Posts Tagged ‘California’

FAQ: Is A Second California Preliminary Notice Required If Change Order Increase Contract Price?

On February 9, 2012 Author By Scott Wolfe Jr        

FAQ: Is A Second California Preliminary Notice Required If Change Order Increase Contract Price?

Short Answer: No, the original California preliminary notice is effective for all work on the project, so long as the work is part of a single continuous contract.

Long Answer: A client recently contacted me about an on-going construction project that had already had a California preliminary notice sent on it.  As anyone in the construction industry knows, change orders changing the contract price and contract scope are commonplace. And as anyone who acts as a subcontractor or supplier in California knows, California preliminary notices require you describe the labor or materials being furnished and the estimated cost of said materials and labor.

So, if a change order is issued either increase or decreasing the contract’s scope or price…what are the supplier or subcontractor’s obligations with respect to California’s preliminary notice requirements?  Must a new California preliminary notice be sent off identifying the modified scope or price.

This circumstance is directly addressed by the civil code provision addressing California preliminary notices, Cal. Civ. Code § 3097(g), providing:

A person required by this section to give notice to the owner, to an original contractor, and to a person to whom a notice to withhold may be given, need give only one notice…with respect to all materials, services, labor, or equipment he or she furnishes for a work of improvement, that means the entire structure or scheme of improvements as a whole, unless the same is furnished under contracts with more than one subcontractor, in which event, the notice requirements shall be met with respect to materials, services, labor, or equipment furnished to each contractor.

If a notice contains a general description required by subdivision (a) or (b) of the materials, services, labor, or equipment furnished to the date of notice, it is not defective because, after that date, the person giving notice furnishes materials, services, labor, or equipment not within the scope of this general description.

Subsection (c)(1) of this provision actually sets forth the requirement that each California preliminary notice contain a general description of the labor or materials to be furnished on the project, and an “estimate of the total price thereof.”  Since the statutes combine the “description” of the labor and materials with the estimate of its value, it would be considered one in the same.

Therefore, if either the scope of the work or the value of the work changes, § 3097(g)’s rule is going to apply, and you do not need to modify your California preliminary notice unless a separate contract with a separate party is executed.

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3 Things To Ask Your Mechanics Lien Company

On February 2, 2012 Author By Scott Wolfe Jr        

Zlien started doing business back in 2007, when there were barely any companies offering mechanic lien and preliminary notice filing services. Since then, a few folks took cues and now claim to offer professional lien and notice services. However, buyers should beware.

The mechanics lien and preliminary notice business is not without its complications. Just as it’s complicated for a construction business to manage all the nuances in mechanics lien compliance, the same difficulty presents itself to those lien and notice companies. Trusting your notices and liens to a service provider is not a decision to take lightly, as any small mistake can impact your rights. Here are three things to think about and ask your mechanics lien service before committing:

 1) How Do You Keep Up With Law Changes and Compliance Issues?

If a mechanic’s lien service provider doesn’t have a plan and a consistent policy to monitor law changes and compliance issues, consider this a huge red flag.  State legislatures make at least 5-10 changes to mechanic’s lien and bond claim laws somewhere in the United States, and court decisions are constantly making tiny alterations. Each decision and state legislative bill may impact the lien and notice forms to use, as well as service requirements, timing issues, and more (Check out our Lien Law Alerts category, which publishes lien law changes nationwide).

When you ask a provider about their compliance procedures, they may tell you that they have a “network of attorneys.”  Well, consider this a red flag too.

3 Things To Ask Your Mechanics Lien CompanyHaving a “network of attorneys” is just a fancy way of telling you they have a list of attorneys in every state.  Big deal.  I can give you hundreds of lists of attorneys who do construction law or construction lien work.  I promise you, having a “network of attorneys” is not going to notify that mechanic’s lien provider each time a lien law changes, or help them ensure that their forms and procedures are compliant.

