Mechanics Liens: An Often Abused Law
Mechanics’ Lien, Preliminary Lien Notices, 20 day Notices…What does it all mean and why should you care? Well for one, it’s all the more to make YOU the homeowner responsible for an unscrupulous contractors’ lack of ethics, negligence and abusive tactics manipulating the lien laws and filing fraudulent liens.
Here’s a scenario that happened to us: You pay your contractor for work, materials and supplies related to your remodeling/building project with the implied understanding – AND AS PER THE CONTRACT – that he in turn will pay his subcontractors and suppliers for their part. This is, of course, just one of the responsibilities of the general contractor running your project. But he doesn’t pay them for whatever reasons, and you unexpectedly find yourself slapped with a lien against your property. Which makes you liable for paying your contractors’ debts. AND you end up paying twice for the work and materials.
Not exactly what I would call “fair and equal rights” for the homeowner. In my opinion it’s unconstitutional. Further more, the contractor has breached the contract by not paying his subs. But does our government do anything about it? Like addressing the fact that unscrupulous contractors have abused this law to the degree that it is no longer serving it’s intended use?
Rather, it is used as a weapon to punish and harass homeowners who have legitimate problems with their project and dare to question the contractor. And if you file a complaint with the regulatory agency that licenses contractors – watch out! That contractor just may punish you by filling a fraudulent lien.
The building industry has a powerful lobby in each and every State working hard (read: contributing lot’s of campaign money and other goodies) to further reduce consumer rights by buying off greedy legislatures in every State and having their bills passed into law. “Government by the people and for the people” has long disappeared. It’s all about money and God knows consumers are the ones getting hosed. So that’s the bad news.
Now let’s get to the reasoning behind the genesis of the mechanic’s lien laws. The following is a quote taken from Miller and Starr, 1990-California Real Estate 2d 121,et seq.
“The objective of the mechanics’ lien law is to secure payment to a mechanic for his labor and materials. The California Constitution (and this applies in just about every state) provides that all classes of mechanics, material men, artisans and laborers shall have a lien on the property on which they have bestowed labor or furnished material for the value of that labor or material. This constitutional mandate has been made effective by the legislature though the procedures provided in the California Civil Code. Thus, the law has created a preferred position for persons who perform labor or supply materials for the improvement of real property. *Very few identifiable groups have such constitutional protection for their specific benefit.* Because of this constitutional protection, any contract provision which purports to waive the right of a mechanic to enforce a mechanic’s lien or stop notice prior to the performance and payment for the work or materials is against public policy, void, and unenforceable.”
“The public policy that justifies mechanic’s lien law is the FAIRNESS AND EQUITY RESULTING FROM THE IMPROVEMENT by the labor and materials of another.”
EXCUSE ME?? Where is the “fairness and equity” when the contractor rips off the homeowner and doesn’t pay his subs and suppliers as he is mandated to do and you get liened?
â€œWhere is the “fairness and equity” when the “supposed” home improvement has NOT been improved as a result of shoddy work and the homeowner is left with a house that leaks, improper flashing, no flashing, doors and windows installed incorrectly, newly poured slab cracking, water seeping under the house, a roof that is leaking, molds growing everywhere-with none of these conditions existing prior to that contractor getting his greedy hands on your property?? Where are the provisions of protection for the consumer in these instances? Where I ask you?â€
All right, I think you get the message …contractors have far more rights and protection than consumers do.
And even as I write this the Building Industry which includes the big boys, NAHB and NARI, are hard at work seducing our government into further deteriorating consumer rights.
So keep track of all sub contractors and material suppliers on your project. Document the days materials are delivered, new subs starting on the job and lien notices sent to you. Your job is just beginning.
Some of the legal considerations regarding liens follow herein, but keep in mind that the lien laws are not the same in every State.
The basics are similar but the specific circumstances, time lines, treatment of contractors, subs and suppliers are different from state to state. If you encounter a lien against your property be sure to research thoroughly where you are at in the process and whether or not you’ll need legal representation. Follow the links in this section for more detailed explanation of the various sections of the law.
We’ll begin with defining the purpose of Preliminary Notices and Mechanics’ Liens.
The purpose of a Preliminary Notice is to notify the owner of the property that if the party providing the Preliminary Notice is not paid, then that party will have the right to record a Mechanics Lien against the owner’s property.
A Mechanics’ Lien is a legal claim to real property until a debt has been paid. If you employ a trades person or contractor to work on your home and a dispute arises wherein you refuse to pay, the worker has a right to file a lien thus making the property responsible for payment.
As a general rule, every subcontractor and materials supplier furnishing labor, services, equipment or materials to a construction project without a direct contract with the owner of the project, must give a written Preliminary Notice to the property owner if they want to retain their lien rights.
Preliminary Lien Notices are typically sent to the homeowner shortly after the remodeling building project begins. This notice must be sent to the homeowner no later than 20 days* from the day the sub or material supplier begins work on your project. (*This time frame applies to California and several other states; some states have a 30 day notice. Be sure to check the laws in your state for accuracy.)
But if the sub fails to do so, he may still be able to file a late notice and go ahead with the lien.
Receiving a preliminary notice does not mean someone is going to file a lien against you. It simply ensures their right to lien you if they don’t get paid by the contractor.
