One need go no further than the current issue of Apartment Management Magazine to notice the number of construction industry trades people, from general contractors to specialty contractors in almost every area to unlicensed persons, as well as suppliers, who provide labor, materials, equipment and services to apartment properties.
Unfortunately, whether the owner utilizes the services of a property management firm, a construction manager, a general contractor or contracts with the individual trades as an owner-builder, disputes arise. Frequently, these disputes result in the recordation of a Mechanics’ Lien by the disgruntled contractor, specialty subcontractor (i.e.: a roofer, a plumber, an electrician, a painter, etc.) or by their unpaid supply company.
A lawsuit to foreclose on such a Mechanics’ Lien must be brought within 90 days from the date it was recorded. The lawsuit may not be brought in Small Claims Court even if it is under $5,000.00. The good news is that frequently no lawsuit is commenced by the party recording the Mechanics’ Lien within the 90-day period.
There are several remedies available to a property owner in this instance. First and foremost among these remedies is Civil Code §3154 which provides for a petition for an order releasing the property from the Mechanics’ Lien.
This petition is a short form and quick legal proceeding which is initiated by sending a demand letter to the party who recorded the Mechanics’ Lien requesting its release.
When the release is not immediately forthcoming, as is the case in most instances, the property owner may file a verified petition with the court which indicates that the property owner owns the property, its legal description, the date of recordation of the Mechanics’ Lien, that no action has been filed to foreclose on the Mechanics’ Lien and that no extension of credit (the time to bring such an action) has been recorded, that the time period to bring an action to foreclose on the Mechanics’ Lien (90 days from the date of recordation) has expired, and that the Mechanics’ Lien claimant is unwilling to voluntarily release the Mechanics’ Lien and that the owner has not filed bankruptcy.
By a 1994 amendment to this section, a Notice of Hearing is filed with the petition and the court must set the matter for hearing not more than 30 days after the filing of the petition. At that hearing, which the property owner need not attend, the court will issue a judgment releasing the Mechanics’ Lien and against the Mechanics’ Lien claimant for attorneys’ fees of up to $1,000.00 and the property owner’s court costs. This judgment is then recorded with the County Recorder’s office which has the effect of both releasing the Mechanics’ Lien and serving as a judgment against the Mechanics’ Lien claimant.
Although this petition and the judgment obtained do not prevent a Mechanics’ Lien claimant from suing the owner for breach of contract, in many instances there is no contract (oral or written) between the owner and the Mechanics’ Lien Claimant. Frequently, the Mechanics’ Lien claimant is someone who is hired by a contractor or subcontractor, not by the owner. In these instances, if the time to record a Mechanics’ Lien has expired, the only remedy of the Mechanics’ Lien claimant is to sue the party who hired them.
There are several other steps a property owner may take to rid the property of a Mechanics’ Lien. These include obtaining and recording a Mechanics’ Lien Release Bond. A Mechanics’ Lien Release Bond frees the property from the Mechanics’ Lien. The bond is for one and one-half times the amount of the Mechanics’ Lien claim and may be recorded by a property owner, general contractor or subcontractor at any time either before or after a lawsuit is commenced to foreclose on a Mechanics’ Lien.
Once a bond is recorded, the Mechanics’ Lien claimant must file a lawsuit (or amend a lawsuit then pending) against the bond principal (which could be the owner, general contractor or subcontractor) and the surety (bonding company) and most importantly, the Mechanics’ Lien must be released. This allows the property owner to sell or refinance the property without being impeded by the Mechanics’ Lien. It is also possible that the Mechanics’ Lien claimant will never file an action against the Mechanics’ Lien Release Bond.
When a lawsuit has been brought to foreclose on a Mechanics’ Lien, the property owner may also file a motion in the action to remove the Mechanics’ Lien. A motion may also be filed while arbitration is pending. This motion may be used when a Mechanics’ Lien is defective.
One of the benefits to bringing a petition under Civil Code §3154 is that once a judgment is entered, the property is released from the claim of lien set forth in the Mechanics’ Lien. Therefore, a Mechanics’ Lien claimant may not re-record its claim thereafter even if the time limit for recording a Mechanics’ Lien has not yet expired. In other words, a Mechanics’ Lien claimant may record successive Mechanics’ Liens as long as the time period for recording a Mechanics’ Lien has not expired. If, however, the property owner avails itself of Civil Code §3154, the claim of lien is extinguished and no further Mechanics’ Lien may be recorded. This is especially important with longer term projects involving substantial renovations or retrofitting.
Obviously, the area of Mechanics’ Lien law is quite complicated. However, by using an attorney who is well versed in Mechanics’ Lien law, the property owner can both take advantage of the area’s intricacies as well as not be inappropriately pressured by a contractor, supplier or their attorney into paying for services or materials which were either previously paid for or which are disputed.
Although rights of Mechanics’ Lien claimants are very strong, they are subject to a myriad of technical requirements and a maze of time frames and notice requirements which must be exactly complied with. So next time a Mechanics’ Lien is recorded against your property, you can approach the decision of whether or not you should pay it with the knowledge that you have a number of options available to you which start with a careful evaluation of the legitimacy and enforceability of the Mechanics’ Lien claim.