Guide to Mechanics Liens for California Contractors

While most construction jobs go off without a (relative) hitch, there are always those jobs where someone doesn’t get paid. In that situation, the contractor or subcontractor has to rely on legal recourse to get the money as agreed in the contract.

The legal recourse available to contractors when it comes to not receiving payment for work is something called a mechanics lien. This type of lien allows for contractors to ensure they get paid by essentially holding the property owner’s land hostage.

In this article, we’ll cover mechanics liens in detail – what they are, how they function, and the nuts and bolts of making sure you get paid for your contracted job as a California contractor.

What is a Mechanics Lien?

A mechanics lien is a security interest in the title to a property, for the benefit of those who have supplied labor or materials that improve the property.

In plain English, a mechanics lien is a legal lever that contractors use to get paid. It basically makes it impossible for property owners to do anything with their property until they pay their unpaid contractors.

A mechanics lien makes it so that unscrupulous property owners who do not abide by the payment terms agreed to in a contract are essentially forced to – with their property held as collateral until they do.

In California, this legal tool ensures that contractors, subcontractors, and material suppliers can claim payment against the property they have worked on or supplied materials for if they are not paid. This is the mechanism CSLB-licensed contractors use in California to get paid.

Who Can File For A Mechanics Lien?

Who can file for a mechanics lien? Well, any licensed contractor or material supplier in the state has the legal recourse to file a mechanics lien against their customers should they violate the contractually-defined payment terms.

  • Contractors: Prime contractors who have a direct contract with the property owner can file for a mechanics lien if they are unpaid. These are usually Class B General Contractors.
  • Subcontractors: Those who have a contract with the prime contractor but not with the property owner can file a mechanics lien against the prime contractor or the property owner. Usually, subcontractors file against the prime contractor, as they usually do not get paid until the prime contractor does – creating a cascading effect of mechanics liens.
  • Material Suppliers: Even those who have no relation to the CSLB can file a mechanics lien if they have an agreed contract for materials. Anyone that supplies materials for the project but may not have a direct contractual relationship with the property owner can file a mechanics lien to make sure they get paid for their supplies.

When Can a Contractor File a Mechanics Lien?

A contractor can begin the process of filing a mechanics lien immediately upon nonpayment as per the terms of the contract. However, before filing a mechanics lien, certain conditions must be met:

  • Preliminary Notice: California law mandates that a preliminary notice be served within 20 days of beginning work or delivering materials. This notice is critical for protecting a party’s right to file a mechanics lien.
  • Proof of Contribution: Evidence of the contribution to the property improvement, whether through labor or materials, must be documented. This is why we, as contractors, make sure we document everything and get everything in writing.
  • Outstanding Payment: Obviously, a mechanics lien can only be filed if payment for the services or materials provided has not been made.

The Mechanics Lien Process

So how does filing a mechanics lien work? When will you get paid? Here’s how it works.

Before filing a lien:

  • Preliminary Notice: Must be served within 20 days of commencing work or delivering materials. Without a preliminary notice, you cannot file a mechanics lien. Once that is done, you can file the lien.
  • Filing the Lien: If payment isn’t made, the next step is to file the mechanics lien with the county recorder’s office.

Once a lien is filed:

  • Resolution: The dispute can be resolved through payment, at which point the lien is released. In rare cases, it may be solved through mediation or arbitration.
  • Foreclosure Action: If unresolved, the claimant may proceed with a foreclosure action, potentially leading to the sale of the property to satisfy the debt.
  • Court Proceedings: If the property owner or client still refuses to pay even after receiving foreclosure notices from the unpaid contractor or suppliers, contractors should initiate legal action via small claims court to recoup losses.

For property owners, understanding the process for dealing with a filed mechanics lien is crucial. Detailed guidance can be found here, including steps to take if a lien is unjustly filed against your property.

How to Prevent a Mechanics Lien

As a contractor, you frankly never want to have to put a mechanics lien on your client, as it’s a long and exhausting process that involves lots of time, energy, and money.

This includes setting up a payment schedule that aligns with the progress of the work and ensuring that all subcontractors and suppliers are paid once the contractor receives payment from the property owner.

As always, overcommunicating goes a long way to helping protect you against nonpayment or owners who frankly never had the idea of paying you in the first place!

Conditional and Unconditional Waiver Release Forms

Upon payment, either in part or in full, lien claimants – contractors and subcontractors – will need to then release their claim against the property through waiver release forms. There are two main types of release forms:

  • Conditional Waiver and Release: This form is used when a payment is promised but not yet finalized. It becomes effective only when the conditions stated (usually the clearing of a payment) are met.
  • Unconditional Waiver and Release: This form is used after a payment has been made and cleared. It signifies an irrevocable release of the right to claim a mechanics lien for the amount specified.

Each type of release form is applicable at different stages of the payment process, ensuring that both parties’ interests are protected while the payment is pending and after it is completed. Detailed descriptions and samples of these forms can be found on the CSLB website.

We pray you never have to file a mechanics lien in your contracting career – it’s a long, arduous process filled with acrimony and annoying legal minutiae that takes months to resolve. However, as with everything else, knowing your rights and taking action is essential to protecting yourself and your business.

By adhering to the legal requirements and ensuring timely payment to all parties involved in a construction project, contractors can minimize the risk of facing mechanics liens and navigate the complexities of construction law more effectively.

Additional Reading

CSLS – Can A Contractor Put A Lien On My House?
Levelset – Mechanics Liens In California
PLP Law – How Does A Mechanics Lien Work?

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