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.

Having 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.

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.

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.

Let me break it out for you, because the name is so close it tricks your mind.

Lien filed as:  Clark Air Conditioning & Heating
Official Name:  Clark Heating and Air Conditioning

This may seem like a trivial difference, but the California trial court actually invalidated the mechanics lien filed with the wrong dba listed.  Luckily for the plaintiff Mr. Ball, the appeals court reversed.  However, its reasons for reversal is not comforting to lien claimants.

The appeals court determined the lien was valid because the lien claimant himself was Mr. Ball, and the “dba” is simply a trade name. While Mr. Ball may be subject to disciplinary action with the CSLB for acting as a contractor with an unregistered trade name, his lien was given the green light because it was ultimately filed by Mr. Ball (the lien claimant), and that name was accurately indicated on the mechanics lien.

It’s an interesting thought experiment to consider what the court would have done if Mr. Ball was not a sole proprietor with a dba name, but was instead an LLC.  And had filed the lien as Clark Air Conditioning & Heating LLC, when it was really Clark Heating and Air Conditioning, LLC.  The defendants arguments would have been tougher to sidestep under these circumstances.

Fortunately for Mr. Ball, he need not concern himself with that hypothetical.  But for lien claimants everywhere, it’s important to be very careful when preparing a mechanic’s lien.  Even those errors that seem trivial can have unintended consequences, and can leave you without a lien claim.

Thanks to an article published on JDSupra by Wendel, Rosen, Black & Dean, LLP for the heads up on this case.

Long answer:  As a general rule, if you did not contract directly with the property owner on a California construction project, you must deliver a “20 Day Preliminary Notice” within 20 days of first furnishing labor and/or materials to the construction project.

Unfortunately, life happens, and sometimes your stuck unpaid on a construction project when you failed to send your preliminary notice.  And you may find yourself wondering…are there any exceptions to the rule?

If you know anything about law, you know that there are exceptions to every rule, and it’s no different with the California preliminary notice rule.  However, it’s a very, very limited exception, and you should be very careful when relying on it because whether you’re entitled to the exception or not will depend on a judge’s decision.  The judge’s decision could go either way, because if you ever get to a judge on the question, it’s certain that your position will be opposed by the property owner, and the judge will be required to decide who is lying and who is telling the truth.  Whenever a dispute comes down to this – a swearing contest – it’s bad news, and there’s a large risk of loss.

Nevertheless, an exception has been recognized in Truestone, Inc. v. SIMI West Industrial Park II, 163 Cal.App. 3d 715 (Cal. App. 2d 1984).  There, the courts held that an owner with actual knowledge of a particular party’s involvement with a construction project cannot challenge a mechanic lien based on not having notice that the particular party was on the project.  Here are the court’s words exactly:

In some cases, even where there is no contractual relationship between the parties, actual knowledge may estop the property owner from asserting the notice requirements of section 3097. The extent of the property owner’s knowledge and the time it was acquired may be a significant variable. Section 3129 establishes a presumption that all construction work performed on property with the owner’s knowledge “shall be held to have been constructed, performed, or furnished at the instance of such owner . . . .” Therefore, where a work of improvement is completed on leased land under contract with a lessee of the property, a statutory exception to the notice requirement of section 3097 applies.

“The noncontracting owner is placed in the position of a party to the contract by the conclusive presumption that the work was done at his instance and request.” ( Halspar, Inc. v. La Barthe (1965) 238 Cal.App.2d 897, 899 [48 Cal.Rptr. 293].) The lessor-owner with actual knowledge may be estopped to deny the validity of the lien because the lessee is viewed as his agent. ( M. Arthur Gensler, Jr. & Associates, Inc. v. Larry Barrett, Inc. (1972) 7 Cal.3d 695, 707 [103 Cal.Rptr. 247, 499 P.2d 503].) Similarly, the lien of a firm which supplied architectural and engineering services to real property under a contract with the original owner-developer is enforceable against the subsequent transferees of the property on an estoppel theory. ( Scott, Blake & Wynne v. Summit Ridge Estates, Inc. (1967) 251 Cal.App.2d 347 [59 Cal.Rptr. 587].)

Notice that the court says “the extent of the property owner’s knowledge and the time it was acquired may be a significant variable.”  This translates to mean the courts will have very wide dissection in determining whether the knowledge was or was not sufficient enough to forgive a lien claimant for not sending its preliminary notice.  This is a very thin exception to the preliminary notice rule…but nevertheless, an exception.

