Most people who own their own homes – and thereby, have to hire contractors to build, fix, or otherwise modify their properties – have absolutely no issues with their contractors. Most contractors are trusted professionals in their fields and have no intention of delivering anything less than what they’ve agreed to in the contract.
But there are always exceptions. Especially in states that don’t require contractors to be licensed, or are lacking in general oversight, there are definitely a fair share of contractors who have less-than-honorable intentions with taking on your job.
In situations where there’s a dispute over the work done (or not done) and the payment for said work, the idea of a mechanics lien often comes up in the conversation. You may have heard someone say: “they can put a mechanics lien on your house” in case of nonpayment for contracting services.
Is that true? Can any contractor put a lien on your house in the case of a pay dispute? And if so, what are the consequences of having a lien put on your home?
Let’s find out.
Mechanics Liens: An Overview
So what is a mechanics lien?
According to the CSLB, a mechanics lien is a “‘hold’ against your property, filed by an unpaid contractor, subcontractor, laborer, or material supplier, and is recorded with the county recorder’s office. If unpaid, it allows a foreclosure action, forcing the sale of the property in lieu of compensation.”
In simpler terms, a mechanics lien is a legal claim made by contractors, subcontractors, laborers, and material suppliers against a property when they haven’t been paid for their services or supplier. This is a recourse for anyone in the construction industry to receive payment for services rendered, but not given.
If you’re a contractor, you know you’re often paying out of pocket for materials and other supplies – which you then recoup when you are paid for the work done. A mechanics lien is a way to make sure that you aren’t out whatever you spent to get the job done in case of non-payment.
The mechanic’s lien is a legal measure that ensures construction professionals receive their due compensation for the work done or materials provided. It serves as a safety net for every person in the construction industry, ensuring that hard work (and all the costs associated with it) doesn’t go unpaid.
Who Can File a Mechanics Lien?
In California, basically, anyone involved in a construction project can file a mechanics lien in the case of non-payment.
This includes general contractors, subcontractors, laborers, and material suppliers. If you’re a general contractor and you don’t get paid by the client – you can file a lien. If you’re a roofer who did one day of work on a job and was paid, but less than the amount in the contract – you can file a lien.
However, all of these different roles and situations have different rules and procedures for filing a mechanics lien. It’s not a one-size-fits-all process, and understanding the nuances can be crucial in ensuring the lien is filed correctly and effectively.
How To File A Mechanics Lien
Step 1: Send A Preliminary 20-Day Notice
Before a mechanics lien can be filed, the first step is to serve a Notice of Right to Liens, often referred to as the Preliminary 20-Day Notice.
This notice must be served within 20 days of starting work or supplying materials to the project, whichever. If you miss the 20-day window, you can still serve the notice to recoup the costs of the project – but only money earned within the previous 20 days can be included in the lien.
That means if you only worked one day, but let the 20-day window expire, you’re out of luck. If you worked, say, 5 days on a job, and you filed 21 days after the start, you’d only be entitled to 4 days of work – that first day’s wages are now unretrievable as you missed the 20-day window.
This step is crucial as it sets the stage for the filing of the lien and informs all parties involved of the potential claim. You should be filing this notice on every job, just to be safe. MAKE SURE that you file it before the 20-day deadline is up, as you will be unable to recoup any money spent after that time frame.
Step 2: File The Mechanics Lien
Once the Preliminary 20-Day Notice has been served, the next step is to file the mechanic’s lien. In many cases, you’ll never even have to do this, but everyone gets done over once by some unscrupulous construction “professional” at some point.
In California, you have 90 days from the last day you performed work or provided goods on the project to file your mechanic’s lien. This is different from the 20-day Notice, of course – which is a warning that you could file a lien if you’re not paid.
Now, you’re not being paid, and you have up to 3 months to file a mechanics lien to get repaid. If you let this time go by without filing a mechanics lien, the party that owes you money for your work and supplies is no longer legally liable to pay you.
Notice of Completion Or Cessation: 60 Days To File
One important exception to the 90-day window to file your mechanic’s lien for backpay or supplies is if the owner files a notice of completion or cessation, indicating the project has stopped.
In case of a filing of a notice of completion or cessation, you only have 60 days from the filing of that notice to file your lien. You will see this often on projects with tenuous funding or in times of upheaval. Make sure you’re paying attention to the people who owe you money, and get that mechanic’s lien filed ASAP. Every day you wait is you potentially losing the money you’re owed!
Step 3: The Chips Fall
Once a mechanics lien has been filed, then the pain begins. For the homeowner, at least.
Any homeowner who has a mechanics lien filed against them will have their property immediately impacted. In some cases, they may have their home foreclosed to recoup the payments. In other scenarios, a homeowner may be forced to pay twice the original amount.
At any rate, a homeowner with a lien against their home will have a very difficult time selling, refinancing, or doing many things that property owners need to do. Basically, a lien on someone’s home makes it extremely difficult to do anything substantial with that home – until the lien is cleared.
Once the homeowner completes the lien and pays the outstanding balance, the lien is quickly dropped and both the homeowner and the contractor can continue on with their lives. As you can imagine, this process is good for no one in the process – and ultimately it may feel like a Pyrrhic victory, having had to deal with months of back and forth and legal work.
The Importance Of Following Through
Even if you don’t plan to foreclose on the lien, it’s best to go through the entire procedure of filing a mechanics lien on every project. It’s important that you make the mechanics lien an essential part of your business, as it only serves to protect you and your company.
If payment discussions break down or your customer appears headed toward insolvency, your diligence will have made it possible for you to foreclose on the lien and retrieve any funds that you’ve invested. There really is absolutely no reason for you not to be on top of this, personally and with anyone working under you.
In the case of non-payment, if you don’t have a mechanics lien, things get A LOT more difficult if you want to get your money. Considering how easy the process is, there’s absolutely no excuse to not follow this entire process for every job you take on.
In any situation, whether you’re the homeowner or the contractor, it’s important to contact a legal professional to handle these complicated situations. A lawyer can be an invaluable resource when it comes to properly navigating the complex and labyrinthine American legal system.
The key takeaway from all of this is to do your diligence ahead of time – and you’ll always be prepared when the worst happens.