The Mechanics Lien law in California was first established in 1872. The intent of the Legislature was to allow mechanics, persons furnishing materials, artisans, and laborers of every class, if necessary, to secure a lien against the property upon which they had bestowed labor or furnished material – for the value of such. Nothing less than the California Constitution directed the Legislature to provide for the speedy and efficient enforcement of such liens. (California Constitution, Article XIV §3.)
Accordingly, the Legislature enacted a statutory system to implement the enforcement of Mechanics’ Liens. The Mechanics’ Lien system is the only creditors’ remedy stemming from a constitutional mandate (Connolly Development, Inc. v. Superior Court (1976) 17 Cal.3rd 803, 810; Solit v. Tokai Bank, Ltd. New York Branch (1999) 68 Cal.App.4th 1435, 1443; Mechanical Wholesale Corp. v. Fuji Bank, Ltd. (1996) 42 Cal.App.4th 1647, 1655.)
“In enacting the Mechanic’s Lien statutes, the Legislature intended ‘to prevent unjust enrichment of a property owner as the expense of a laborer or material supplier.’ [Burton v. Sosinsky (1988) 203 Cal.App.3d 562, 568.]” (T.O. IX, LLC vs. Superior Court (Asphalt Professionals, Inc.) (2008) 165 Cal.App.4th 140, 146.) Currently, California’s Mechanics’ Lien statutes are found at Civil Code §§ 3082 to 3268.
In addition to the unique constitutional command establishing Mechanics’ Liens, “…courts have uniformly classified the Mechanics’ Lien laws as remedial legislation, to be liberally construed for the protection of laborers and materialmen.” (Connolly, supra, at 826-827.) Generally, doubts about Mechanics’ Liens and the statutes’ meaning are to be resolved in favor of the contractor or laborer. (Solit, supra, at 1442.)
On the other hand, “[w]hile the essential purpose of the Mechanic’s Lien statutes is to protect those who have performed labor or furnished material towards the improvement of the property of another, inherent in this concept is a recognition also of the rights of the owner of the benefited property. It has been stated that the lien laws are for the protection of property owners as well as lien claimants and that our laws relating to Mechanic’s Lien result from the desire of the Legislature to adjust the respective rights of lien claimants with those of the owners of property improved by their labor and material.” (Borchers Bros. v. Buckeye Incubator Co. (1963) 59 Cal.2nd 234, 239, where the California Supreme Court approved the language of Alta Building Material Co. v. Cameron (1962) 202 Cal.App.2nd 299, 303-305.)
Of course, it is impossible in this short article to review all of the various requirements of an enforceable Mechanics’ Lien. However, the following will provide you with the background of as well as the changes to the lien statutes which were effective January 1, 2011. As of that date, enforcement of a Mechanic’s Lien changed in two ways.
January 1, 2011 Statutory Changes
Previously, there was no requirement that a Mechanics’ Lien be served on the property owner. As a result, property owners and lenders had complained that until they receive the foreclosure lawsuit (and subsequently, a lis pendens) they were often entirely unaware that a Mechanics’ Lien had even been recorded on their property. To address the concern, California Civil Code § 3084 was amended.
As of January 1, 2011, a Mechanics’ Lien claimant – in addition to the current lien requirements and Preliminary 20-Day Notice requirements – is also required to provide a “NOTICE OF MECHANICS’ LIEN” and the new form of lien must be served on the property owner contemporaneously with the recording of the lien.
In other words, now lien claimants: (a) must serve a copy of the Mechanics’ Lien on the property owner; (b) must include with the Mechanics’ Lien the “NOTICE OF MECHANICS LIEN”; and (c) must include a Proof of Service Affidavit along with and when they serve the Mechanic’s Lien and the “NOTICE OF MECHANICS LIEN”.
The new “NOTICE OF MECHANICS LIEN” must contain the following statement (in at least 10-point boldface type), with the last sentence in capital letters (excepting the Internet Web site address of the Contractors’ State License Board, which must be printed in lowercase letters):
“NOTICE OF MECHANIC’S LIEN ATTENTION!
Upon the recording of the enclosed MECHANIC’S LIEN with the county recorder’s office of the county where the property is located, your property is subject to the filing of a legal action seeking a court-ordered foreclosure sale of the real property on which the lien has been recorded. That legal action must be filed with the court no later than 90 days after the date the mechanic’s lien is recorded.
The party identified in the mechanic’s lien may have provided labor or materials for improvements to your property and may not have been paid for these items. You are receiving this notice because it is a required step in filing a mechanic’s lien foreclosure action against your property. The foreclosure action will seek a sale of your property in order to pay for unpaid labor, materials, or improvements provided to your property. This may affect your ability to borrow against, refinance, or sell the property until the mechanic’s lien is released.
BECAUSE THE LIEN AFFECTS YOUR PROPERTY, YOU MAY WISH TO SPEAK WITH YOUR CONTRACTOR IMMEDIATELY, OR CONTACT AN ATTORNEY, OR FOR MORE INFORMATION ON MECHANIC’S LIENS GO TO THE CONTRACTORS’ STATE LICENSE BOARD WEB SITE AT www.cslb.ca.gov.
With respect to the Proof of Service Affidavit (quoting from Civil Code § 3084, as of January 1, 2011):
“(c) (1) The mechanic’s lien and the Notice of Mechanic’s Lien described in this section shall be served on the owner or reputed owner. Service shall be made as follows:
(A) For an owner or reputed owner to be notified who resides in or outside this state, by registered mail, certified mail, or first-class mail, evidenced by a certificate of mailing, postage prepaid, addressed to the owner or reputed owner at the owner’s or reputed owner’s residence or place of business address or at the address shown by the building permit on file with the authority issuing a building permit for the work, or as otherwise provided in subdivision (j) of Section 3097.