There’s another problem with the “network of attorneys” claim. These type of mechanic lien providing companies usually act as a simple referral house for attorneys. Each time you order a preliminary notice or a mechanic’s lien, you’re going to be shuffled off to an “in-network attorney” to fulfill your order.  There are three negative implications to this type of business method:

  1. If you’re working in multiple states, you’re not likely to have the same attorney help you in each place, which is going to be confusing and inconsistent.  You want a single vendor you can work with to get these things processed.
  2. When you get shuffled off to an attorney, you’re going to get contacted by that attorney, you’re going to get charged attorney prices, and these attorney’s are going to followup with you to try and convert the lead into more legal work.
  3. Finally, the company itself doesn’t do anything for you, they are just a clearing house or referral manager for this attorney network.

An example of a vendor who has a “network of attorneys” type business model is NLB Access.  While they may not function exactly as I’ve outlined in the above section, they are certainly a type of service that will process your preliminary notice and mechanics lien orders by utilizing a network of attorneys across the country.

NLB Access tries to spin this as a positive.  On the “Solutions” page of their website, they say:

Some notice filing companies may be cheaper, but NLB provides you with a case load manager that is an experienced legal professional who will review and process your claims..Our General Counsel’s office, in collaboration with local counsel, will inform you of your rights and create an effective strategy to recover your money.

I may be wrong about this, but imagine trying to work with these people if you need 100 notices sent within a month in 5 states.  Will you be shuffling from local counsel to local counsel?  And who knows how much they would charge for this (they don’t have flat rates posted on their website)?

2) What Is Your System For Fulfilling Orders?

Managing preliminary notices, mechanic liens and bond claims on a number of projects is challenging. When an order comes into a mechanic lien service for a new lien or notice, what does the company use to fulfill that order? How do they know what form to use? How do they actually get the form filled, and what courier network do they have in place to get your document delivered or recorded?

All very important questions. When learning about a lien service provider’s system, listen in to see what they do to reduce the risk of errors. When handling hundreds of envelopes and pages of paper every day or week, being organized and having a system that reduces the risk of error is a key feature.

Unfortunately, if you peel back the onion, you may find out something scary:  A lot of these lien services don’t have any system at all.  Sometimes, they just have a staff with access to a server where there is a folder and bunch of document template forms. If you’re working with a lien service operating like this, you should hear “document templates” and equate it with “disorganized mess.”

Zlien has spent five years and hundreds of thousands of dollars in developing a state-of-the-art order fulfillment system. This works on two ends. On the front end, when you’re placing an order, the system guides the user through the various forms available to choose the right form for the job. On the back end, when a order is placed, our staff members automatically have everything they need to fulfill the order.Forms are automatically generated and filled-in with your client data, and there are a host of features that monitor our staff members work to mitigate the risk of error.

Another thing to keep in mind is order tracking.  You will want to know the progress of your order as it is being processed.  Is this something your lien service will perform automatically, or are you getting manual emails from your provider giving you an update when they get around to it?

If you’re getting manual emails, beware.  This means the lien service provider is probably managing all of their orders manually, and it is surprisingly easy for them to get busy and forget all about your project.

Zlien is proud of its automatic system progress emails, which was actually just updated and posted about here.

3) Are You A Licensed Legal Document Preparer and Insured?

Once you are comfortable about a lien service providers systems and compliance procedures, you next want to turn to something that is perhaps most important: Their credentials and security.

Here are some issues to keep in mind:

Are They Licensed?

The Legal Document Preparation and/or Software industry may not need a law license, but in some jurisdictions, there are laws that regulate these service providers.  The state of California, for example, does specifically recognize “Legal Document Assistants,” and requires that they have a license to prepare legal forms for that state. There are also some regulations on how these companies may advertise themselves.

Zlien is a licensed Legal Document Assistant in the State of California (LDA-352).  If your lien service company purports to prepare legal forms in the State of California without an LDA license, it is breaking the law.  And it’s easy to figure out if the lien service is actually licensed.  California statutes require LDAs to put their license number on their website in their footer.

I can give you an example of two companies who are purporting to prepare mechanic liens and preliminary notices in California without a license. LienItNow.com does not have their LDA license information in their website’s footer, and Tradition Notice Services (from Tradition Software) does not have their LDA license information in their website’s footer.  A construction company ought be careful in using these services.

Are They Insured?

