Mechanics Liens — Smart Tools of Construction Industry Professionals, and Bane of Property Owners

Lewitt Hackman
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In 1791, Thomas Jefferson and James Madison proposed the first mechanics liens legislation in order to promote development in Washington.

The Maryland Assembly (which governed Washington at that time) passed the proposed legislation. Since then, all 50 states have enacted mechanics lien legislation to encourage development and protect those involved in the construction industry, according to John G. Cameron’s “A Practitioner’s Guide to Construction Law.”

Mechanics liens” encourage “mechanics,” which include members of the construction industry as well as those providing materials and labor in construction, to engage in construction projects by giving them a process to secure payment for the labor and materials they provide to a project. This security allows homeowners and smaller companies to hire contractors who might not otherwise be willing to take on smaller projects.

In today’s economy, mechanics liens can be an essential collection tool for contractors and material providers in construction projects, allowing them to look to the property for payment if the general contractor or owner fails to pay for work and materials going into the property. They provide a bit of insurance for contractors and sub-contractors.

Conversely, mechanics’ liens can pose a real problem for property owners who pay their general contractors without receiving proper lien releases. If the general contractor fails to pay subcontractors or material providers sums they are owed out of an owner’s payment, the subcontractors and material providers may lien the owner’s property, forcing him to pay for the labor and materials twice.

Mechanics liens laws are strictly enforced and contractors and material providers must give timely and proper notice of their claims and file their liens and enforcements actions within the time frames specified by the applicable statute. If they fail to do so, they may waive their mechanics lien rights and be left without recourse against the property. Whether you are a property owner, contractor or material provider, there are some important things to know about recording and enforcing mechanics’ liens.

California Real Estate Law Regarding Mechanics Liens –
A Three Step Process

Contractors, subcontractors and suppliers must take the following three steps to ensure the proper filing of a mechanics’ lien:

1. Serve a Preliminary 20-Day Notice – Workers and suppliers must serve notice of services rendered or supplies delivered within 20 days after making improvements or delivering materials. The notice should be served to the:

▪ Property Owner
▪ General Contractor
▪ Lender or Financier

Contractors or suppliers who work directly with the property owner do not need to serve notice, since the purpose is to ensure the property owner knows who is working on the improvements or supplying the project if these subcontractors are working through a general contractor.

2. Record the Mechanics’ Lien – Claimants should record their liens within the county or counties in which the property is located within 90 days of:

▪ Completion of Work
▪ Excusal of Work (because of breach of contract by the property owner or the general contractor)
▪ Occupation and use of work of improvement by owner or agent
▪ Communicated acceptance of work of improvement by owner or agent
▪ Cessation of Labor for 60 days
▪ The Filing of a 30 Day Valid Notice of Completion or Cessation by the Property Owner (a general contractor has 60 days).

3. Enforce the Mechanics’ Lien – Here’s another deadline notice. A foreclosure suit must be filed within 90 days of the recordation of the lien, in the county or counties where the property is located. If a foreclosure suit isn’t filed in that time frame, the mechanics’ lien is voided.

Avoiding Construction Litigation Involving Mechanics Liens

It would be best for all parties concerned if mechanics’ liens and foreclosure suits aren’t filed at all. To avoid these situations, property owners should hire, and subcontractors should work with, properly qualified and licensed general contractors.

Both sides should keep track of the 20 Day Preliminary Notices served.

Finally, property owners and subcontractors should make sure proper payment procedures are in place which also provide waivers and releases of financial obligations when payments are made.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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