© 2006 Gibbs, Giden, Locher & Turner LLP Mechanic’s Liens and Statutory Remedies on Private Works

© 2006 Gibbs, Giden, Locher & Turner LLP

Mechanic’s LiensMechanic’s Liensandand

Statutory RemediesStatutory Remediesonon

Private WorksPrivate Works


MECHANIC’S LIENMECHANIC’S LIEN

1. Private works only1. Private works only

2. Takes an unsecured claim and 2. Takes an unsecured claim and makes makes

it secured by real propertyit secured by real property

3. Owner equity in property is 3. Owner equity in property is importantimportant

4. Foreclose lien/public sale – pay 4. Foreclose lien/public sale – pay lienlien


Persons Entitled to Claim a Persons Entitled to Claim a Mechanic’s LienMechanic’s Lien

1.1. Contractors and Contractors and SubcontractorsSubcontractors

2. Material Suppliers, Lessors 2. Material Suppliers, Lessors Of EquipmentOf Equipment

3. Architects, Registered 3. Architects, Registered Engineered, SurveyorsEngineered, Surveyors

4. Builders, Truckers, Laborers4. Builders, Truckers, Laborers

5. Individuals Who Furnish 5. Individuals Who Furnish Labor Used in Work of Labor Used in Work of ImprovementImprovement

6. Fringe Benefit Trust Funds6. Fringe Benefit Trust Funds

1.1. Contractors and Contractors and SubcontractorsSubcontractors

2. Material Suppliers, Lessors 2. Material Suppliers, Lessors Of EquipmentOf Equipment

3. Architects, Registered 3. Architects, Registered Engineered, SurveyorsEngineered, Surveyors

4. Builders, Truckers, Laborers4. Builders, Truckers, Laborers

5. Individuals Who Furnish 5. Individuals Who Furnish Labor Used in Work of Labor Used in Work of ImprovementImprovement

6. Fringe Benefit Trust Funds6. Fringe Benefit Trust Funds


Persons Persons NotNot Entitled to Entitled to Claim a Mechanic’s LienClaim a Mechanic’s Lien

1.1. Supplier to SupplierSupplier to Supplier

2.2. Landscape MaintenanceLandscape Maintenance

3.3. Unlicensed ContractorsUnlicensed Contractors


Procedures for Enforcing Procedures for Enforcing the Lien Claimthe Lien Claim

1.1. Timely serving a preliminary 20-day Timely serving a preliminary 20-day

notice (if required)notice (if required)

2.2. Timely recording a claim of lien; Timely recording a claim of lien;

3.3. Timely initiating foreclosureTimely initiating foreclosure suit suit


20-DAY PRELIMINARY 20-DAY PRELIMINARY NOTICENOTICE


Who Must Serve the Notice?Who Must Serve the Notice?

ALL Except…ALL Except…1.1. The original (prime) contractor The original (prime) contractor

2.2. The subcontractor dealingThe subcontractor dealing

directly with owner/builderdirectly with owner/builder

3.3. Persons performing actualPersons performing actual

4.4. labor for wageslabor for wages


Who Must You Give The Who Must You Give The Notice To?Notice To?

1.1. Owner/reputed ownerOwner/reputed owner

2.2. Original contractor/reputed original Original contractor/reputed original contractorcontractor

3.3. Construction Lender /reputed Construction Lender /reputed construction lenderconstruction lender

4.4. If no original contractor, anyone dealing If no original contractor, anyone dealing directly with the owner builder must give directly with the owner builder must give to the construction lender/reputed to the construction lender/reputed construction lenderconstruction lender


Service is Made By:Service is Made By:

1. Registered mail1. Registered mail

2. 2. Certified MailCertified Mail

3.3. Personal deliveryPersonal delivery

4.4. Public Works Only: First Class OK! Public Works Only: First Class OK!

PRIVATE: NO FIRST CLASS MAIL !PRIVATE: NO FIRST CLASS MAIL !


When Service Is madeWhen Service Is made

1.1. Within 20 days after claimant first Within 20 days after claimant first furnishes labor/services or material to furnishes labor/services or material to the site.the site.

