When someone who provides labor, services, equipment or materials to a construction project is not fully paid, he can file suit against the person who failed to pay him. However, even if he were to win such a suit, his ability to collect may be limited by the other party's bankruptcy or lack of assets, or even the disappearance of the other party.
In order to help alleviate these problems, California Law provides several procedures whereby one who provides services to a construction project can obtain a more secure position. This article will provide a brief overview of the nature of the remedies and basic requirements for exercising those remedies.
Advantages of Properly Filed and Served Liens and Notices
- A properly filed and foreclosed Mechanic's Lien gives the claimant a security interest in the property itself. If the Mechanic's Lien claimant prevails at trial, the court will order the sale of the property on which the lien claimant performed work or supplied materials in order to pay off the lien claimant.
- A properly served and perfected Stop Notice gives the claimant a lien against undisbursed construction funds in the possession of either the owner or the lender. For private works of improvement, the Mechanic's Lien and Stop Notice gives the claimant a lien against undisbursed construction funds in the possession of either the owner or the lender.
- A properly served and perfected claim on a payment bond gives the claimant the right to recover the amount owed from the surety that issued the bond.
Remedies are Cumulative
For private works of improvement, the Mechanic's Lien and Stop Notice are cumulative remedies which can be simultaneously pursued along with a suit for breach of contract on the underlying debt. Generally, a Mechanic's Lien cannot be filed on a publicly owned parcel of real property. On California public works projects, the Stop Notice and payment bond claims are cumulative remedies.
An understanding of Mechanic's Lien, Payment Bond and/or Stop Notice procedures can greatly increase the chances of eventual collection by the subcontractor or supplier. The Lien and Stop Notice laws are extremely technical and even the smallest failure to take the proper steps, at the proper time and in the proper order, can result in the complete loss of the claimant's Mechanic's Lien and Stop Notice rights. It should be noted that even if these remedies are lost, the unpaid contractor may still sue the party with whom it contracted for the amount owed. The following chart sets forth the various remedies and the limitations for enforcing them:
| Action | Parties to Action | Remedy | Limitation Period |
|---|---|---|---|
| Breach of Contract | Whomever you contracted with | Money judgment | Written Contract 4 years Oral Contract 2 years |
| Common counts | Whomever you provided the goods and services to | Money Judgment | Generally 4 years, with certain exceptions for 2 years |
| Mechanic's Lien | Owner of property and the entity you contracted with | Money judgment that can be collected by foreclosing on the property that was liened | File lawsuit 90 days after recording the mechanic's lien, which is only valid if the prerequisites are satisfied |
| Payment Bond | Principal on payment bond (typically the general contractor) and the surety issuing the bond | Money judgment that can be satisfied by payment from the surety who issued the bond | Six months after the notice of completion or cessation is recorded, if none recorded then 6 months after the 60 day period expires from the date of actual completion |
| Stop Notice (Private Works) | Owner, General contractor and lender holding funds | Money judgment that can be recovered from the funds withheld in accordance with the stop notice | File lawsuit 90 days after serving the stop notice, which is only valid if the prerequisites are satisfied |
Prerequisites for a Mechanic's Lien
Only certain parties are able to take advantage of the lien laws (CA Civ. Code § 8400. In order to qualify, the prospective claimant must generally:
- perform services, provide labor or provide materials to the project;
- the services, labor or materials which were supplied must be used or consumed in the project; and
- the owner or his representative (e.g., general contractor) must authorize the services or materials.
Basic Procedures
The Mechanic's Lien, Stop Notice and Payment Bond procedures involve three basic steps:
- Serving a preliminary 20-day notice;
- Recording the Mechanic's Lien, serving the Stop Notice or making the claim on the payment bond; and
- Filing a lawsuit to:
- foreclose the Lien;
- enforce the Stop Notice, or
- enforce the claim against the surety.
Wrap-Up
As previously stated, if you intend to use these remedies you must comply precisely with the statutory conditions for using them. If you are unfamiliar with the requirements, it is recommended that you attend a seminar on the lien laws. If you have a specific question about application of the lien statutes to your particular situation, you should seek the advice of legal counsel who is familiar with this area of California law.