Mechanics Liens
The Mechanics of Mechanics Liens
Garret Murai
May 10, 2013
One of the most effective payment remedies for direct contractors, subcontractors and material suppliers is the mechanics lien. First conceived by Thomas Jefferson to encourage construction of the then “new” capital city of Washington, D.C., the long history of mechanics liens also extends through California’s history, which is the only state among the 50 to guarantee mechanics lien rights in its constitution.
By the way, if you’re ever in Virginia, I highly recommend seeing Jefferson’s home, Monticello, which he designed and built, and the University of Virginia, which he designed. Not only was Jefferson one of the founding fathers, he was also one of the country’s original owner-builders.
But I digress. So here’s the mechanics of mechanics liens.
What is a mechanics lien?
A mechanics lien creates a security interest in real property in which work is furnished. If a mechanics lien claimant is not paid, the claimant can file suit to foreclose on the mechanics lien to have the property sold and the proceeds from sale used to satisfy the amount of the mechanics lien.
Analogy: A mechanics lien is like the deed of trust recorded on your home to ensure you pay your mortgage. If you fail to pay your mortgage, the bank can foreclose on the deed of trust to have your house sold, and the proceeds from the sale used to satisfy the amount outstanding on your mortgage. But, with one big difference. While a deed of trust can only be recorded if the homeowner agrees to it, a mechanics lien can be recorded without the consent of the property owner, which makes it a powerful payment remedy for those who furnish labor, equipment and materials on a project.
On what types of projects can a mechanics lien be recorded?
Private projects only.
Who can record a mechanics lien?
Direct contractors, subcontractors, material suppliers, laborers and trust funds.
Do I need to serve a preliminary notice in order to record a mechanics lien?
Yes, with the exception of direct contractors.
Is there a deadline to record a mechanics lien?
Yes, but it depends on whether you are a direct contractor, subcontractor or material supplier.
- Direct Contractors: No earlier than after the direct contractor has completed its work but no later than the earlier of:
(1) 90 days after completion of the project; or
(2) 60 days after the owner records a notice of completion or cessation.
- Subcontractors and Material Suppliers: No earlier than after the subcontractor or material supplier has ceased work but no later than the earlier of:
(1) 90 days after completion of the project; or
(2) 30 days after the owner records a notice of completion or cessation.
What information is required to be included in a mechanics lien?
You can find a mechanics lien form under the “Toolbox” menu. But here’s what information is required:
- The name of the owner or reputed owner;
- A general statement of the work furnished by the mechanics lien claimant;
- The name of the person by whom the mechanics lien claimant was employed or to whom the mechanics lien claimant furnished work;
- The monetary demand of the mechanics lien claimant after deducting all just credits and offsets.
Where and how do you record a mechanics lien?
A mechanics lien should be recorded in the county recorder’s office of the county where the project is located. The recording fee for recording a mechanics lien varies in each county recorder’s office but is usually between $25.00 and $40.00. You should bring in the original (with your originally-signed signature and verification) and I suggest bringing three copies to get file-endorsed for your records. There are also mechanics lien recording services which can do all of this for you.
Do you need to do anything after you record a mechanics lien?
Yes, two things. First, you need to serve the mechanics lien on the owner, and if the owner cannot be located, on the original contractor and construction lender (if any). However, I believe it is good practice to serve it on all three, including the person to whom you furnished work.
Second, you must file a lawsuit to foreclose on the mechanics lien within 90 days after the mechanics lien is recorded but no later than 1 year after the project is completed. You must also record a notice of pendency of action within 20 days after filing a lawsuit.
Note: You can extend the deadline to foreclose on a mechanics lien if you enter into a notice of extension of credit with the owner.
If you are the property owner is there anything you can do to release property from a mechanic’s lien?
Yes, several things. First, if a lawsuit is not filed to foreclose on a mechanics lien within 90 days after the mechanics lien is recorded or 1 year after the project is completed, the mechanics lien is considered “stale,” and you can file a petition with the court to have the mechanics lien expunged. You can recover all reasonable attorneys fees incurred in expunging a “stale” mechanics lien.
Second, if a mechanics lien is not “stale,” you can obtain a mechanics lien release bond. A mechanics lien release bond releases the mechanics lien, and the mechanics lien claimant then has to make a claim against the release bond. A mechanics lien release bond must be in an amount equal to 125% of the amount claimed in the mechanics lien and premiums are typically 2-3% of the total bond amount.
Third, you can negotiate a settlement with the mechanics lien claimant in exchange for the mechanics lien claimant recording a release of its mechanics lien.
Are attorneys fees recoverable in a lawsuit seeking to foreclose on a mechanics lien?
No.
The content of this article is intended to provide general information and as a guide to the subject matter only. Please contact an Advise & Consult, Inc. expert for advice on your specific circumstances.
SOURCE: www.jdsupra.com/legalnews/the-mechanics-of-mechanics-liens-89815/