Construction & Liens

CONSTRUCTION & LIENS

LIEN LAW IS COMPLEX - YOU NEED
AN EXPERT

It can be the difference between getting paid and not

While those who have been in business for some time can’t help but become familiar with aspects of basic contract law, lien law is much more complicated and should be entrusted to an expert.

Under basic contract law, if I enter into a contract to perform services for someone, and after I have performed those services, that person fails to pay me the agreed-upon amount, that person has breached (violated) our contract, and I can sue that person for breach of contract to recover what I am owed. If successful, I will obtain a Judgment which I will then have to collect, but collecting a Judgment can sometimes be difficult. Although the Judgment will accrue interest at the legal rate of 10% per year, and will be renewable (once every 10 years) until collected, I might never be able to collect it, and might therefore never be paid for the services I provided. In the meantime, the person against whom I have a Judgment might declare bankruptcy, making the likelihood of recovery even worse. For these and other reasons, contract law remedies are limited in what they can accomplish.

However, lien laws open up an entirely new set of solutions which have much more teeth than contract law remedies. If used properly, these laws allow contractors and material suppliers who have not been paid to not just obtain a Judgment which they will then have to collect, but can be used to force the property to which they have contributed their labor, services, materials, and/or equipment to be sold. Most property owners do not want their property to be sold as a result of a failure to pay a contractor/materials supplier, and will be motivated to pay what is owed, which will likely include principal, 24% interest, attorney’s fees and costs.

Here’s the catch, though…lien laws require strict compliance in order to be used effectively. In other words, “close” is usually not good enough when it comes to lien law. As an example, in order to utilize lien law remedies to recover the full amount of what they are owed, subcontractors/materials suppliers who are required to serve a 20-Day Preliminary Notice (“Prelien”) must properly serve the Prelien on the property owner, construction lender, and general contractor within 20 days of first having provided labor/materials to the jobsite. If a subcontractor waits until a date more than 20 days after having first provided labor/materials to the site, the subcontractor will not be able to utilize lien remedies to recover for labor/materials more than 20 day after having served the Prelien. Although property owners are sometimes dismayed to receive a Prelien, an attorney can help explain to them (whether by letter or verbally) the purpose of the Prelien, and can recommend various ways in which property owners can ensure that the contractor/materials supplier is paid.

In addition, the California Civil Code contains other strict time requirements with regard to serving and enforcing Mechanics Liens, and with regard to serving and enforcing Stop Payment Notices. For instance, if a contractor or materials supplier fails to file suit to foreclose the Mechanics Lien within 90 days from having recorded it, and does not obtain an extension of time to file suit, the Mechanics Lien will become unenforceable (and could even lead to future liability for a contractor/materials supplier who fails to release the expired Mechanics Lien). As another example, if a contractor or materials supplier who has not been and after properly having served a Prelien, decides to serve a Stop Payment Notice on the construction lender, if that Stop Payment Notice is not bonded, the construction lender can disregard it, in which case the Stop Payment Notice likely will not achieve its intended purpose.

These are just a few examples of the importance of having good, informed, and solid legal advice in pursuing (and opposing) lien law solutions in addition to contract law remedies. If used properly, lien law remedies can make the difference between being paid or not, and can be an effective tool for contractors and materials suppliers to collect amounts they are owed. Having good counsel can help a party, whether a general contractor, subcontractor, materials supplier, or property owner, understand and utilize lien laws to achieve their desired outcome.

The foregoing article should be relied upon for general informational purposes ONLY, and should not be construed as legal advice, as every situation is different, and slight variations in the facts of each case can alter the applicable law and result. To obtain legal advice for your particular situation, please contact Mr. Rollin.
"If used properly, lien law remedies can make the difference between being paid or not, and can be an effective tool for contractors and materials suppliers to collect amounts they are owed. Having good counsel can help a party, whether a general contractor, subcontractor, materials supplier, or property owner, understand and utilize lien laws to achieve their desired outcome."

Harold L. Rollin, APLC

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Harold L. Rollin
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Visalia, CA 93291
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