A Direct Contractor's Guide to Enforcing Mechanics Liens and Stop Payment Notices in California
It is all about security and leverage. If you are a general contractor (aka prime contractor or direct contractor) in California, you probably already known that there are many steps to take before, during, and after construction to enforce your mechanics lien and stop payment notice claims.
Section 1: Steps to Take Before Construction1. KNOW THE PROJECT AND THE OWNER. Obtain exact names and addresses of the owner/public entity, the construction lender (if any), and disbursing branch office. Obtain exact project address and legal description.
2. PROJECT SECURITY REQUIRED ON CERTAIN PRIVATE WORKS. Certain private project owners are required to post project security for the benefit of the direct contractor. Determine if this applies to your project BEFORE you sign your contract and which type of project security you should accept.
3. BE SURE YOU AND YOUR SUBCONTRACTORS ARE PROPERLY LICENSED. California contractor*s license law imposes strict penalties on unlicensed contractors. Those penalties could seriously affect your legal rights in the event of a dispute.
4. KNOW YOUR SUBCONTRACTORS. Get the exact names, addresses and contractor*s license numbers of all of your subcontractors. Obtain the names of all suppliers and sub-subcontractors they will use on the project, and cross-check these names against Preliminary Notices received.
5. HAVE SIGNED CONTRACTS. Obtain signed contracts with the owner and all subcontractors. Be as specific as possible as to duties and responsibilities under the contracts.
6. SEND CALIFORNIA PRELIMINARY NOTICE. For private jobs with a lender, serve a Preliminary Notice on the lender, via certified mail, no later than 20 days after first furnishing labor or materials to the project.
Section 2: Steps to Take During Construction7. BE VIGILANT. Thoroughly document problems, including delays, backcharges, changes, etc. Catching problems early can often avoid serious complications later.
8. OBTAIN RELEASES. Use the prescribed statutory releases and review content carefully to limit exposure to claims by subcontractors and suppliers and preserve right to collect for disputed items.
9. PAY SUBCONTRACTORS / MATERIAL SUPPLIERS PROMPTLY. Use joint checks to ensure that subcontractors pay sub-subcontractors and suppliers.
10. OBTAIN WRITTEN CHANGE ORDERS. All changes/extra work should be confirmed in a signed writing. Include a request for additional time to complete the work, if necessary.
Section 3: Steps to Take Immediately Upon Completion of the Project11. DETERMINE the last date that any work required by the direct contract and change orders was performed on the project.
12. DETERMINE the date a Notice of Completion/Cessation is recorded, and whether it was timely served.
13. YOUR RIGHTS DEPEND ON THE TYPE OF PROJECT: PRIVATE, PUBLIC, OR FEDERAL. Determine what payment rights exist and which ones should be used. IF YOU ARE NOT SURE OF YOUR RIGHTS, CONTACT AN ATTORNEY.
Section 4: Steps to Take to Perfect Your Claim14. TIMELY SERVE your Mechanics Lien with the "Notice of Mechanics Lien" and Proof of Service Affidavit upon owner (see Section 5)
15. TIMELY RECORD your Mechanics Lien, with the "Notice of Mechanics Lien" and Proof of Service Affidavit (see Section 5).
16. FILE LAWSUIT to perfect your lien rights, within 90 days after recording your Mechanics Lien.
17. RECORD a "Notice of Pendency of Proceedings" (lis pendens) within 20 days after filing the lawsuit in order to enforce the Mechanics Lien.
18. TIMELY SERVE your Stop Payment Notice (Section 5).
19. FILE LAWSUIT to perfect your Stop Payment Notice.
Section 5: Specific Steps to Take on a PRIVATE Project to Perfect Your ClaimA. MECHANICS LIEN. Record a proper Mechanics Lien together (with the *Notice of Mechanics Lien* and proof of service affidavit) with the County Recorder*s Office in county where the project is located, within 60 days after valid Notice of Completion or Cessation is recorded or, if no valid Notice of Completion or Cessation is recorded, within 90 days of actual completion.
Claimants MUST serve the proper Mechanics Lien form (with the *Notice of Mechanics Lien* and Proof of Service affidavit) upon the owner/reputed owner prior to or concurrently with recording of the Mechanics Lien.
B. BONDED STOP PAYMENT NOTICE. Serve on lender or fund control, by certified mail, registered mail, personal delivery, or overnight delivery within the same time limits for recording a Mechanics Lien.
*CONTACT AN ATTORNEY IF FINAL PAYMENT IS NOT RECEIVED IMMEDIATELY AFTER RECORDING A MECHANICS LIEN, SERVING A STOP PAYMENT NOTICE, OR MAKING A CLAIM ON OWNER*S SECURITY. A LAWSUIT MUST BE TIMELY FILED TO ENFORCE THESE RIGHTS, OFTEN WITHIN 90 DAYS.
Section 6: Specific Steps to Take on a PUBLIC Project to Perfect Your ClaimCALIFORNIA STATE OR LOCAL PUBLIC PROJECT (GOVERNMENT CODE * 900 et seq.)
You must file a claim within one year from date of breach/accrual of cause of action. Government agency has 45 days to reject or agree to pay your claim. If agency rejects the claim, you must file a lawsuit within 6 months of rejection. If the agency takes no action, you have two years from breach/accrual to file your lawsuit.
File a claim with the Contracting Officer (C.O.) for the project. The C.O. MUST issue a decision within 60 days of receiving the claim. If the C.O. does not issue a decision, the claim is deemed rejected. If C.O. does not pay the claim, you must file either an appeal or a lawsuit within 90 days of the C.O.*s decision.