(B) If the owner or reputed owner cannot be served by this method, then the notice may be given by registered mail, certified mail, or first-class mail, evidenced by a certificate of mailing, postage prepaid, addressed to the construction lender or to the original contractor.
(2) Service by registered mail, certified mail, or first-class mail, evidenced by a certificate of mailing, postage prepaid, is complete at the time of the deposit of that first-class certified or registered mail.”
As might be expected, a new subdivision (d) of section 3084 provides: “Failure to service the mechanic’s lien, including the Notice of Mechanic’s Lien, as prescribed by this section, shall cause the mechanic’s lien to be unenforceable as a matter of law.”
Another revision to the Mechanics’ Lien statutes, effective January 1, 2011, relates to what a lien claimant must do after a lawsuit to foreclose on the Mechanics’ Lien is filed. Prior to January 1, 2011, after the filing of the lawsuit to foreclose on a Mechanics’ Lien, the Plaintiff could and in practice should have recorded a notice of pendency of the proceedings (a lis pendens) in the County where the property is located. This is because the statutory system provided that a purchaser or encumbrancer of the property would be deemed to have notice of the lawsuit only after recording a lis pendens. As of January 1, 2011, after the filing of a lawsuit to foreclose on a Mechanics’ Lien, a Plaintiff must record a lis pendens in the County where the property is located within 20 days of filing the of the Mechanics’ Lien foreclosure action.
Looking Ahead: July 1, 2011 Statutory Changes
Some consider the requirement, effective January 1, 2011, of serving a Mechanics’ Lien on the property owner—along with the new “NOTICE OF MECHANICS LIEN” a substantial change. Some may not.
However, effective July 1, 2012, even more comprehensive changes to California’s Mechanics’ Lien statutes will become effective. (SB 190.) Although the Assembly Judiciary Committee comments that SB 190 makes “few substantive provisions [which] appear to be modest, thoughtful and harmonizing”, the act moves and restructures the Mechanics’ Lien statutes, along with Stop Notice, Payment Bond and Prompt Payment statutes, in toto. The Assembly Judiciary Committee synopsis of SB 190 also states the bill will: “…reorganize, clarify and re-codify these statutes…modernize terminology and eliminate inconsistencies in language…place provisions that apply exclusively to private or public work in separate titles, and place jointly applicable provisions in a common third title.” Some “highlights” follow.
- Effective July 1, 2012, Civil Code §§ 3082 to 3268 will be deleted and Civil Code §§ 8000-9566 will become effective.
- The preliminary 20-Day Notice required for private works will be different from the form of preliminary 20-Day Notice required for public works. A “Stop notice” will be referred to as a “stop payment notice” and a 20-day preliminary notice will be referred to as a “preliminary notice.”
- Moreover, an “original contractor” will become a “direct contractor”. Civil Code § 8084. This category will include a lien claimant that is not licensed as a “general contractor”–such as a licensed subcontractor–that has a direct contractual relationship with the project owner. Pursuant to § 8200 (c)(2), as of July 1, 2012, a “direct contractor” will be required to serve a Preliminary 20-Day Notice to the construction lender or reputed construction lender, if any. Moreover, a “general contractor” will also be required to serve a preliminary 20-Day Notice, at least to the construction lender on a private work—and construction lenders will have to be identified on direct contracts.
- The design professionals’ lien statute (currently Civil Code § 3081.1, et seq.) will be repealed: Those provisions will be incorporated into the new Mechanics’ Lien statutes; and, Licensed Landscape Architects will be added to the definition of a “design professional” and therefore will have enforceable lien rights.
- “Completion” of a work of improvement has always triggered the commencement of the time-period within which a lien claimant must record their Mechanics’ Lien. The lien statutes (and case law) provide owners with a basis to assert a “constructive completion” (currently Civil Code § 3086). This doctrine has always been a source of a considerable amount of litigation. As of July 1, 2012, “completion” will continue to include occupation or use of the work of improvement by the owner, accompanied by a cessation of labor. On the other hand, bare “acceptance by the owner” is eliminated as an equivalent of completion.
- Additionally, an owner will be entitled to record a Notice of Completion for a portion of a private work of improvement if that portion of work is governed by a separate contract; and where there are multiple direct contractors, an owner will be entitled to record separate Notices of Completion with respect to the scope of work under each direct contract. (The Notices of Completion will have to be recorded within fifteen days–instead of the ten day period allowed under existing law.)
The Assembly Judiciary Committee synopsis of SB 190 indicates that the July 2012 changes were meant to be “modest” and to “make provisions…easier to use…” On the other hand, the above are just some of the changes that will occur. Fortunately, we have until July 2012 to prepare.
Craig Nevin has provided litigation and transactional counsel to property owners and developers, financial institutions and governmental agencies, and to contractors and subcontractors for almost 25 years. Mr. Nevin is currently on the Board of Senior Legal Services of Contra Costa County and The Law Center – two of the county’s major providers of pro-bono legal services. He is a Past President of the CCCBA Real Estate Law Section, former Adjunct Professor of Real Estate at JFK University school of Law, and from 2002 to 2009 served as Special Master to the Courts of San Francisco, Alameda and Contra Costa Counties.
Filed Under: Featured