â€œAs the homeowner, you can also use these notices to your advantage by contacting all subs who have served you notice and confirm they have been paid in full.Before paying the contractor for that portion of the job, get a confirmation of the check (or lack their of) amount, the subs name, date you called and keep these for your records. And if you find that someone has not been paid, use that as leverage before paying the contractor. In a worst case scenario, you could also get releases from the subs directly for their portion of the job as they got paid, which we had to do later into our project.â€
Finally, accuracy is essential for a valid preliminary notice. Notices should be served by certified or registered mail or if delivered in person, proper documentation and signatures must accompany the preliminary notice.
As for the Mechanics Lien itself, there are rules that need to be adhered to as well. Mechanics’ Liens must be recorded with the County recorder where the property is located. Liens must be enforced by a lawsuit within 90 days of the date of recording or they automatically become null, void and unenforceable. If this time has elapsed and the contractor has not filed a lawsuit within the 90-day period, then demand that he execute a release of lien.
If the contractor refuses to execute a lien release, then you’ll have to petition the courts to remove the lien. This could take 45 to 90 days as it winds through the court system. Petitioning the court requires your obtaining legal documents (available at any law library) filling out the forms and submitting it to the court. Or, if you don’t want to bother with doing the forms yourself, hire an attorney to do it. . (Keep in mind that the unethical contractor has let the lien lapse because he never intended to foreclose, he just wanted to make your life more miserable.)
Thereafter, the lien is removed and you’ll be notified by the court. It’s important to do this as you’ll be unable to mortgage, refinance or sell your home with a lien attached to the property.
If you do get hit with a Mechanics Lien, and the 90 days is not yet up, you have some options in how to deal with it.
First of all, you can call the contractor directly and negotiate a settlement. Be sure to have the contractor sign a mechanics’ lien waiver and release to remove the lien from your title upon payment. You could also have an attorney or mediator to assist you in negotiations, which is the way I would go. Once “ill will” is created between you and the contractor, they become less willing to deal with you or return your phone calls. It’s predictable behavior of an unscrupulous contractor.
â€œBut if the contractor acts on the lien by foreclosure on your property, you’ll definitely need an attorney to defend you. Mechanics Liens can be very complex and convoluted as to their “life” so to speak. Under certain conditions, liens can be extended for up to one year, and the contractor can even record new liens against you if they let the first one lapse. If you find yourself in the position of being liened and the amounts are large and /or the situation is questionable, you should definitely consult with an attorney familiar with this aspect of the law.â€
Know that not all construction law attorneys are familiar with lien laws. In a perfect world, dealing with well known, reputable contractors would be the best way to avoid getting liened. But hey, this is far from a perfect world we live in. So obtaining lien releases from the contractor at every payment schedule – which includes his subs – is crucial. You could also make out “joint payee checks” which intended parties would have to sign in order to cash it. The contractor may not like it but that is his problem. You have a right to do so.
As a homeowner you could also require a “payment bond” on the contractor. Payment bonds guarantee that labor, subcontractors and material suppliers are paid. Payment bonds are common practice in commercial projects but not in private residential projects. The homeowner would have to foot the costs on this as part of the overall cost of the project, so it would be more effective and make better sense in larger home remodeling projects.
Here’s how it works: The payment bond guarantees the owner that subcontractors and suppliers will be paid the monies that they are due from the principal. The owner- that’s you- is the oblige; the beneficiaries of the bond are the sub contractors and suppliers. Both the oblige and the beneficiaries may sue on the bond.
The owner benefits from a payment bond in that the sub contractors and suppliers are assured of payment and will continue performance. The owner also benefits in that they are providing subs and suppliers a substitute for a Mechanics Lien. A positive side benefit in obtaining the bond for the contractor is that the surety would be evaluating the contractors’ financial standing. This type of credit check could help protect consumers from contractors on the brink of bankruptcy.
Lastly, to ensure that the bond is being furnished, you may want to provide for separate reimbursement for the contractors bond premium cost so that the bond is delivered to you.
â€œWhew! That’s a lot to consider before jumping into a home remodeling project and this is just one small piece of the pie!
But I’ve “lived and learned” and I for one will NEVER remodel or build a home with the way current laws are stacked against consumers. Having to deal with a couple of liens against our home – both of which became null and void – was more than enough for me.
Both contractors who liened us were ultimately cited by the Board for either fraud, shoddy work, aiding and abetting, working out of name class and much more. None the less, they still were able to lien our property regardless of the fact that they were in violation of Contractors State laws. Gee, does that seem fair and equitable to you?â€
THE POINT I WANT TO DRIVE HOME IS THIS:
Unethical contractors will use this part of the law to get back at homeowners for filing complaints after insisting that they be accountable for their work. They deny any responsibility and instead take advantage of laws that favor them and use it against the consumer. Reputable, ethical contractors will take care of problems as they arise and more importantly, they inspect their own work to ensure it meets industry standards.
Rarely do contractors act on a Mechanics Lien by foreclosure of your home because it’s going to cost them as well and they better be right or it will cost them even more. But it is their final act of revenge against the consumer because they know damn well you can’t do anything until the lien lapses past 90 days or some poor homeowner ends up paying twice. Then good luck trying to get the contractor to release the lien after it has lapsed!
â€œIt’s such a sham and it makes me ill just thinking about it. An unscrupulous contractor filing a mechanics lien without merit is the proverbial middle finger salute as he goes on his merry way to yet another unsuspecting homeowner because he can…because NO ONE is watching and NO ONE is telling.â€
So take charge of your project and consider it your part-time job for however long it lasts. And be sure to keep a bottle of Motrin handy at all times…and keep those refills coming!
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