Mistakes happen.  Period.  There’s no such thing as a perfect anything.  If you’re trusting your mechanic lien or bond claim rights to a lien service provider, you would be well served to see whether that company carriers errors and omissions insurance.  If they carry errors and omissions insurance, it means that company is serious about their business (they invest in E&O Coverage) and serious about serving their clients (they won’t leave you hanging).

Not only does Zlien carry errors & omissions insurance, but we also publish our insurance policy’s declarations page on our website.  Ask your lien service provider for their insurance information.

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Question for Attorneys: Any Exceptions to Delivery Presumption for Material Suppliers?

On January 19, 2012 Author By Scott Wolfe Jr        

Yesterday I published an article title “How Material Suppliers Prove Its Materials Were Incorporated Into the Property When Filing A Mechanics Lien.”  Those lawyers out there, and especially construction lawyers, probably immediately know the answer here, and that’s the presumption created by most state laws.  The presumption is this: If the building material supplier can prove delivery of the materials to the improvement, the courts will presume those materials were incorporated.

Now, I say “most states” because it’s impossible to talk about mechanic lien laws and say something that uniformly applies across the country.

I’m aware of at least one exception to the presumption rule.  In California, the lien claimant has the burden of establishing the validity of the lien, including that the labor, materials or services were actually used in construction. Basic Modular Facilities v. Ehsanipour, 70 Cal. App. 1480, 1485 (1999).

Other than this California example, however, I don’t know of any exceptions to this presumption.  Any construction attorneys out there know of a state law that treats this issue differently than I’ve explained?  Please comment!

As always, I appreciate your help.

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Effective Now: New California Preliminary Notice Requirement for Public Work Projects

On January 3, 2012 Author By Scott Wolfe Jr        

The preliminary notice requirements on private construction projects in California are simple: if you didn’t contract directly with the property owner, you must deliver a 20-day preliminary notice within 20 days of first furnishing labor and/or materials to the project. The same rule, however, did not exactly apply to those working on state or county projects (public work projects).

While there was a preliminary notice requirement on these public work projects, if a subcontractor or supplier failed to deliver the notice, there was a safety net allowing notice at the very end of the construction project (15 days from the notice of completion recordation, or if not recorded, 75 days from completion of the project).

However, in 2011, SB 293, Padilla, amended the law to eliminate this preliminary notice safety net.

Preliminary Notice Required Every Time on California Public Works Projects

The new law in a nutshell is that everyone on a public works project in California who did not contract directly with the prime contractor must give a preliminary notice within 20-days of first furnishing labor and/or materials to the construction project. There is no longer a safety net allowing claims at the completion of construction, and therefore, those who do not properly send their preliminary notices on-time, will no longer have any rights to make a claim against the payment bond or to file a stop notice.

Preliminary Notice must be given to:  (i) The public entity; and (ii) The contractor with the direct contractual relationship with the public entity (the “direct contractor”).  There is a special additional requirement if the work was commissioned by the Department of Public Works or the Department of General Services for California, such that the notice must be given to the disbursing officer of the department construction work specifically.

The only exception to this notice requirement is that those who are 100% laborers (not laborer companies) are not required to furnish the notice. Remember also that unlike on private works, where the notice is required if you did not contract with the owner, on public works the notice is only required if you didn’t contract with the direct contractor.  This is an important difference.

When the Law Is Effective? Now!

The law can be a little confusing about which portions go into effect on January 1, 2012, and which go into effect on July 1, 2012, especially regarding the new preliminary notice requirements. However, to be safe, all affected subcontractors and suppliers should consider the new preliminary notice requirements to be fully effective as of January 1, 2012.

Also, while this post only talks about SB 293′s effect on California’s preliminary notice requirements, the bill has a longer reach.  For a quick breakdown of the bill’s full legal impact, see these two articles:  SBC approved by California Legislators and is Headed to the Governor and New Payment Rules in 2012.

Also, you can read the Full Text of the Chaptered SB 293 here.

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How To File A California Mechanics Lien

On December 7, 2011 Author By Scott Wolfe Jr        

This post, originally published as a Google Knol (which is being discontinued, yawn), is now repurposed for this blog.  One of the reasons I want to republish this thing is because I consider it one of the most comprehensive how-to guides for California mechanic lien filings.

