California Lien Laws

An Overview of California

Mechanic Liens and Stop Notice Remedies

When someone who provides labor, services, equipment or materials to a construction project is not fully paid, he can file suit against the person who failed to pay him. However, even if he were to win such a suit, his ability to collect may be limited by the other party's bankruptcy or lack of assets, or even the disappearance of the other party. In order to help alleviate these problems, California Law provides several procedures whereby one who provides services to a construction project can obtain a more secure position. This article will provide a brief overview of the nature of the remedies and basic requirements for exercising those remedies.

A properly filed and foreclosed Mechanic’s Lien gives the claimant a security interest in the property itself. If the Mechanic’s Lien claimant prevails at trial, the court will order the sale of the property on which the lien claimant performed work or supplied materials in order to pay off the lien claimant.

A properly served and perfected Stop Notice gives the claimant a lien against undisbursed construction funds in the possession of either the owner or the lender. For private works of improvement, the Mechanic’s Lien and Stop Notice gives the claimant a lien against undisbursed construction funds in the possession of either the owner or the lender.

A properly served and perfected claim on a payment bond gives the claimant the right to recover the amount owed from the surety that issued the bond.

For private works of improvement, the Mechanic’s Lien and Stop Notice are cumulative remedies which can be simultaneously pursued along with a suit for breach of contract on the underlying debt. Generally, a Mechanic’s Lien cannot be filed on a publicly owned parcel of real property. On California public works projects, the Stop Notice and payment bond claims are cumulative remedies.

An understanding of Mechanic’s Lien, Payment Bond and/or Stop Notice procedures can greatly increase the chances of eventual collection by the subcontractor or supplier. The Lien and Stop Notice laws are extremely technical and even the smallest failure to take the proper steps, at the proper time and in the proper order, can result in the complete loss of the claimant's Mechanic’s Lien and Stop Notice rights. It should be noted that even if these remedies are lost, the unpaid contractor may still sue the party with whom it contracted for the amount owed. The following chart sets forth the various remedies:

Action	Parties to Action	Remedy	Limitation Period
Breach of Contract	Whomever you contracted with	Money judgment	Written Contract 4 years
			Oral Contract 2 years
Common counts	Whomever you provided the goods and services to	Money Judgment	Generally 4 years, with certain exceptions for 2 years
Mechanic’s Lien	Owner of property and the entity you contracted with	Money judgment that can be collected by foreclosing on the property that was liened	File lawsuit 90 days after recording the mechanic’s lien, which is only valid if the prerequisites are satisfied
Payment Bond	Principal on payment bond ( typically the general contractor) and the surety issuing the bond	Money judgment that can be satisfied by payment from the surety who issued the bond	Six months after the notice of completion or cessation is recorded, if none recorded then 6 months after the 60 day period expires from the date of actual completion
Stop Notice (Private Works)	Owner, General contractor and lender holding funds	Money judgment that can be recovered from the funds withheld in accordance with the stop notice	File lawsuit 90 days after serving the stop notice, which is only valid if the prerequisites are satisfied

Only certain parties are able to take advantage of the lien laws. In order to qualify, the prospective claimant must generally

(1) perform services, provide labor or provide materials to the project;

(2) the services, labor or materials which were supplied must be used or consumed in the project; and

(3) the owner or his representative (e.g., general contractor) must authorize the services or materials.

The Mechanic’s Lien, Stop Notice and Payment Bond procedures involve three basic steps:

First Serving a preliminary 20-day notice;

Second Recording the Mechanic’s Lien, serving the Stop Notice or making the claim on the payment bond; and

Third Filing a lawsuit to: (1) foreclose the Lien; (2) enforce the Stop Notice, or (3) enforce the claim against the surety.

Accompanying this article is a Simplified Private Work Mechanic’s Lien that sets forth the basic steps for exercising these unique remedies. As previously stated, if you intend to use these remedies you must comply precisely with the statutory conditions for using them. If you are unfamiliar with the requirements, it is recommended that you attend a seminar on the lien laws. If you have a specific question about application of the lien statutes to your particular situation, you should seek the advice of legal counsel who is familiar with this area of California law.

SIMPLIFIED PRIVATE WORK MECHANIC LIEN

AND STOP NOTICE ACTION GUIDE FOR

PRIVATE WORK OF IMPROVEMENT

Event/Task	Date	Action	Action Completion Date
Project Commencement Date
First Work Performed By Claimant		If private works: Serve preliminary lien notice on general, owner and lender within 20 days of first performing work
		If California Public Works: Serve preliminary lien notice on contractor and public entity
Preliminary Lien Notice Served On owner, general and lender
Notice of Completion Or Cessation Recorded by Owner		If General Contractor record lien in County Recorders office and/or serve stop notice within 60 days
		If not General Contractor record lien in County Recorders office and/or serve stop notice within 30 days
If No Notice of Completion, Date of Actual Completion		File lien/stop notice within 90 days
If payment bond		Mail notice to surety and bond principal (by certified mail) within 15 days after Notice of Completion or if a Notice of Completion is recorded then mail notice within 75 days after actual completion
If Mechanic Lien/ Stop Notice filed/served		If private works, file lawsuit to foreclose within 90 days. If California Public works within 90 days after period in which stop notices must be served

This table is a simplified overview of the time deadlines for filing a stop notice and/or mechanic lien on a private work of improvement. There are exceptions to the deadlines and applications of the remedy. This chart, and the above article, © 1999, was prepared by William C. Last, Jr. of Last & Faoro, members of the Bay Area Chapter of ASA. Mr. Last is an attorney who has been specializing in Construction Law for over eighteen years. Mr. Last also holds a California A&B contractors license. If you have any questions Mr. Last can be contacted at 415‑764‑1990 or 650-696-8350. This bulletin is published periodically to provide general information about current legal issues. If you have a specific legal question or need legal advice, you should contact an attorney.

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HOW TO EXTEND THE LIFE OF A MECHANICS’ LIEN
By William L. Porter, Attorney at Law

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 3144 describes the means to do so. Section 3144 states:

3144. (a) No lien provided for in this chapter binds any property for a longer period of time than 90 days after the recording of the claim of lien, unless within that time an action to foreclose the lien is commenced in a proper court, except that, if credit is given and notice of the fact and terms of such credit is recorded in the office of the county recorder subsequent to the recording of such claim of lien and prior to the expiration of such 90-day period, then such lien continues in force until 90 days after the expiration of such credit, but in no case longer than one year from the time of completion of the work of improvement.

(b) If the claimant fails to commence an action to foreclose the lien within the time limitation provided in this section, the lien automatically shall be null and void and of no further force and effect.

Note: This “Notice of Credit” document must be signed by the owner before a notary and properly recorded at the office of the County Recorder where the property is located. A simple letter from the owner will not suffice. The recorded Notice of Credit also will not extend the lawsuit deadline any longer than one year from the date of actual completion of the work of improvement. It is recommended that the Notice of Credit be used extremely sparingly. In most cases it does not result in any real benefit to the claimant and only delays payment further and/or provides the owner with additional time to try to determine some means to defeat the collection efforts of the claimant.

William L. Porter is a principal in Porter Law Group, Inc. in Sacramento, California. He can be reached at (916) 381-7868.

American Subcontractors Association California Inc.
P.O. Box 292867, Sacramento, CA. 95829-2867
Phone: 888-310-2722 Fax: 530-662-2865 Email