So, if you didn’t send preliminary notice, but the property owner knew you were on the project and knew you were performing work, and had that knowledge within 20 days of you first starting to furnish the labor and/or materials, you may have a chance at proceeding with your lien claim despite the defect in notice.

Why You Should File A Lien

If you’re unpaid on a construction project in California, there are a lot of reasons why you should file a mechanic’s lien.  I’ve dedicated this entire blog to the mechanic’s lien remedy because I believe it’s the most powerful way for contractors and suppliers to collect on unpaid debts.  Check out these posts on Why Liening is Important.

Aside from those posts, here is a summary of what effects a lien’s filing may have:

• Prevent the sale of the property
• Tie up progress payments or funding of the job
• Bring more parties to the table to consider your claim
• Transform the property into security for your payment
• Allow you to sue the owner for work you performed, even if you didn’t contract with the owner directly
• Allow you to recover attorney fees and legal costs against non-paying parties when you properly record a Claim of Lien

Step 1:  Do You Have The Right To Lien?

Before filing a lien in California, you must first determine whether you have the right to file the lien.  This really requires you to answer two questions.

First, did you provide lienable services or materials?  This can be a complicated question, and I posted about this question in the past:  FAQ:  What Work Qualifies Me To File A Lien? To generalize, you can usually file a lien if you performed labor or provided materials to a construction project.

Second, did you deliver required notices?  Pre-lien notices are typically required in California for those who do not contract with the property owner, who must deliver a “20-Day Preliminary Notice” to the prime contractor, the property owner and the construction lender.  If you failed to deliver this notice within 20 days of first furnishing labor or materials to the project, you are prohibited from filing a lien.

If you furnished lienable services and sent any required notices, you are eligible to file a mechanic’s lien in California.

Step 2:  Prepare The Form

Now it’s time to produce the lien document. There are strict requirements (via Cal. Civ Code § 3084) about what your lien must contain:  (1) Signature and verification by claimant; (2) Statement of demand; (3) Name of the property owner; (4) General statement of services furnished; (5) Name of party who hired claimant; (6) Description of the jobsite (legal property description); (7) An affidavit swearing that Notice of the Mechanic’s Lien was served on the owner;  and (8) the following statement in boldface 10-point type:

NOTICE OF MECHANIC’S LIEN
ATTENTION!

Upon the recording of the enclosed MECHANIC’S LIEN with the county recorder’s office of the county where the property is located, your property is subject to the filing of a legal action seeking a court-ordered foreclosure sale of the real property on which the lien has been recorded. That legal action must be filed with the court no later than 90 days after the date the mechanic’s lien is recorded.

The party identified in the mechanic’s lien may have provided labor or materials for improvements to your property and may not have been paid for these items. You are receiving this notice because it is a required step in filing a mechanic’s lien foreclosure action against your property. The foreclosure action will seek a sale of your property in order to pay for unpaid labor, materials, or improvements provided to your property. This may affect your ability to borrow against, refinance, or sell the property until the mechanic’s lien is released.

BECAUSE THE LIEN AFFECTS YOUR PROPERTY, YOU MAY WISH TO SPEAK WITH YOUR CONTRACTOR IMMEDIATELY, OR CONTACT AN ATTORNEY, OR FOR MORE INFORMATION ON MECHANIC’S LIENS GO TO THE CONTRACTORS’ STATE LICENSE BOARD WEB SITE AT www.cslb.ca.gov.

Step 3:  Serve The Owner and Record The Form

Recent changes to the California lien laws require you to serve a copy of the mechanic’s lien upon the property owner contemporaneously (i.e. at the same time) with filing the lien itself.  In fact, as you can see from the above-explained Step 2, you must include an affidavit within the filed lien verifying that the mechanic’s lien was served on the owner.  Service on the owner is now very, very important in California, and equally important is the proof you are required to have to demonstrate you served it.

Insofar as the filing goes, the lien must be filed in the Recorder’s Office in the county where the project is located.  There is a small fee required to record the lien (usually between $20-$40).  Be careful about mailing your lien to the recorder, however, some counties have back logs and your lien won’t get filed for weeks!  You’ll likely need a courier to hand-deliver the lien to the recorder.

Remember that hiring a service like Zlien to file your California Mechanic’s Lien may be a good idea.  Their fee includes all filing and service costs, and they make all of the arrangements for you.  Mechanic’s liens can be quite complex, and it may be most efficient to leave the technical work to folks who file liens every day.

Step 4: Foreclose or Extend!

