Mechanic Lien Surprises

Take the Surprise Out of a Mechanic’s Lien   

By Wesley Hurst
Construction Executive Magazine, June 2010

Mechanic’s lien laws provide a mechanism for contractors, subcontractors or others involved in the improvement of a property to ensure compensation. Generally, after a mechanic’s lien is recorded, the lienor can file an action to foreclose on the property. Filing this foreclosure action sometimes comes as a surprise to an owner, particularly an unsophisticated residential owner that may be unaware of any performance issues or payment problems.

The lack of notice can result in an owner paying twice for the same labor or materials. For example, the owner pays the prime contractor, which does not in turn pay the appropriate subcontractor or supplier. Even if the owner knows a lien has been recorded, the owner may not understand the consequences of the lien.

California enacted legislation to amend its mechanic’s lien laws to take some of the surprise out of the process. These amendments will take effect Jan. 1, 2011, and will require construction industry professionals to change existing procedures and forms.

Professionals nationwide should take note, as other states may make similar “consumer-friendly” changes.

The amendments to California Civil Code Sections 3084 and 3146 will require:

• service on the property owner of a mechanic’s lien when it is recorded;
• service of a notice of a mechanic’s lien that provides an  explanation of the lien; and
• the recording of a notice of pending action (a “lis pendens”) within 20 days of filing a lawsuit to foreclose on the mechanic’s lien.

First, the mechanic’s lien must be served on the owner of the subject property when the mechanic’s lien is recorded. If the owner cannot be located, the lien can be served on the lender or original contractor—either through registered, certified or first-class mail.

Second, the notice of a mechanic’s lien must include the following information:

• upon the recording of a mechanic’s lien, the property is subject to legal action seeking a court-ordered foreclosure sale of the property;
• the 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 lien may have provided labor or materials for improvements to the property and may not have been paid for those items;
• the notice is a required step in the foreclosure action for unpaid labor, materials or improvements;
• the foreclosure action may affect the ability of the owner to borrow against, refinance or sell the property until the mechanic’s lien is released; and
• because the lien affects the subject property, the owner may wish to contact the contractor, an attorney or the contractors’ state licensing board website for additional information.

Failure to serve the lien and the notice of a lien with the required information will render the lien unenforceable.

Finally, after a lawsuit is filed to foreclose on the mechanic’s lien, the lien holder must record a notice of pending action within 20 days. The notice of pending action notifies potential lenders, purchasers and others that the property may be sold in foreclosure to pay off the lien.

Lien claimants must comply with other existing procedures, such as the service of a preliminary notice.

The changes to the California statute address a concern common to construction projects everywhere: preventing surprises. By giving notice to owners, the lien claimant encourages communication among the project parties, which may lead to resolution before the costs and delays associated with litigation are incurred. Moreover, the recording of a “lis pendens” will reduce the risk of surprise to potential purchasers or others that may be interested in the property.  

http://www.constructionexec.com/Issues/June_2010/Legally_Speaking.aspx