Understanding Contractors Liens

Before entering into a home improvement contract or contracting for the services of a tradesperson, a homeowner is well advised to understand a powerful legal right that contractors, subcontractors, laborers, or material suppliers have to collect non-payment of services or materials supplied to a job. Under most circumstances, these individuals are allowed to file a Claim of Lien within 90 days of providing any work to a job, or the substantial completion of a project if they are not paid.

However, before a contractor can file a lien for non-payment, the contractor must “notify” the homeowner of his or her lien rights. Section 7018.5 of the California Business and Professions Code requires a contractor to provide a homeowner with a notification called a “Notice to Owner” prior to signing a contract for services to be performed. This notice states that under the “California Mechanic’s Lien Law”, any contractor, subcontractor, laborer, or material supplier who has improved real property but has not been paid for the work, has a right to place a lien on the improved property to secure payment of the monies owed to them.

The Notice to Owner is required to be in the original contract that is signed with a prime contractor. Sub contractors and material suppliers that are not directly contracted by the homeowner are required to provide them with a “Preliminary Notice” which can be sent via the mail. The Preliminary Notice provides basically the same information as the Notice to Owner, but it must be sent to the homeowner no later than 20 days after the claimant has first furnished labor, service, equipment, or materials to the jobsite.

Once a lien is filed, the claimant has 90 days to file a Lien Foreclosure Action in court. The Lien Foreclosure Action is a civil action that, if successful, could allow your property to be foreclosed and sold, with the proceeds from the sale used to pay the lien.

I spoke with Don Odell, an attorney with McNichols, Randick, O’Dea and Tooliatos, a law firm specializing in real estate and construction law. I asked his opinion of the impact that construction related liens have on the consumer. “Filing a lien on someone’s property can be a serious matter for both the contractor and the consumer.

If the contractor has not been licensed during the entire time on the job, or if the contractor does not have a legitimate reason for filing a lien, or if the contractor has not complied with the notice requirements, the contractor could be exposed to both legal and disciplinary action”, began Don.

“For a homeowner, a lien can prevent the refinance or re-conveyance of the property (subject to the lien) until the lien is settled”, Don continued. “If the contractor has recorded a lien and does not file a Lien Foreclosure Action within 90 days, the lien is unenforceable. If the contractor then fails to remove the lien, the homeowner can petition the court to have the lien removed, and may then seek recovery of the associated costs from the contractor.”

“On the other hand, if a Lien Foreclosure Action is filed by the contractor, the homeowner will have to defend against the action and may have to file a counter-claim for breach of contract in order to justify not paying the contractor in the first place.

The frustrating part about the mechanic’s lien laws is that the contractor essentially controls the matter and could delay the resolution of the lien for years. This can waste a lot of time and money for the homeowner even in the best of circumstances.”

Odell stated that although a homeowner may successfully defend against a mechanic’s lien and recover the potential attorneys’ fees and costs, fighting a mechanic’s lien is not a pleasant experience. His best practical advice for anyone in a dispute with a contractor is to make sure that you have everything documented. If you decide to withhold payment from the contractor until the work is completed, make sure you are working in good faith with the contractor to resolve your differences.

In the event that you cannot resolve your differences and wish to terminate the contractor, do so promptly and immediately record a Notice of Termination. While this will not prevent the contractor from filing a lien, recording the Notice will reduce the amount of time that the contractor has to file a lien from 90 days after the completion of the improvement, to 60 days from the date of the Notice of Termination. If the contractor is not paying attention, the reduced time frame may cause the contractor to miss the filing deadline, making the lien unenforceable.

Remember, any time that a lien is involved, the most critical supporting document you have is the contract that you signed with the contractor. Your contract will contain the agreed upon payment schedule, and a description of work to be completed, two of the most important pieces of information needed to determine the legitimacy of the claim. Your contract should also include a start and finish date, a detailed description of the work to be done, a down payment amount, a schedule of when payments are to be made and an explanation of what constitutes a completed job.

Resolving issues with liens and contracts can be a frustrating and lengthy experience for most people. Consumers need to protect themselves whenever they enter into a contract. The best way to do this is by working with a competent contractor, and having a well-written document with clearly defined terms. To assist the consumer in this matter, Don Odell has developed a six-page handout describing the various steps involved in the lien process, and what consumers can do to protect their rights.