2.2. Recommended: contract signing/first Recommended: contract signing/first furnish labor/material furnish labor/material

3.3. If claimant failed to serve at signingIf claimant failed to serve at signing

20 Days

Date OfMailing

All labor/materials thereafter


OWNER/LENDER OWNER/LENDER INFORMATION INFORMATION

1.1. Where does claimant obtain Where does claimant obtain information?information?

a)a) Original contractor required to provideOriginal contractor required to provide

b)b) Original contract/subcontract to Original contract/subcontract to include space on contract for lender include space on contract for lender informationinformation

c)c) Building department records for lender Building department records for lender information information

d)d) County recorder’s office for County recorder’s office for construction trust deedconstruction trust deed


When should the lien be When should the lien be recorded?recorded?

a)a) The General/Original contractor cannot The General/Original contractor cannot record until completing the contract record until completing the contract

b)b) All others cannot record until they have All others cannot record until they have ceased furnishing labor/materials and ceased furnishing labor/materials and servicesservices

The The EarliestEarliest a Lien Can Be a Lien Can Be

Recorded: Recorded:



The The LatestLatest a Lien Can Be a Lien Can Be

Recorded: Recorded:

NOCrecorded 60 days

A.A. If a valid notice of completionIf a valid notice of completion1)1) General/originalGeneral/original contractor has 60 days: contractor has 60 days:

2)2) All others have 30 daysAll others have 30 days

30 days


2)2) All All othersothers have 30 days have 30 days



B.B. If no notice of completion If no notice of completion 1)1) All have 90All have 90 days from “actual completion” days from “actual completion”

The The LatestLatest a Lien Can Be a Lien Can Be

Recorded: Recorded:

ActualCompletion

90 days


COMPLETIONCOMPLETION

Actual completion:Actual completion:

1)1) OccupancyOccupancy

2)2) AcceptanceAcceptance

3)3) Work ceases for 60 continuousWork ceases for 60 continuous

days, CC Section 3086days, CC Section 3086


New Law EffectiveNew Law EffectiveJanuary 1, 2004January 1, 2004To take advantage of shorter periods to record To take advantage of shorter periods to record lien 30/60 vs. 90:lien 30/60 vs. 90:

1.1. If claimant served “New Preliminary 20-Day If claimant served “New Preliminary 20-Day Notice”Notice”

2.2. Owner provides “Notification” by registered, Owner provides “Notification” by registered, certified or first class mail to prime certified or first class mail to prime contractor and all who served preliminary contractor and all who served preliminary notices that NOC recordednotices that NOC recorded

3.3. When? Within 10 days after recording NOCWhen? Within 10 days after recording NOC


New Law EffectiveNew Law EffectiveJanuary 1, 2004January 1, 2004

To take advantage of shorter periods To take advantage of shorter periods to record lien 30/60 vs. 90:to record lien 30/60 vs. 90:

4.4. ““Notification” evidenced byNotification” evidenced by“certificate of mailing”“certificate of mailing”

5.5. If owner fails? All claimants haveIf owner fails? All claimants have90 days90 days from NOC to record lien! from NOC to record lien!

6.6. What about “bleed over” projects?What about “bleed over” projects?


Preparing Mechanic’s Preparing Mechanic’s LienLien


WHAT CAN BE INCLUDED IN WHAT CAN BE INCLUDED IN LIENLIEN

Value of labor and materialValue of labor and material Direct costs (delay and Direct costs (delay and

acceleration)acceleration) Lambert v. Superior CourtLambert v. Superior Court Civil Code Section 3123 Civil Code Section 3123

Reasonable value or contract Reasonable value or contract price, whichever is lessprice, whichever is less


WHAT CANNOT BE WHAT CANNOT BE INCLUDED IN LIENINCLUDED IN LIEN

Non-job related costsNon-job related costs Attorneys feesAttorneys fees Purely delay costs, Purely delay costs,

i.e., extended i.e., extended overheadoverhead


The Recording and The Recording and Foreclosure ActionForeclosure Action

1.1. Record in county recorder’s office Record in county recorder’s office where property is locatedwhere property is located

2. The lawsuit must be filed within 2. The lawsuit must be filed within ninety (90) days from the date the ninety (90) days from the date the lien is recordedlien is recorded


Other Mechanic’s Lien IssuesOther Mechanic’s Lien Issues

1.1. Priority of LiensPriority of Liens

2.2. Release BondRelease Bond

3.3. Procedure to RemoveProcedure to Remove

4.4. Attorney’s FeesAttorney’s Fees

5.5. Willfully Overstated LiensWillfully Overstated Liens

6.6. Notice of Nonresponsibility/LeaseholdNotice of Nonresponsibility/Leasehold

7.7. Lis PendensLis Pendens


Tenant Improvements Tenant Improvements a.a. Written notice signed and verified by the Written notice signed and verified by the

owner or owners agentowner or owners agentb.b. Notifying potential lien claimant that the Notifying potential lien claimant that the

owner is not responsible for the work to be owner is not responsible for the work to be performedperformed

c.c. The notice must be posted upon the job site The notice must be posted upon the job site and recorded in the County Recorder’s and recorded in the County Recorder’s officeoffice

d.d. Within 10 days from the date upon which Within 10 days from the date upon which the owner first obtained knowledge of the the owner first obtained knowledge of the commencement of a work of improvementcommencement of a work of improvement

