I Have Yet To Be Paid. Do I Still Have Time To Record A Mechanic's Lien?

I Have Yet To Be Paid.
Do I Still Have Time To Record A Mechanic’s Lien?

By
William C. Last, Jr.
Attorney at Law

Since it is relatively common for a lien claimant to wait too long before recording his or her mechanic’s lien, it is important to be aware of the deadlines for recording a lien. On a similar vein, it is not uncommon for contractors to wait too long to foreclose on a recorded lien (no later than 90 days after recordation), thus possibly requiring the recordation of a new mechanic’s lien, if the facts and circumstances so allow.

Mechanic’s liens are a unique remedy for a contractor to ensure that he or she will be paid. But to be effective, the contractor must comply with all of the applicable statutory prerequisites for recording and foreclosure of the lien. Prior articles have discussed the three prerequisites for enforcing a mechanic’s lien. These are the timely service of a Preliminary 20-Day Lien Notice; the timely recordation in the county recorder’s office of the mechanic’s lien; and the timely filing of a lawsuit to foreclose on the mechanic’s lien.

This article will discuss the second prerequisite, the timely recordation of the mechanic’s lien. It is important to keep in mind that this article concerns private works mechanic’s liens only and the discussion in this article may not apply to public works projects.

While the statutes set forth the deadlines, the application of those deadlines to fact situations can be confusing. Thus, the specific law will be followed by examples.

1. Must I complete all my work before I record a mechanic’s lien?

A mechanics lien may be recorded only after the contractor stops furnishing labor, services, equipment or materials to the project. (Civil Code §3116). For the purposes of recording a lien, it does not matter if the contractor voluntarily stopped, or was prevented by a third party from completing the work. Since the statute requires the contractor to “cease” performing work, the reason why the work ceased appears to be immaterial for purposes of recording a lien.

It must also be noted, that the mechanic’s lien must be recorded in the county recorder’s office, in the county in which the property is situated. If the lien is recorded in the wrong county, the lien automatically is invalid and unenforceable.

2. What constitutes completion for the purpose of determining when I must record a mechanic’s lien?

The time limits within which all liens must be recorded on private works are based on when the project is completed, or work on the project stops short of actual completion. When actual completion has not been obtained, California law defines what constitutes completion so that the contractor will know when time for recording a lien commences to run.

Specifically, Civil Code §3086 states that:

"Completion" means, in the case of any work of improvement other than a public work, actual completion of the work of improvement. Any of the following shall be deemed equivalent to a completion:

  1. The occupation or use of a work of improvement by the owner, or his agent, accompanied by cessation of labor thereon.
  2. The acceptance by the owner, or his agent, of the work of improvement.
  3. After the commencement of a work of improvement, a cessation of labor thereon for a continuous period of 60 days, or a cessation of labor thereon for a continuous period of 30 days or more if the owner files for record a notice of cessation.

3. What are the specific deadlines for recording a mechanic’s lien after completion or the equivalency of completion have occurred?

The specific time limitation for recording a lien is based on: (a) whether actual completion occurs, or there is an equivalent to completion; (b) whether or not the owner shortened the recording deadlines by recording a Notice of Completion or Notice of Cessation; and (c) whether or not the contractor has a direct contract with the owner of the project.

a. What are the general periods for recording a mechanic’s lien?

The general rule is that when all the work on the project actually has been completed all possible lien claimants must record their liens within ninety (90) days from the date of actual completion. (Civil Code §§ 3115-3116).

If the project is not completed, but all work on the project stops for a specific period, California law deems the work complete after a certain period of time passes. If there is a cessation of labor for a continuous period of sixty (60) days, California law declares that such cessation is deemed to be an equivalent to the completion of the work. After that sixty (60) day period elapses, all possible lien claimants must record their liens within ninety (90) days from that date. (Civil Code §3092).

For example, if the owner runs out of money and cannot complete the original agreed-upon scope of work and, as a result, all work stops before the project is complete, the contractor has one hundred and fifty (150) days from the total and complete stoppage of all work to record a mechanic’s lien so long as no Notice of Cessation was recorded.

If, however, during the first fifty-nine (59) days of the work stoppage, the original agreed-upon scope of work recommences, the time for recording a mechanic’s lien will be restarted and subject to the same rules relative to: (a) whether actual completion occurs, or there is an equivalent to completion; (b) whether or not the owner shortened the deadlines by recording a Notice of Completion or Notice of Cessation; and (c) whether or not the contractor has a direct contract with the owner of the project.

b. How does the owner shorten lien filing time limits by recording a Notice of Completion or Cessation?

California law allows an owner to record one of two types of notices that, upon timely recordation, will effectively shorten the time for recording a mechanic’s lien. The two types of notices are a Notice of Completion, or alternatively a Notice of Cessation. Lenders and owners may use recordation of a Notice of Completion and/or Cessation to reduce the number of liens timely recorded against a project, since there always will be some contractors who are unaware of the importance of obtaining current information from the recorder’s office as to the status of a project. If a lien claimant fails to discover that a Notice of Completion and/or Cessation has been recorded, that failure may well be fatal to any valid claim when a lien is not properly recorded within the shortened time limit.