Once your lien is filed, it’s effective for a period of 90-days.  After this 90-day period, if the lien is not foreclosed upon or extended, it will expire!

Extending a mechanic’s lien is usually not an option.  California, however, is a rare exception to the rule, allowing lien claimants to extend the effectiveness of a mechanic’s lien for additional 90 day periods.  Getting an extension can be a bit tricky in California, however, as the lien extension is only valid if the property owner agrees to it and signs the extension document itself.  Therefore, you and the property owner must likely be in negotiations or on some payment plan for the extension to make any sense.

More likely, you’ll need to foreclose on the lien by filing a lawsuit.  You can hire an attorney to do this for you (let us recommend Wolfe Law Group, who practices in California), or you can let Zlien arrange for the foreclosure suit through its Collections service.

Free California Mechanic’s Lien Form

If you’d rather do the lien work yourself, here are some resources that can help you, including the California Mechanic’s Lien form as provided by the Sacramento County Public Law Library.

• How to File A Mechanics Lien in California Avvo.com Guide
• How to File A Mechanic’s Lien in California Knol Guide
• California Mechanic’s Lien Articles on ConstructionLienBlog.com
• California Mechanic’s Lien Form

This how-to guide is titled “How To File A Mechanic’s Lien in California.“  Not only do I give step-by-step instructions on how to prepare the lien form, serve it and file it…but I also provide you with the forms to get the job done.  Plus, the Knol article addresses who is qualified to file a lien (and who isn’t), and even the preliminary notice requirements for California subcontractors and suppliers.

This guide is great and will help you file your mechanic’s lien on your own.  But, it won’t change the fact that filing liens are really complex.  With that said, remember that Zlien can file your California Mechanics Lien.

And since Knol has this nifty feature that allows us to embed the material directly on our site, here it is:

The guide is a great step-by-step how-to that guides the reader on the state’s mechanic lien process from start (i.e. delivering preliminary notice) to finish (i.e. filing a foreclosure lawsuit).

While the legal guide does a fine job of explaining the mechanic’s lien process, that doesn’t change the fact that properly preparing and filing a mechanic’s lien in California is tedious, technical and a trap for the unwary.  Using a company like Zlien, who is a licensed Legal Document Preparation company in the State of California, is a great way for your company to affordable file a mechanic’s lien.

Zlien takes care of the tedious research and work, and for only $295, researches the property owner and legal property description, serves the owner and signs an affidavit of service, and makes all arrangements to get your mechanic’s lien recorded.

So, take a look at the legal guide to get an education on how mechanic’s lien law works in California, and then outsource the hard work to a filing service like Zlien.

Long Answer: The first thing to say about this subject is that if you’re doing work that requires a license without having that license, you’re treading in dangerous water regardless of your state’s laws.  While some state are more liberal and allow unlicensed parties to collect amounts owed to them, it is very rare when the unlicensed contractor isn’t penalized in some way. Therefore, if you’re unlicensed and doing construction work that requires a license….get licensed!  You can read more about Contractor Licensing laws on my other blog, Construction Law Monitor.

The question here is whether you can file a mechanics lien if you’re unlicensed.  Unfortunately for unlicensed contractors, this question may be just the tip of the iceberg.  In reality, unlicensed construction participants must ask a more significant question: can they recover for their work at all?

I’ll discuss the laws in California and Washington, and then in Louisiana, to compare how the answer to this question may vary by state.

In California and Washington, the laws against unlicensed contractors are very strict — unlicensed contractors have no recovery whatsoever.  This means they cannot file a lien, or a lawsuit, or anything at all.  If they did $1,000,000 of work, and a party refuses to pay them, they are completely without a remedy and basically donated their time and money to the construction project.  (See previously written post: Can Unlicensed Contractors Lien in California?)

Is this fair?

There are two schools of thought on this.  In Washington and California, the legislature considers it more important to regulate the unlicensed constructor market than it is to ensure unlicensed contractors get paid.   States like Louisiana take a different approach.  In Louisiana, the unlicensed contractor is still penalized (i.e. he can get penalized by the licensing board, and his contract is declared null and void and the unlicensed contractor can only recover the “minimum value” of his work), but he is still allowed to recover some sort of compensation for the work he performed…and that means, he can file a mechanic’s lien.

If you’re doing work in California or Washington and are unlicensed, you’re really out of luck.  If you’re in Louisiana, you have some legal ground.  Elsewhere, it’s really important to examine that state’s liens laws to determine if you can file or recovery for your work.