How Does a Mechanics Lien Work in California?
If you are a property owner and have commissioned work to be done to your property, you may have heard of a mechanic’s lien. This type of claim comes with the potential for financial loss on the part of the property owner. If a lien has been recorded on your property, you should consult an experienced attorney as soon as possible. Read on for an introduction to mechanic’s liens and how they work:
What is a Mechanic’s Lien?
A mechanic’s lien is simply a claim on real property for compensation for labor, materials or rental equipment that benefited the involved property, called the “work of improvement”. If you hire a contractor to perform work on your property, the contractor may be able to record a mechanic’s lien, called a “claim of lien”, if the contractor is not paid for the labor performed or for the material and rental equipment provided. Additionally, subcontractors may file a claim of lien if your contractor did not pay them, even if you paid the contractor.
In many cases, property construction, repair, modification, or enhancement requires the commission of a primary contractor to organize the project. This person is known as a prime contractor or a direct contractor. The direct contractor is typically in charge of hiring other subcontractors to fulfill various aspects of the project, as well obtaining the materials and renting equipment needed from vendors.
An example of this is a heating and cooling contractor that purchases and installs a new furnace for an Oakland homeowner. If the homeowner pays the prime contractor for the furnace, but that contractor fails to pay the supplier that sold them the furnace, the furnace supplier may be able to record a claim of lien on the property, and the homeowner could be held liable to the supplier for the cost of the unpaid furnace, even if the homeowner has already fully paid the prime contractor for it.
The supplier of the furnace is required to serve the homeowner with a preliminary 20-day notice, often referred to as a “pre-lien”, to put the homeowner on notice that the supplier will be providing a furnace to the property. Once the homeowner receives a preliminary 20-day notice, they should not pay the direct contractor until the homeowner has proof that the furnace supplier has been paid.
Sometimes in more complex situations, the homeowner or commercial property owner, will condition payment on receipt of a lien release from the contractor and all subcontractors that have served the preliminary 20-day notice to the owner. The lien release can be either “unconditional” or “conditional”.
What Happens Next for the Property Owner?
Once a mechanic’s lien has been recorded on your property, it is important that you speak with a qualified commercial real estate lawyer. There are deadlines and procedures to be analyzed and considered. If the debt owed is not paid, or the claim is not otherwise resolved, the owner may be required to pay the lien claimant or face a mechanics lien foreclosure action in Superior Court. Additionally a current lien on the property clouds title and could negatively impact your capacity to sell, refinance, or use the property as collateral.