This how-to guide really does give a start-to-finish explanation on how to file a California mechanics lien.

Attorneys and Collection Agencies around the country will unanimously agree that filing a mechanic’s lien is one of the best ways to collect money owed to you on a construction project. The remedy is very powerful, but you must know how to use it. There is so little room for error.  Here is some information to help you avoid the error.

Getting Started: Do You Have Lien Rights?

How To File A California Mechanics LienOf course, you can only file a mechanic’s lien if you have the right to file it under California law. Before you go off through the other steps to prepare and file the lien, consider whether you even qualify to file a mechanic’s lien.

California Civil Code §3110 provides as follows as to who can file a mechanic’s lien:

Mechanics, materialmen, contractors, subcontractors, lessors of equipment, artisans, architects, registered engineers, licensed land surveyors, machinists, builders, teamsters, and draymen, and all persons and laborers of every class performing labor upon or bestowing skill or other necessary services on, or furnishing materials or leasing equipment to be used or consumed in or furnishing appliances, teams, or power contributing to a work of improvement shall have a lien upon the property…

Civil Code § 3106 is also important, as it defines the term “work of improvement:”

“Work of improvement” includes but is not restricted to the construction, alteration, addition to, or repair, in whole or in part, of any building, wharf, bridge, ditch, flume, aqueduct, well, tunnel, fence, machinery, railroad, or road, the seeding, sodding, or planting of any lot or tract of land for landscaping purposes, the filling, leveling, or grading of any lot or tract of land, the demolition of buildings, and the removal of buildings. Except as otherwise provided in this title, “work of improvement” means the entire structure or scheme of improvement as a whole.

So, if you are furnishing services, materials, equipment or labor on a “work of improvement,” and you’re one of these listed types of parties…you can file a mechanic’s lien in California.

Can’t figure it out?  Don’t stress yourself, even attorneys like me will acknowledge that there is a lot of gray area here.  There are a lot of situations when one may find themselves wondering…did I work on an improvement?  Do I fall into one of these categories?

The good news is that California pretty liberally interprets these definitions to include folks, rather than exclude them.  Here are some examples of folks who can not file mechanic’s liens in California:

- Watchmen over job sites
- Lenders of money to construction projects
- Cooks hired to cook for construction workers
- Cleaning services
- Party who requires a license, and does not have one

Here are folks who can file a lien in California:
- job foremans
- pest control companies
- suppliers of teams, power or appliances

If Required, Verify You Sent Preliminary Notice

How To File A California Mechanics LienSome parties in California may only file a mechanic’s lien if they delivered the state’s required “preliminary notice” right after they first furnished labor, material or services to the project.  How soon after?  The notice must be filed within 20 days, and in fact, is referred to in the industry as the 20-day Preliminary Notice.

Here are the three most important things you need to know about California’s preliminary notice requirement:

  1. Are you required to deliver it?   If you did not contract with the property owner (i.e. you contracted with the prime, a sub, etc.), the answer is almost always yes.
  2. What must you send?  California requires you send a very specific form to the property owner.  You can learn more about it at this website.  Also, here is a free form for you to download and use as an example.
  3. How must you send it and to who?  California can be picky. You must send the notice by certified mail, and just as importantly, you must be able to prove you sent it.  Check this page out for proof requirements.  Insofar as who needs to receive the notice, the notice should be sent to the property owner, the prime contractor and the construction lender.

Preparing and sending a California 20-Day Preliminary Notice can be quite complicated, and time consuming. Consider outsourcing the work to a service that does it everyday.

Step-by-step instructions

1. Step One – Prepare Your Claim of Lien Document

If you have the right to lien, and you preserved it by sending your notice, now it’s time to prepare the mechanic

lien document. While this seems like a simple task, it’s not.  Mechanic lieHow To File A California Mechanics Lienn laws are very complex, and even if you have a proper mechanics lien form, there are many traps for the preparer who is inexperienced with the mechanic lien requirements.  Take a look at this article, for example, about the Perils of using Do-It-Yourself Forms to File A Mechanic’s Lien.