Notice of Non-Responsibility Notice of Non-Responsibility Private Works Private Works


A stop notice on private works is a A stop notice on private works is a notice to the owner or construction notice to the owner or construction lender (or both) to withhold lender (or both) to withhold construction funds to satisfy the construction funds to satisfy the claimclaim

What is it…

STOP NOTICE –STOP NOTICE –PRIVATE WORKSPRIVATE WORKS


STOP NOTICE –STOP NOTICE –PRIVATE WORKSPRIVATE WORKS

1. Lien on construction funds1. Lien on construction funds

2. Takes an unsecured claim and 2. Takes an unsecured claim and makes it secured by a lien on makes it secured by a lien on construction fundsconstruction funds

3. Undisbursed construction 3. Undisbursed construction fundsfunds

4. Complements the mechanic’s 4. Complements the mechanic’s lien claimlien claim


- In general any claimant who has - In general any claimant who has mechanic’s lien mechanic’s lien

rights also has stop notice rightsrights also has stop notice rights

Person entitled to serve a stop Person entitled to serve a stop

noticenotice……

The Stop Notice Right – The Stop Notice Right – Private WorksPrivate Works


The Stop Notice Right – The Stop Notice Right – Private WorksPrivate Works

As with mechanic’s liens, serving a As with mechanic’s liens, serving a preliminary 20-day notice is a prerequisite preliminary 20-day notice is a prerequisite to asserting a stop noticeto asserting a stop notice

Procedural requirements & contentsProcedural requirements & contents……

20 Days

Date OfMailing

All labor/materials thereafter


When Should The Stop When Should The Stop Notice Be Served?Notice Be Served?

- It can be served at any time- It can be served at any time

The The EarliestEarliest a Stop Notice Can a Stop Notice Can

Be Served: Be Served:


A.A. If a valid notice of completionIf a valid notice of completion1)1) General/original contractor has 60 days:General/original contractor has 60 days:


The The LatestLatest a Stop Notice Can be a Stop Notice Can be

Served: Served:

NOCrecorded 60 days



30 days


2)2) All All othersothers have 30 days have 30 days

When Should The Stop When Should The Stop Notice Be Served?Notice Be Served?


B.B. If no notice of completion If no notice of completion 1)1) All have 90 days from “actual completion”All have 90 days from “actual completion”

ActualCompletion 90 days90 days

B.B. If no notice of completion If no notice of completion 1)1) All haveAll have 90 days from “actual completion” 90 days from “actual completion”

When Should the Stop When Should the Stop Notice be Served?Notice be Served?

The The LatestLatest a Stop Notice Can be a Stop Notice Can be

Served: Served:


Service is Made By:Service is Made By:

1)1) Registered mailRegistered mail

2)2) Certified MailCertified Mail

3)3) Personal delivery Personal delivery

1)1) Registered mailRegistered mail

2)2) Certified MailCertified Mail

3)3) Personal delivery Personal delivery

NO FIRST CLASS MAIL !NO FIRST CLASS MAIL !


Who Should the Stop Who Should the Stop Notice Be Served On?Notice Be Served On?

- Served on the manager or other - Served on the manager or other responsible officer at the office/branch responsible officer at the office/branch administering/holding the funds administering/holding the funds

If a Construction LenderIf a Construction Lender……


Who Should the Stop Who Should the Stop Notice Be Served On?Notice Be Served On?

-Serve on the owner at its place of -Serve on the owner at its place of business or residence business or residence

If Owner FundedIf Owner Funded……


Preparing A Stop NoticePreparing A Stop Notice


Other Stop Notice Other Stop Notice IssuesIssues

1. Stop Notice Bond

2. When to file a lawsuit

3. Distribution of funds pro-rata

4. Release of Stop Notice

5. Attorneys Fees - Bonded Stop Notice v. Mechanic’s Lien


Other Stop Notice Other Stop Notice IssuesIssues

6. Willfully False Stop Notice

7. Payment Bond Defeat Stop Notice

8. Written Demand for Stop Notice8. Written Demand for Stop Notice

9. Property Insurance Carrier as Stop 9. Property Insurance Carrier as Stop Notice TargetNotice Target


Payment Bond-Payment Bond-Private WorksPrivate Works

1. Persons entitled to recover1. Persons entitled to recover

2. Procedural Requirements2. Procedural Requirements

3. Serve a 20-day Preliminary 3. Serve a 20-day Preliminary Notice orNotice or

15/75-day Notice 15/75-day Notice

4. Time for filing of lawsuit 4. Time for filing of lawsuit

Documents

© 2006 Gibbs, Giden, Locher & Turner LLP Mechanic’s Liens and Statutory Remedies on Private Works