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

Last year, we had a lot of fun with the Wolfe Law Group / Zlien fantasy football league. Actually, it was so successful we had to open two leagues. Folks have been asking whether we’d have a league set for up 2011, and we’re happy to announce that we are, and the league is now open for registration.

Register early, because we’ll likely fill up. You can view our league and sign up at the following link:

http://football.fantasysports.yahoo.com/league/wolfelaw_zlien

To join our league on Yahoo! Fantasy Sports, you’ll need the League ID (634669) and password (WZ2011).

We’ll conduct a live draft, which is currently scheduled the evening of Wednesday, August 31, 2011, at 7:15 CST, 5:15 PST.

What can we say, being from New Orleans with the Saints as the reigning champions has us all excited about the 2010 NFL Football Season. That’s why we’ve gotten together with our friends at Wolfe Law Group and set up an NFL Fantasy Football League through Yahoo!

And we’re inviting participation from our clients, colleagues, readers and friends. To sign up, just click on this link and set up your team. You will need to know the password, and the password is “construction.”

I must warn you….the Zlien staff not only knows mechanics liens, we know football. So be prepared to lose.

Wolfe Law Group’s Construction Law Monitor recently blogged about the dangers of using one contract in multiple states.   The post used the “pay when paid” provision as an example of why multi-state contracts are problematic.

The provision itself seems pretty clear:  one party will get paid when the other party gets paid.    It isn’t.   Interpretation of this provision varies by state, with some states striking down the provision entirely as against “public policy” and other states distinguishing between “pay when paid” provisions and “pay if paid” provisions.   The only way to protect your company against this tricky provision is to consult with an attorney about how these provisions are treated in your jurisdiction.

While interpretation of “pay when paid” provisions differ from state-to-state, there does appear to be one constant about this provision across the country:   It doesn’t extend your lien period.

Most states require liens be filed within a certain period after you last worked on the project, or after the project is complete.   The fact that you or your company is waiting for payment because the prime or an upper-tiered sub hasn’t been paid is completely irrelevant.  The lien period still starts when it starts, and ends when it ends.

As you might imagine, this presents a bit of a Catch-22.

On the one hand, you must file a lien to preserve your right to lien.  On the other hand, filing a lien may complicate the payment problems for the prime or upper tier sub (and thus your payment problem), and may cause animosity when negotiations are otherwise calm.

Unfortunately, there is  no easy fix for this complication.    Each situation should be examined individually, and sometimes, a simple joint check agreement may be the solution.  It’s just important to remember that good faith negotiations and waiting for payment under a contractual obligation to do so will not likely extend the lien period, and too much talk could result in the loss of lien rights.

Here are some great resources and articles on Pay When Paid provisions:

- Fourth Circuit Concludes Pay When Paid Clause is Unambiguous and Enforceable

- Pay When Paid or Pay If Paid Provisions

- Is Your Pay When Paid Clause Worthless?

- Contingent Payment Clauses, Use With Caution

What is a Miller Act Claim?

How do you file a Miller Act Claim?

Am I entitled to file a Miller Act Claim?

These are some of the questions answered by Scott Wolfe’s latest Legal Guide published on Avvo.com, titled “How To File A Miller Act Claim.” In the guide, Scott breaks the federal filing down into four steps, introducing the topic as follows:

If you furnished labor and/or materials to a federal construction project, and were not paid, contractors or suppliers may file a “Miller Act Claim” against the general contractor’s payment bond. You can file a claim on your own, through a filing service, or with an experienced attorney.

Click here to read all of Scott’s Legal Guides at Avvo.com.

In discussing how organization can help an organization with its legal obligations, the post says:

And insofar as your contractual and legal duties are concerned, if you’re organized and know what they are, you’ll have a much better chance of fulfilling them.

This is exactly what the Lien Pilot can do for your business.

Notice and lien requirements are hyper-technical and confusing.  If your company is handling multiple construction projects, or working in multiple states, it’s nearly impossible to keep track of notice and lien requirements.    Some clients reported that they used to keep track of lien and notice deadlines by inputted all due dates in Outlook – which, of course, required them to manually calculate the dates.

Zlien provides contractors with an easier way.  You simply input your project’s details, and Zlien calculates all of the project’s notice and lien requirements and deadlines.

In 2010, make a resolution to increase your bottom line and utilize the nation’s lien laws to protect your right to payment on construction projects.   Resolute your company to Lien Smarter in the new year, and sign up for a free account with Zlien.

