the amount owed at the end of the project greatly exceeds the amount on the Preliminary 20-day notice. So long as the amount on the Preliminary 20-day notice was a reasonable estimate of the value of the work or materials to be supplied at the time it was produced then all lien rights are protected with one exception. If the owner records the contract between him and the general contractor and a payment bond, the cumulative amount of all mechanic’s liens on the project cannot exceed the amount in the recorded general contract.

After a lien is recorded is the lien claimant fully secured?

No. The lien remains in place for a period of 90 days after it is recorded and then expires by operation of law unless some action is taken to either perfect the lien or extend the lien. A mechanic’s lien is perfected by filing a lawsuit to foreclose the lien. However, its life may be extended by the use of a mechanic’s lien time extension. The time extension must be signed by the owner of the property, however.

How many liens must be recorded?

On a project consisting of several different structures, several mechanic’s liens may have to be recorded. For example, where there are several different residences in a tract, a lien must be recorded against each structure. So, if those residences are condominiums, a lien must be recorded against each building, not every unit in the building.

What if a claimant is paid after having recorded a mechanic’s lien?

Property owners should require that lien claimants deliver a properly executed lien release form at the time of payment. Lien claimants should require payment in cash or a cashier’s check. A claimant who is paid must release its lien; if the claimant fails to do so, the owner may ask the court to remove the lien at the claimant’s expense including up to $2,000 in attorney’s fees. The lien waiver forms mentioned above will not be effective to release a recorded mechanic’s lien. Like a mechanic’s lien, a lien release must be recorded in the county where the project is located and where the lien was recorded.

What if a contractor or supplier records a lien when payment is not due?

Owners and general contractors often encounter situations where a contractor or supplier has recorded a mechanic’s lien against a project when they have either been paid everything to which they are entitled or where there is a bona fide dispute over whether any sum is due. Where there is a need to refinance or sell the property, or, where the general contractor wishes to maintain good relations with the property owner, it is often critical to remove such a lien. The Legislature has provided us with the mechanic’s lien release bond to remove unwanted mechanic’s liens from property. Most commercial bonding firms write and sell lien release bonds. The release bond is effective to clear title to the real property and most title insurers will insure title once a valid release bond is recorded. The bond must have a face value equal to 150% of the value of the lien claim.

Upon purchasing such a bond, the owner or general contractor must take the additional steps of recording and serving the lien release bond to fully protect their rights. Upon recordation of the bond the real property which was encumbered by the lien is released, permitting the owner to refinance or sell the property. Once again, it is critical that the bond be recorded in the county where the property is located to be effective to release a lien against that property.

After recording the lien release bond, a recorded copy of the bond should be served upon the lien claimant by certified mail. Once served, the clock begins running on the six months time limit on the lien claimant’s rights against the bond.

What do I do if I have recorded a mechanic’s lien and I receive a mechanic’s lien release bond?

The contractor or material supplier who is served with a mechanic’s lien release bond should immediately contact an attorney with expertise in construction law. In the absence of a mechanic’s lien release bond the claimant must commence a lawsuit against the owner of the real property within 90 days of recording the mechanic’s lien. However, where the lien has been released by the recordation of a lien release bond, the lien cannot be perfected. It has been removed.

Upon receipt of notice of the recording of a release bond, the claimant should still file suit. However, instead of suing the landowner for foreclosure of the mechanic’s lien, the lien claimant should sue the surety who issued the bond. That lawsuit must be filed within six months of the date of receipt of the notice. A failure to file that action in a timely manner will result in the loss of the right to make a claim against the release bond. If the lien claimant has already filed a lawsuit to foreclose the claim of lien before receiving notice of the recordation of a mechanic’s lien release bond, then the claimant should seek the counsel of an experienced construction attorney.

If an owner or general contractor withholds retention or progress payments on a private work of construction, is there any penalty?

Yes. The California Legislature has adopted several statutes which are intended to reduce the amount of litigation in the construction industry on both private and public works of construction. At the end of this publication you will find a chart describing those statutes as of the date of this publication.,

Disclaimer: The foregoing is not intended as legal advice. The facts and circumstances of any case requires the review of an attorney familiar with real estate and/or construction law. Before taking any action, please consult with your counsel.