Construction Firms Need to Prepare for New Mechanic's Lien Procedures
A new state law that goes in effect Jan. 1, 2011 remedies longstanding problems without significant cost or inconvenience
Since 1879, the California Constitution has guaranteed contractors, subcontractors, suppliers and others who have not been paid for work and materials supplied to a private works project the right to sell the property where the work was performed in order to obtain payment.
The mechanism by which a sale of the property has traditionally been enforced is known as a “mechanic’s lien.” Under current mechanic’s lien laws the unpaid claimant records a mechanic’s lien at the County Recorder’s Office in the county where the property is located. Within 90 days thereafter the claimant files a lawsuit to foreclose on the mechanic’s lien and thereby force a sale of the property. The unpaid claimant is paid from the proceeds of the sale.
While this is an oversimplification and there are numerous important timelines and procedures to follow, this is the essence of the current right and procedure. Under laws that take effect on Jan. 1, 2011, claimants who will seek to obtain payment through the mechanic’s lien procedure will be required to follow new procedures and use new forms.
There are a number of reasons that the law has been changed to require new procedures and forms. For example, under current law there is no requirement that a mechanic’s lien claimant inform the property owner that it has recorded a mechanic’s lien on the owner’s property. There is also no requirement that a mechanic’s lien claimant explain what a lien is or inform the property owner that they will likely be sued within 90 days to foreclose on the mechanic’s lien and sell the property to pay an unpaid debt. Property owners have long complained that until they receive the foreclosure lawsuit they are often entirely unaware that a mechanics lien had even been recorded on their property. The owner asserts that if it had known that a mechanic’s lien had been recorded it could have acted to resolve the matter before a lawsuit became necessary. This is a particularly common complaint in the residential construction industry where homeowners are typically unaware of the entire concept of a mechanic’s lien.
William L. Porter
In order to address these longstanding issues, the California Contractor’s State License Board, Assemblyman Bill Monning (D-Monterey) and a host of California construction attorneys drafted and introduced Assembly Bill 457, which was passed by the legislature and signed into law by Governor Schwarzenegger on Aug. 5.
Under the new law, beginning on Jan. 1, 2011, California Civil Code sections 3084 and 3146 are amended to require service of a mechanic’s lien on the owner of the property at the time the mechanic’s lien is recorded. If for some reason the owner cannot be served with the mechanic’s lien then the original contractor or the lender can instead be served. This provides owners with notice that a mechanic’s lien has just been recorded on their property and it gives them an opportunity to quickly address the situation.
The form of the mechanic’s lien document itself is also amended to include a “Notice of Mechanic’s Lien,” which provides a brief explanation of the nature of the mechanic’s lien and what the property owner might do to address the situation.
Finally, where a lawsuit is filed to foreclose on the mechanic’s lien, a “Notice of Pending Action” must also be recorded within 20 days after the filing of the mechanic’s lien foreclosure action. The Notice of Pending Action is intended to provide notice to potential property purchasers, lenders and others that a lawsuit has been filed in relation to the property and the property may be sold in foreclosure in order to pay the debt.
The full text of the new law can be accessed electronically from the legislative website at www.leginfo.ca.gov/pub/09-10/bill/asm/ab_0451-0500/ab_457_bill_20090806_chaptered.pdf
A form of the new mechanic’s lien document itself, including everything the new law requires, can be found free of charge at www.porterlawinc.com/forms.htm
The new law provides the property owner with advance notice and an opportunity to remedy a pressing situation. Lawsuits can be avoided by early attention. Based on the premise that more information is better than less and fewer lawsuits are better than more, this is good legislation that serves the public interest. It remedies longstanding problems without significant cost or inconvenience.
William L. Porter, Esq. is a shareholder in Porter Law Group, Inc. of Sacramento. Porter worked with Assemblyman Bill Monning (D-Monterey), Michael Brown of the California Contractor’s State License Board, attorneys John Boze of Sacramento and Sam Abdulaziz of North Hollywood on the legislation which is the subject of this article.