What is a mechanic’s lien? In essence, a mechanic’s lien is a claim against the title of your property that, if unpaid, permits a foreclosure action. The foreclosure action forces the sale of the property in order to satisfy the claim. The mechanic’s lien is recorded with the County Recorder’s office, usually by an unpaid contractor, subcontractor or supplier (and others). Frequently, a mechanic’s lien occurs when a property owner, including a community association, has not paid the general contractor, or the general contractor has not paid its subcontractors or suppliers. Mechanic’s liens are drawing quite a bit of attention lately due to significant changes in the law.
The mechanic’s lien in the state of California is derived from the California Constitution. Article XIV, § 3, of the California Constitution states that “mechanics, materialmen, artisans, and laborers of every class shall have a lien upon the property upon which they have bestowed labor or furnished materials, for the value of such materials, for the value of such labor done and materials furnished; and the Legislature shall provide, by law, for the speedy and efficient enforcement of such liens.”
Pursuant to the California Constitution, the Legislature is responsible for enacting the procedure for enforcing mechanic’s lien rights. Historically, the lien procedures have been set forth in California Civil Code (“Civ. Code”) §§ 3082-3154, 3258-3268. In 2010, the Legislature passed Senate Bill 189, and enacted two sets of revisions to the California mechanic’s lien law. One limited set of revisions became effective January 1, 2011, and a second significant set of revisions became effective July 1, 2012. This article will only address a select few of the many changes made by these enactments.
Before January 1, 2011, no specific law required a lien claimant to serve the owner or reputed owner with the mechanic’s lien. Civ. Code § 8416 now requires that each lien claimant serve the owner or reputed owner with the mechanic’s lien and the Notice of Mechanic’s Lien before the lien is recorded, as further described therein. Failure to serve the mechanic’s lien, including the Notice of Mechanic’s Lien, as prescribed shall cause the mechanic’s lien to be unenforceable as a matter of law.
Before January 1, 2011, a lien claimant also had the discretion to record a lis pendens (a notice of pending litigation) with the filing of its lien foreclosure action. Civ. Code § 8461 now requires the lien claimant to record a lis pendens to be able to enforce the lien against purchasers or encumbrancers who acquire their interests after the lien is recorded. The lis pendens should be recorded on the same day the complaint is filed, but Civ. Code § 8461 allows the lis pendens to be recorded within 20 days of filing suit.
Perhaps the most noteworthy change under the set of revisions that became effective on July 1, 2012, is the recodification of the entire statutory framework governing the California mechanic’s lien law. This law is no longer found in Civ. Code §§ 3082-3154, 3258-3268. Instead, it has been recodified in Civ. Code §§ 8000-9566.
This set of revisions also includes numerous substantive and technical changes. Among the most interesting changes are those involving terminology, the division of works of improvement into three distinct categories, the forms used for preliminary notice and waiver and releases, the decrease in the amount of lien release bonds, and the elimination of the $2,000 cap on attorneys’ fees for the prevailing party on a lien release petition.
Terminology changes include, but are not limited to, the following: the term “original contractor” under Civ. Code § 3095 is now “direct contractor” under Civ. Code § 8018, the term “materialmen” under Civ. Code § 3090 is now “material supplier” under Civ. Code 8028, the term “20-Day preliminary notice” under Civ. Code §§ 3097, 3098 is now “preliminary notice” under Civ. Code § 8034, and the term “stop notice” under Civ. Code § 3103 is now “stop payment notice” under Civ. Code § 8044.
In addition, works of improvement are now separated into three different categories: Works of Improvements Generally (Civ. Code §§ 8000-8154), Private Works of Improvement (Civ. Code §§8160-8848), and Public Works of Improvement (Civ. Code §§ 9000-9566). The forms required for providing preliminary notice are different for private works of improvement under Civ. Code § 8200 and public works of improvement under Civ. Code § 9300, and direct contractors are also required to now provide preliminary notices.
Further, there are new mandatory waiver and release forms for conditional and unconditional progress and final payments under Civ. Code §§ 8132, 8134, 8136, 8138. Also, the amount of a lien release bond has been reduced from 150% to 125% of the lien amount under Civ. Code § 8424, and the $2,000 cap on attorneys’ fees on a petition for a release order is now eliminated and the prevailing party is entitled to its reasonable attorneys’ fees under Civ. Code § 8488(c).
These are but a few of the many changes to the California mechanic’s lien law that went into effect on July 1, 2012. If you have any questions about how this new statutory scheme will impact your community association or ongoing business concerns, please do not hesitate to contact us.