By Gary Redenbacher, Esq.
This column last month about unlicensed contractors generated a few questions. First, why does there seem to be so much unlicensed activity in our two valleys? I don’t have a definite answer to this, but a building official once told me that pockets of our valleys have 100% noncompliance with zoning and/or building codes. Since licensed contractors legally must get a permit for those projects requiring a permit (although some will admittedly risk going without), the amount of unpermitted activity gives rise to underground contractors who have no qualms about working without a permit. Regardless of the reasons for high numbers of unlicensed contractors locally, several people asked whether an unlicensed contractor can put a mechanic’s lien on their property. The short answer is “no.” At least not legally.
A mechanic’s lien is a statement of the value of labor or material that was incorporated into your property and which is recorded with the Santa Cruz County Recorder. This causes your home to become collateral to secure payment for the labor and goods. You may have heard horror stories of some unknown subcontractor putting a lien on a house and forcing its sale. Could this really be true? Well…yes. From a practical perspective, though, most liens are resolved long before the house goes on the sheriff’s auction block. Nevertheless, the California Constitution gives every contractor and supplier the right to lien real property for labor and material they’ve incorporated into that property, but for which they haven’t been paid. This is true even if you’ve paid someone else for that labor and materials.
A recent case is typical. A subcontractor purchased over $22,000 in materials. The homeowner paid the general contractor, who in turn, paid the sub, who did not pay the supplier. I placed a lien on behalf of the supplier. The homeowner was not pleased. Who, after all, wants to pay twice for the same materials or labor? At this point, the homeowner’s lawyer put a lot of pressure on the general contractor, who paid off the lien. The law requires a general contractor to protect and indemnify any homeowner from all but the contractor’s own lien. As far as I know, the general contractor continues to duke it out with the subcontractor over his failure to pay, but by taking responsibility, the general contractor avoided the inevitable costs associated with defending against a lawsuit.
Sometimes, however, things get heated. In one case, a local building supplier recorded a small lien when the owner refused to pay. It was a perfectly legitimate lien, but the owner, in retaliation, got the name of an employee of the supplier, found out where he lived and recorded a false lien against the employee’s house. This wasn’t merely crass or stupid. Recording a false lien is a felony and Mr. Hothead is facing a serious criminal charge.
This brings us back to unlicensed contractors. By law, unlicensed contractors are not entitled to be paid…period…for anything. Even if they do a perfect job and put $300,000 of materials into your home, they will be thrown out of court if they sue to get paid. Since unlicensed contractors cannot turn to the law to be paid, any lien they record is a false lien. Contracting without a license is a misdemeanor. Recording a false lien in an attempt to get paid might just put an unlicensed contractor from the frying pan into the fire.
Theoretically, a mechanic’s lien becomes void after 90 days if one doesn’t file suit to “foreclose” the lien. Title companies, though, don’t care that this is what the law says. They nearly always insist that the lien be removed before they’ll issue title insurance. So what do you do if someone records a false lien or you need to get a stale lien off title? Luckily, there is a quick procedure for removing stale or false liens. It only requires a hearing, as opposed to a trial, and a property owner can get an order to reimburse attorney’s fees, up to $2000.
A mechanic’s lien isn’t to be confused with a preliminary 20 day notice, often referred to as a pre-lien. Except for suppliers and contractors with whom you contract directly, all suppliers and subcontractors must send this notice within 20 days of supplying labor or materials or they lose the right to foreclose their lien. They might still record a lien, but they won’t be able to successfully foreclose it. The purpose of a pre-lien is to inform you who is supplying labor or materials so you can be sure that he is paid before paying your contractor.
This, of course, brings up yet another question. How do you assure that all suppliers and subcontractors are paid before you pay your contractor? All contractors are required to provide you with signed lien waivers from everyone who has the right to lien. This gets complicated because there are conditional and unconditional lien waivers and they differ depending upon whether you are making a progress payment or a final payment. You have to be sure you get the proper lien waiver.
If you’re saying to yourself, “This is a very cumbersome procedure,” you’re right; and I’ve barely scratched the surface. It’s for this reason the legislature is revising the entire mechanic’s lien scheme. What will come out of this revision, I can’t say, but because liens are a Constitutional right, they are going to be around for a very long time.
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