Tuesday, September 7th, 2010, 05:14 am. PST

A Homeowner’s Guide to Preventing Mechanic’s Liens
site admin posted in Construction Law on November 15th, 2005

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When you hire a prime contractor to do construction on your home, he or she typically hires laborers and subcontractors to do some of the work, and purchases materials for the job from materials suppliers. No one would dispute that a homeowner should pay for goods or services provided to improve their home. If the contractor–or the subcontractors, workers or suppliers–who provide goods or services to improve your property aren’t paid, they can file what is called a mechanic’s lien on your home.

What is a Mechanic’s Lien?

A mechanic’s lien is a “hold” against your property that, if unpaid, allows a foreclosure action, forcing the sale of your home. It is recorded with the County Recorder’s office by the unpaid contractor, subcontractor or supplier. It means that any of these unpaid entities can claim a lien against the property until they are paid.

The prime contractor has a direct contractual agreement with the homeowner. If the contractor isn’t paid, he can sue on the contract and record a mechanic’s lien. But subcontractors, workers and suppliers don’t have a contract with the homeowner. A problem occurs when the homeowner pays the prime contractor for all or some of the work, but the prime contractor fails to pay the laborers, subcontractors and materials suppliers that were hired to do portions of the job. If they are not paid, often their only recourse is to file a mechanic’s lien on the home.

What happens when a lien is filed against your property?

A lien can result in a range of problems:

  • Foreclosure, if the homeowner doesn’t pay off the lien or cannot afford to do so;
  • Double payment for the same job–if the homeowner pays the prime contractor–and then has to pay the sub or supplier who wasn’t paid by the prime;
  • A cloud on the title of the property, which can affect the homeowner’s ability to borrow against, refinance, or sell the property.

    • Please read on to find out how you can protect yourself when entering into a construction contract.

    How can you protect yourself?

    You can protect yourself from unwarranted liens by carefully selecting your contractor and responsibly managing your construction project.

    Investigate your prime contractor before you sign a contract and do the following:

  • Hire only licensed contractors and check the contractor’s license status on CSLB’s Web site at www.cslb.ca.gov
  • Make sure your contractor hires only licensed subcontractors, and check their licenses, too.
  • Check with your local courthouse to see if the prime contractor has a history of litigation.
  • Get a list of all subcontractors, laborers, and materials suppliers to be used by your prime contractor.
  • Check with suppliers and workers about the payment history of the prime contractor.

    • Get a written contract and make sure it includes the following:

  • A schedule that demonstrates when specific construction activities will start and end, (such as the framing, sheetrock work, or painting) and the projected payments tied to the contract price of these activities.
  • Identification of subcontractors who will be performing these construction activities.
  • Identification of suppliers who are providing materials necessary for these activities.

    • The Preliminary 20-Day Notice

    If you receive a Preliminary 20-Day Notice, don’t panic. The preliminary notice isn’t a lien; it is a notice that a subcontractor or supplier has provided or will be providing goods and services to improve your property and could file a lien claim if they are not paid.

    Don’t expect a 20-Day Notice from a prime contractor, however-since they have a direct contract with you, they aren’t required to send a 20-Day Notice.

    These notices allow you to track who has a potential claim against your property. Subcontractors and suppliers must provide you with this notice in order to maintain their right to file a lien. If they don’t provide you with the notice, they lose the right to file a lien.

    Watch the timing, however. A subcontractor or supplier can give you the Preliminary Notice before delivering supplies or starting work and up to 20 days after delivering supplies or starting work.

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