With that said…here is a great mechanic’s lien form, published by the Sacramento County Public Library, and updated with the California lien law changes that took effect in January 2011.

You can use it to prepare a lien form ready for filing, which includes all of the following information:

  1. Statement of your demand;
  2. Property Owner’s name;
  3. Statement identifying what the lien is for;
  4. Name of party who hired you;
  5. Description of the job site (legal property description is best);
  6. Proof of service affidavit attesting to delivery of the lien to required parties;
  7. Statutory notice statement; and
  8. Verification.

Now, you may notice some things that are required within a mechanic’s lien…that you simply do not know.

For example, do you know who actually owns the property?  Are you sure?  Sometimes property is owned by a company even when outsiders believe it is owned by someone individually.  Or consider this, is the property owned by the husband, the husband and wife, or the wife?  These details can make a big difference.

Another error people frequently make when preparing their own mechanic’s lien is not properly identifying the property.  Getting the property’s legal property description correct can be the difference between a valid lien and an invalid lien.  Take a look at this article about Identifying Property with a Legal Property Description.

If you feel uncomfortable about getting everything right, you may want to consider filing with a mechanic’s lien filing service like Zlien.

2. Step Two – Deliver A Copy Of The Lien To The Property Owner

How To File A California Mechanics LienAs part of the 2011 changes in the California Mechanic’s Lien Law, you must deliver a copy of the mechanic’s lien to the property owner…and you must do it FAST.  As a matter of fact, you must deliver it before (or at the same time) of filing your lien, and attach proof of that delivery with the lien you’re filing.

So, take a copy of your lien form and sign it, verify it, and put it in the mail to the property owner.  You must send it certified mail, keep a record of your mailing and sign an affidavit swearing that you send it on the date it was sent and in the manner by which it was sent.

Attach this affidavit of delivery and the proof of mailing with your mechanic’s lien when you send it for recording in the next step.

3. Step 3 – Record Your Lien

At first blush, this may seem like the easy part, but don’t get too confident.  A lot can go wrong:  (i) you can get

How To File A California Mechanics Lien

the filing fee wrong; (ii) you can file it in the wrong place; or (iii) you can not understand a county’s turnaround time.

The original copy of your lien, together with the affidavit of delivery upon the property owner, must get filed, and the place to file is the Recorder’s Office for the county where the project was located.

The filing fee will be approximately $20 – $50, depending on the county and size of your lien form.  Don’t send your lien for filing via regular mail in California, as many counties have back logs checking the mail that can extend weeks.  Literally, if you send a lien to Los Angeles via mail or fed ex, for example, it may not get recorded for up to 6 weeks!

You need to go there yourself and record the lien, or hire a courier to do it.  This is another reason why a mechanic’s lien filing service may be the way to go, as they will arrange for the filing with a courier and make sure the lien is filed in the right place and the appropriate fee is provided.  Zlien, a licensed and bonded Legal Document Preparation Company in California (LDA-352) files Mechanic’s Liens in California.

The Timing Of Your Filing

Mechanic’s Liens cannot be filed at any time.  The California statutes specifically provide that they must be filed within the earlier of: (1) 90 days from project’s completion or abandonment; or (2) 60 days from recording of Notice of Completion or Notice of Abandonment.

You may not know when these dates occur if you are a subcontractor or supplier not intimately involved with the project’s finishing. In this case, the earlier you file the better your chance of getting it recorded in time.

What Next?  After You File…

The Mechanic’s Lien will stick on the property in California for 90 days. After this short period, the lien will expire and be of absolutely no effect unless you either:  (1) Extend the lien for an additional 90-day period; or (2) File a lawsuit to foreclose on the lien.

Extending the lien may be difficult, because it requires the property owner’s consent and signature.  This is good for folks who are working with the property owner on credit to pay a debt.

Otherwise, however, you need to file a lawsuit to foreclose on the lien.  This will keep the lien viable during the lawsuit, and at the end of the suit, if you win your case, the lien will turn permanent, and you’ll be allowed to foreclose on the property to sell it and pay off your debt.

Additional Resources & Forms

Forms:

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