California Mechanic Liens Law

Summary of California new Mechanic Lien Law Changes

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California Mechanic Liens Changes

A new law was established on in California, making changes to their Mechanic Lien Laws. A mechanic lien is a hold against your property, filed by a contractor, subcontractor, supplier, manufacturer or laborer when the corresponding portion of payment for rendered services has not been made. If unpaid, it allows a foreclosure action, forcing the sale of the property in lieu of compensation.

A mechanic lien could result in a foreclosure action against the property, double payment for the same job and a recorded lien on the property title. Effective as of July 1, 2012, the existing statutes governing California’s mechanics’ lien law, including stop notices and payment bonds, will be repealed and replaced with entirely new statutes.

California Mechanic Liens Changes

Here are the most important changes to California Mechanic Liens Law.

  • The new law requires that a preliminary notice should be sent to the construction lender. The new law clarifies that contractors in direct contract with the owner are required to give a “preliminary notice” only to the construction lender or reputed construction lender, if any.
  • The Mechanic lien law requires Owner to provide information of the name and address of any construction lender who participate on a construction loan for the project.
  • Bonding a lien is more affordable, because lien release bonds are reduced to 125 percent of the lien amount.
  • The mew Mechanic lien law required the use of conditional and unconditional waiver forms for both progress payments and final payment.
  • Under the new law, completion, the term used to record a mechanics’ lien, file a stop notice and make a bond claims is no longer define as the moment when the owner accepts the project. Be aware that subcontractor and suppliers might complete their portion of the work earlier than the project completion, and so their completion date is related to their corresponding task. The owner has now the capability of recording individual notices of completion for each scope of work, when separate direct contracts have been established with the owner.
  • The notice of completion for an owner under the new law is extended to 15 days after completion of the project.
  • Design professional lien laws and design professional lien are now part of the mechanic’s lien law. Landscape architects are also added as design professionals.
  • The new Mechanic lien provision allows the owner to recover all of its reasonable legal fees associated with the action, as opposed to previous mechanic lien cap of $2,000.
  • Certain terminologies associated with the law are now changed: Stop Notice is now a stop payment notice; original contractor will be referred to as direct contractor while materialman will be renamed as material supplier.
  • A new section in the California mechanics lien law actually subjects subcontractors to "disciplinary action" if they fail to deliver the California preliminary notice.
  • Mechanics liens should not be overturned for mistakes unless there is bad faith or some type of demonstrated prejudice.

How to Avoid the Mechanic Lien

The simplest ways to avoid mechanic liens are:

  1. Request Lien Waiver- Lien waivers must be required from every supplier and subcontractors working on the project. The contractor should request lien waiver from each subcontractor with monthly application for payments and prior to payment.
  1. Retainage- Every contractor must retain certain percentage of its payment to the contractor. The money withheld can be used later to pay off suppliers, or to cover any additional work required from the contractor. The retainage amount is normally 10 percent of the total amount; however, some contracts could change the percentage once they have achieved 50 percent of the contract amount.