Their first post is of special interest to us in at the Construction Lien Blog.    It’s title gives away its substance:  “The Risk of Litigating a Washington Construction Lien.”

More than simply a discussion on how to actually dispute a mechanics lien, the post reviews the potential risk and rewards connected to any proceeding to have a lien overturned.   While this post obviously provides information to those looking to dispute a mechanics lien, it’s also revealing to those who hold or who are filing liens.

In Washington, anyone who disputes a lien faces potential risk…or reward.  If they win and the lien is overturned, they may be entitled to attorneys fees.  If they lose and the lien is upheld, the lien claimant will be entitled to attorneys fees.   Since lien dispute proceedings can cost thousands in attorneys fees, the Washington laws require parties disputing a lien to think long and hard about whether to bring this type of action.

Why is this important to those who hold or are filing liens?   Simple:  It demonstrates just how strong a construction lien can be.

In prior posts, we wrote about how construction liens are not typically invalid simply because someone claims payment is not due.   Usually, for a lien to be declared invalid, there must be some sort of facially or procedural defect with it (it is filed late, it does not properly describe the property, etc.).

These technical and procedural defects may lead to a lien’s demise…but other very critical issues (validity of back charges, change orders, timing of payments, etc.) will likely not.    So, while both parties may have arguments on each of these disputed issues, before using those arguments to dispute a construction lien, the disputing party will have to consider the risk.

And in Washington, there is quite a bit of risk.

The @zlien twitter feed provides its followers with a wealth of information about construction liens.    Updates to our website and blog are published instantly on our twitter feed, and we’re constantly relaying information about lien laws (including law changes) across the country.

Scott Wolfe, our founder, is the guy behind the twitter posts.   Scott is a construction attorney licensed to practice (and practicing) in the states of Louisiana, Washington and Oregon.  He is also the founder of a bi-coastal construction law firm, Wolfe Law Group.

In addition to following @zlien for updates specific to lien laws and the mechanics lien industry, you can also follow Scott personally on twitter (@scottwolfejr).   On his personal twitter account, Scott publishes more general information about construction law.

Wondering what kind of stuff gets posted on our Twitter account?  Here’s a peak at some of our most recent posts:

– RT BuildingNews Payment excuses are getting more inventive:  A run-down of some of the worst reasons not to stump up the cash  (with link)

– Blogged:  The Importance of Knowing When Your Lien Period Begins (with link)

– California Lien Law Forms, Procedures and Laws Changing on January 1, 2011 (with link)

– Avvo Legal Guides on Oregon and Louisiana Liens published (with link)

How to File a Construction Lien in Oregon

How to File a Construction Lien in Louisiana

These two legal guides offer plain english explanations on how to prepare and file a construction lien in either of these states.    After reading the guide, you can visit Zlien’s free Lien Punchlist & Forms center, where you can download more information about on the subject, and even download free PDF-fillable lien forms.

Want to dot your i’s and cross your t’s, and rest easy knowing your document will get filed?   Consider using the Zlien service to prepare your lien, file and serve it, and then store it online for your records.

The two above-listed legal guides were written and published by Scott Wolfe Jr., who is the founder of Zlien and the company’s President.   Separate from Zlien, Scott is a practicing construction attorney in Washington, Oregon and Louisiana, with his construction practice the Wolfe Law Group.

He previously published a similar legal article on Avvo.com about filing construction liens in Washington, which you can read here.

According to Simonson, the commercial construction industry forecast remains grim “at least through 2010.”

For contractors, suppliers, and other construction professionals throughout the nation, this means that good record-keeping and collection practices remain important.

Almost one year ago, Wolfe Law Group posted an article on its Construction Law Monitor after Ken Simonson reported that 2009 would present economic challenges to contractors.

Now more than ever, the article stated, contractors should consider the benefits of a construction or mechanics lien.  The article went on to state:

As soon as the construction project comes to a halt or payment is late, contractors, subcontractors and suppliers should rush to file its construction / mechanics lien to protect its interest in the property. Construction liens are available in virtually every state, and works to transform the project job site as a sort of “collateral” to the contractor for its payment.

The time available to file a construction lien is not indefinite, and the legal requirements should be followed to the letter. However, when filed correctly, a construction lien can help your company recover payment for its project.

Although the stimulus spending will be cause for some optimism in the construction industry, it appears economic struggles will stick around into 2010.    And the recommendations of Wolfe Law Group in 2009 are repeated today.

If your company is awaiting payment, file your lien with Zlien today.   Lien Smarter…Get Paid.