Mechanics' Liens - Insure You Get Paid
Construction Industry Newsletter
By Attorney Raymond W. Hackbarth, Jr.
Mechanics' Liens Insure You Get Paid
No matter how good or bad the economy, contractors and suppliers often find that getting paid can be the most frustrating part of the job. Here are some tips to protect your legal rights and to ensure that you get paid.
Written Contracts
First, maintain your license in good standing with the Contractors State License Board. Otherwise, the courts will not allow you to prosecute your claim for payment. Secondly, always use a written contract. All the terms of your agreement should be in writing. Your bid is an offer that can be accepted by the owner, tenant, or prime contractor making you legally bound to its terms. Therefore, be sure that all relevant terms and conditions are clearly stated in your bid. If, through error or omission, you make a mistake drafting your bid, you may be bound to its terms nevertheless. So scrutinize your bid or contract carefully. Remember to put all change orders and extras in writing along with the signatures of the parties. During the bid/contract process be sure to obtain the legal description and mailing address of the job site. Get the name and addresses of the owner, prime contractor, and construction lender, if any. Determine whether you are working for the owner, tenant, prime contractor, or subcontractor.
Preliminary Notice
Within twenty (20) days from first furnishing labor or materials to the job, subcontractors and suppliers should serve a Preliminary (20-day) Notice to the owner, prime contractor and construction lender, if any. Only one Preliminary Notice is required unless you furnish materials or services under separate contracts or with more than one contractor. Then you must serve separate Preliminary Notices to each. State law prescribes the contents of a valid Preliminary Notice. Be sure you include all of the required information and be sure you serve all parties properly. You may file a copy of the Notice with the County Recorder so that you will be notified if the owner records a Notice of Cessation or Notice of Completion.
Mechanics' Liens
If you timely and properly serve the Preliminary Notice, you are entitled to a Mechanics' Lien on the property that you improve. A Mechanics' Lien (also known as a Claim of Lien) is a lien on the real estate securing payment to those whose labor and materials have added to its value. The list of people who may claim liens usually consists of people who do not have a direct contract with the owner. However, they must have a contract with an agent of the owner. Every contractor, subcontractor, architect, builder and other persons having charge of the work of improvement is held to be the agent of the owner for Mechanics' Lien purposes. Therefore, anyone who has a contract with any of these people has Mechanics' Lien rights. The rules governing Mechanics' Liens vary according to whether you are a prime contractor or subcontractor, and whether or not the owner records a Notice of Cessation of Labor or a Notice of Completion.
Lien Foreclosure
Next a lawsuit must be filed to foreclose the Mechanics' Lien, often within ninety (90) days of recording a Claim of Lien. A Lis Pendens (Notice of Pending Action) should also be recorded at the County Recorder's office.
Be Careful
Mechanics' Liens must comply with various legal technicalities including filing of preliminary notices as applicable, specific time frames for their recordation and perfection, as well as information that must be included for their validity. To ensure the viability of this important tool, seek the expert advice of an experienced construction law attorney.