A Notice of Cessation is used when work has temporarily halted for more than thirty (30) days. (Civil Code §3092). A Notice of Completion must be filed after work has actually been completed, as that term is defined in Civil Code §3086. An erroneous date of completion entered on a Notice of Completion does not affect the validity of that notice so long as the actual, true date of completion was within the ten (10) days before the date the notice was recorded.

The deadlines when a Notice of Completion or a Notice of Cessation have been recorded are:

  • Notice of Completion: When an owner records a valid Notice of Completion (i.e. 10 days after actual completion of work on the project) (Civil Code §3093).
    • Prime contractor in direct contract with the owner must record his or her lien within sixty (60) days of the recording of the Notice of Completion (Civil Code §§ 3115-3116).
    • All others must record their liens within thirty (30) days of the date the Notice of Completion is recorded. (Civil Code §3116).
  • Notice of Cessation: When an owner, after thirty (30) days of continuous cessation of labor, records a valid Notice of Cessation (this is the equivalent of recording a Notice of Completion). (Civil Code §3092):
    • Prime contractor in direct contract with the owner must record his or her lien within sixty (60) days of the recording of the Notice of Cessation.
    • All others must record their liens within thirty (30) days of the date the Notice of Cessation is recorded. (Civil Code §§ 3115, 3116).

c. How can I find out if a Notice of Completion or Cessation has been recorded?

Under Civil Code §3097(o), if a Preliminary 20-Day Lien Notice is properly filed with the County Recorder, that Recorder has the good faith duty to notify the filing party within five (5) days following recording of a Notice of Completion or a Notice of Cessation. This extra step of filing the Preliminary 20-Day Lien Notice with the Recorder in the county where the property is located, will assist the contractor in determining when a Notice of Completion is filed, so that the contractor can timely record his or her lien. However, the system is not fool-proof since the Country Recorder has no liability should it fail to notify the contractor that a Notice of Completion has been filed.

d. When do you record your lien when there is more than one contract for the project?

Civil Code §3117, is a little known code section that can potentially be fatal to mechanic’s lien claims. Section 3117 states that where projects are built pursuant to more than one original contract, with each contract covering a particular portion of the work, the owner may record separate notices of completion for each particular portion of the work performed under each contract, rather than waiting for completion of the project as a whole.

For example, the owner could contract with a general contractor for grading and excavation in a contract separate from the contract for all of the other work on the project. After grading and excavation work is completed, the owner can then record a Notice of Completion. That Notice of Completion, if timely recorded, will start the statute of limitations running for any lien claimants performing grading and excavation work. Although the work on the rest of the project would be far from done at that point, the lien claimant who did grading and excavation work would have to record his or her lien within the time allowed based on the record date of the grading/excavation work Notice of Completion. This almost certainly would be many months before there was completion of the entire project as a whole. Thus, if the owner and general contractor choose to enter into two or more contracts for various portions of the work, the time in which a lien claimant must record a lien will be less than if there were only one contract. Failure to realize that more than one contract is involved can completely destroy a contractor’s lien if that lien is based on completion of the wrong contract, or completion of the work as a whole. Lien claimants must pay particular attention to the contractual arrangements on the project to avoid this potential trap that will deprive them of their lien rights.

4. What happens if I do not file a lawsuit to foreclose on the mechanic’s lien within 90 days?

Under California law, a contractor must file a lawsuit to foreclose on a mechanic’s lien within ninety (90) days after it was recorded.

When a contractor does not timely file a foreclosure lawsuit, the lien becomes null and void. The contractor then must determine if a second mechanic’s lien still can be recorded in a timely manner (e.g., 30, 60, or 90 days after the project is substantially completed). If there is time to record a second lien, the first lien should be released before any new lien is recorded. In such a case, the lien release must clearly state that the original claim has not been satisfied. This is an exception to the rule that a lien release should expressly state that the underlying obligation has been fully satisfied. In connection with the recordation of a second mechanic’s lien, if the lien release of the expired lien does not clearly state that the underlying obligation has not been satisfied, the owner may argue that the contractor has released all of its rights to record a new lien.

Conclusion

In the current construction environment it is not uncommon for a contractor to become involved in litigation with the party with whom he or she has contracted. The timely filing of either a mechanic’s lien is the most important step to the contractor’s recovery of its claim. It is critical that the contractor identifies the date when work first commenced on the project. Similarly, it is critical that the contractor also determines when the work on that project stopped or was completed. The collection of this type of information, and the maintenance and updating of records supporting this information will always substantially increase the likelihood of the contractor prevailing in litigation concerning a project. In addition, a contractor will also increase his or her likelihood of preserving lien claims by using all sources of notification, such as the County Recorder, or even hiring an independent service bureau that will inform the contractor when a Notice of Completion and/or Cessation is recorded.

©2002, William C. Last, Jr. wrote this article. Mr. Last is an attorney who has been specializing in Construction Law for over 20 years. In addition to belonging to a number of construction trade associations, Mr. Last holds a California “A” and “B” license. He can be contacted at 415-764-1990 or 650-425-7679. A number of his past articles can be found on his website (lhfconstructlaw.com). This bulletin is published periodically to provide general information about current legal issues. The articles are not intended to be a substitute for the advice of an attorney as to a specific problem. If you have a specific legal question or need legal advice, you should contact an attorney.