You Have Special Constitutional Rights To Help You Collect Your Money
Construction contractors build the cities and towns we live in. They craft every office, home, and structure within our communities. Without construction contractors we would not have indoor plumbing, electrical outlets, or most of what we find comfortable and normal. So it goes to say that construction contractors are a core component of the very foundations of our society. In fact, the California State Constitution itself singles out and stresses the importance of construction contractors to our way of life. Article XIV, Section 3 provides:
"Mechanics, materialmen, artisans, and laborers of every class shall have a lien upon the property upon which they have bestowed labor or furnished materials, for the value of such materials, for the value of such labor done and materials furnished; and the Legislature shall provide by law, for speedy and efficient enforcement of such liens."
You Must Protect These Special Constitutional Rights
This means the top law of the land specifically protects all licensed contractors' and subcontractors' interest rights in any property they help improve until they get paid in full for their work. Yet many California construction professionals either aren't aware of these special and very powerful rights, or they waive them through mistakes or inaction, potentially leaving thousands of dollars on the table at the end of each job. But it doesn't have to be that way.
Here's a simple strategy to avoid 7 small mistakes that could cost you big money at the end of each project:
You Must Be Properly Licensed
Without being properly licensed, California law prohibits you from collecting for the work you perform. In fact, you can be forced to return every penny previously collected if you were not properly licensed during the time of the work. There are limited exceptions to this rule (such as small jobs under $500) but under most circumstances you must possess a current, active, California contractor's license and you may only perform work covered by your particular license classification. In addition to not being able to collect any money due for a project or having to give back money already collected, an improper, lapsed, or misclassified license can also open you up to possible criminal prosecution.
Your Contracts Must Comply With All Legal Requirements
In addition to ensuring your contracts protect your own business interests, you must include many other provisions legally required to be part of construction contracts in the state of California. For example, all licensed contractors must include their license numbers on every construction contract, subcontract, call for bid, and piece of advertising material. Prime contractors must include certain exact language in each and every construction contract. In fact, there are many legal requirements that may or may not be required by law depending on the type and nature of the contract. While some of the "over the counter" form contracts available may suffice under certain circumstances, be careful. You may be risking your compensation on an entire job by failing to strictly adhere to all specific legal requirements in your contract. Make sure you know what is required and when, or take the time to discuss these issues with your counsel before finalizing any contract.
You Must Serve A Preliminary Notice
In order to fully protect your Constitutional rights, a preliminary notice must be served within 20 days from when you first provide labor or materials for a job. The prime contractor, subcontractors, and material suppliers must give the notice to the construction lender. In addition, subcontractors and material suppliers must also serve the notice on the owner and prime contractor. In fact, the Contractors State License Board may discipline a licensed contractor who fails to serve preliminary notices on contracts over $400 in value. Further, to be properly served, a preliminary notice must include specific information, certain exact language in bold face type, and can only be given by personal service or registered / certified mail. Finally, it is always a good idea to file the preliminary notice with the County Recorder's Office where the property is located.
You May Need To Record A Mechanic's Lien
Your right to a Mechanic's Lien is Constitutional! If you've served a proper preliminary notice and are not paid in full at the end of a job, the California Constitution gives you the special right to claim an interest in the property you've helped improve. This clouds the title of the property and may prohibit the owner from refinancing or selling the property. And your claim remains valid even if the property is sold to a new owner. This is a powerful tool in and of itself and causes many owners to pay the claim immediately. But if you are still not paid, you can then force the sale of the property and collect from the proceeds. However, the steps you must take to guarantee this Constitutional right can be complicated. For example, the time allowed to record a Mechanic's Lien varies depending on your role (prime contractor, subcontractor, or material supplier) and when or if a notice of cessation, notice of completion, or actual completion of the job has occurred.
You May Need To Serve A Stop Notice
This is another powerful remedy you have at your disposal as long as you served a proper preliminary notice. A properly served stop notice legally compels the construction lender hold funds in its possession to cover the amount still due to you. Because this only works if there are still funds that have not been paid out, the timing of a stop notice is critical. Further, just as with a Mechanic's Lien, a stop notice involves complicated issues around "date of completion" and in some instances may require a bond.
You May Need To File A Lawsuit
If you have recorded a Mechanic's Lien or served a stop notice but have still not been paid, you should consider filing suit to have the courts enforce your claims. This is not something you should be afraid of doing. Remember, the Constitution is on your side. But lawsuits are complicated matters and the advice of counsel is recommended. A good attorney can mean the difference between waiving your rights or enforcing them, and between leaving thousands on the table or putting it where it belongs -- in your pocket!
You Must Release Your Claim After Payment In Full
If you have been paid in full, you must release your claim of lien and/or stop notice. It is not a good idea to release your claim before you have been paid in full without first seeking the advice of legal counsel. But if you do not release your claim once full payment has been made, you may open yourself up to liability for any damages caused by your failure to release the claim.
Bottom Line: Assert Your Rights To More Profits And Less Hassles
By following this simple strategy you can actually spend less time on collection efforts while collecting more of the money due you at the end of each job. Save big money and man-hours each year while putting those resources to work growing your business. The California Constitution specifically recognizes your importance to our society and gives you special rights to help you collect what you've earned. Avoid the mistakes that could cost you big money on each project. Protect and assert your rights to get paid in full for the work you do!
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