Published November 25, 2020
A mechanics lien is designed to ensure fair relationships between contractors and property owners. Essentially, it gives a contractor an interest in real property if a contractor improves the property. The point is to ensure that the contractor gets paid, and to prevent the unjust enrichment of the owner whose property has increased in value. Rights under a mechanics lien exist in addition to whatever contractual rights a contractor may have against an owner or another contractor.
If a project is undergoing financial difficulties, though, a mechanics lien will generally provide the superior recovery method. Bank accounts can be drained, people can run away, but land and buildings are fixed in place. In any case, the prospect of having one’s property seized and sold to pay debts tends to be a powerful motivator for owners.
Work Covered
The improvement of real property covers a wide range of activities for the purposes of mechanics liens. It includes everything from construction to demolition, from leveling to landscaping, down to repairs and alterations. The work must be ‘permanent’ in some sense, which in practice means that the change to the property is intended to be indefinite. A later change or removal of the work in question will not create a problem. However, projects that are temporary by their very nature, such as security fencing around a job site, will probably not support a mechanics lien.
Suppliers of materials and equipment can also qualify for mechanics liens. As for the materials and equipment supplied, they must be used or consumed in the project. Equipment leased for a specific project will qualify, but parts or materials supplied to keep the equipment running may not. Similarly, those who supply materials to other suppliers of materials probably will not qualify either. Prefabricators may or may not be covered depending on the degree to which items are specialized for a particular job.
Against whom?
A mechanics lien can only be enforced against a private project, with public projects generally requiring bonds as a guarantee of payment. The owner of the property must in some form authorize the project, whether directly or through an agent. This could be a general contractor, subcontractor, or someone in charge at a job site. A partial ownership interest in the property is all that is required for someone to be an owner in this sense. Thus someone with a life estate, a tenant, or even someone pretending to own the property can, to an extent, authorize work for purposes of a mechanics lien. If the owner is aware of or even involved in the work, a contractor can get full lien rights in the building and land.
Procedure
The first step for any contractor to obtain a mechanics lien is to ensure that they are currently licensed. The importance of this cannot be overstated. Unlicensed contractors are legally barred from recovery for their work, and may even be forced to pay back previously collected sums if caught.
Next comes the 20-day preliminary notice. This puts owners and contractors up the chain on notice that a contractor or supplier will either be paid or take a legal interest in the property. A mechanics lien cannot be filed without first sending preliminary notices.
In the event of nonpayment, the lien itself is filed in the county recorder’s office in which the property is located. The time for a contractor to file depends on whether the owner files a notice of completion. If the owner does not file a notice of completion, a contractor or supplier has 90 days from completion of the project to file the lien. If the owner does file a notice of completion, a general contractor has 60 days and a subcontractor has 30 days.
To collect on the lien, a foreclosure suit must be filed. The suit must be filed within 90 days of recording the lien, although this can be extended by agreement with the owner. A lis pendens (pending suit) should also be filed in the county recorder’s office, to preserve rights in case the property is sold to a new owner. The foreclosure action can be combined with a breach of contract suit, as well as any other relevant causes of action. If successful on the foreclosure action, the plaintiff can have the property sold to pay the for services and/or materials supplied.
How Much?
A successful plaintiff can recover the lesser of the stated contract price or the reasonable value of the contract. Reasonable value is based on the proportion of work done, and a completed project can generally just use the contract price. Attempting to inflate the value of the contract can be a bar to recovery and should be avoided. For contractors up the chain, liens down the chain will be subtracted so as to avoid multiple recoveries for the same work. Interest can be recovered in a foreclosure action, but not attorneys’ fees. However, a savvy contractor who has attorneys’ fees in their contract may be able to recover them in an adjoining breach of contract suit.
If you have any questions or comments regarding this article, please do not hesitate to contact Kirk Rodby at The Green Law Group, LLP.
Please note that this article is only intended to provide some general educational information. For your particular legal questions, be sure and consult with an attorney.
Kirk Rodby
(805) 306-1100 ext. 118
kirk@thegreenlawgroup.com