Sweeping Changes To California’s Mechanics’ Lien Laws Effective July 1, 2012
The State of California has enacted sweeping changes to the mechanics’ lien laws effective July 1, 2012. Former Civil Code sections 3082 through 3267 have been renumbered beginning at Civil Code section 8000. Accordingly, the mandatory forms of conditional and unconditional waivers (formerly Civil Code section 3262) have now changed to reflect the renumbered lien release sections (now Civil Code sections 8132 through 8138). Although case law interpreting the former code sections will continue to apply, there are some significant substantive changes enacted by California’s legislature. The following is a summary of the key substantive changes that will go into effect on July 1, 2012:
No Cap On Attorney’s Fees For Petitions To Expunge – Civil Code Section 8488, Subdivision (c)
Existing law limits attorney’s fees to $2,000.00 on petitions to remove an untimely foreclosed upon mechanic’s lien. After July 1, 2012, if an owner has to file a petition to remove an untimely foreclosed upon mechanic’s lien, a prevailing owner will be able to recover all of its reasonable attorney’s fees in connection with the action.
The Deadline To Record Notices Of Completion Will Be Extended From 10 To 15 Days From Completion – Civil Code Sections 8182, Subdivision (a) [Private Works] And 9204, Subdivision (a) [Public Works]
Existing law requires real property owners to record notices of completion within 10 days of completion. After July 1, 2012, an owner may record a notice of completion within 15 days of completion.
Separate Notices Of Completion Permitted (Private Works) – Civil Code Section 8186, Subdivision (a)
In projects where the scope of work is being performed under separate direct contracts with the owner, the owner can now record separate notices of completion upon completion of the scope of work under each separate contract.
“Completion” Redefined (Private Works) – Civil Code Section 8180, Subdivision (a)
Existing law states that acceptance by the owner is deemed “completion” for purposes of establishing the deadline for recording a mechanic’s lien. Section 8180, subdivision (a), has deleted acceptance by the owner as an act of completion, but maintains the remaining completion equivalents (i.e., (1) actual completion of the work of improvement; (2) occupation or use by the owner accompanied by cessation of labor; (3) cessation of labor for a continuous period of 60 days; or (4) recordation of a notice of cessation after cessation of labor for a continuous period of 30 days.) “Completion” has not been redefined on public works and a project will not be deemed completed unless accepted as complete by the public entity.
“Completion” Equivalents (Public Works) – Civil Code Section 9200, Subdivision (b)
The thirty-day cessation of labor period has now been expanded to sixty days. This completion equivalent does not apply to public works of improvement performed for state agencies.
New Service Requirements And Notice Language Changes For Preliminary Notices (Private Works) – Civil Code Sections 8200, Subdivision (a)(3), And 8202, Subdivision (a)(3)
In addition to serving the owner and direct contractor with a preliminary notice, a contractor on a private work of improvement will now be required to serve its preliminary notice on the construction lender or reputed construction lender. The required notice language for preliminary notices has also been updated.
Information On Post-Commencement Construction Lenders Must Be Given By The Owner – Civil Code Section 8210
Owners must now provide all entities who served it with a preliminary notice with the name and address of any construction lender who issued a post-commencement construction loan to the project.
Lien Release Bonds Made More Affordable – Civil Code Section 8424, Subdivision (b).
The amount of the bond required to release a lien has been reduced from 150 percent to 125 percent of the lien amount.
Service Of Lien And Notice Of Mechanic’s Lien Requirements – Civil Code Section 8416
Carried over is the new requirement effective for all mechanic’s liens recorded after January 1, 2011, that all mechanic’s liens must be accompanied by a “Notice Of Mechanic’s Lien” with the required notice to owner language. Further, a mechanic’s lien may not be recorded unless it has been accompanied by a proof of service of the lien and the Notice of Mechanic’s Lien on the property owner. More importantly, Civil Code section 8416, subdivision (e), provides that failure to serve the mechanic’s lien and Notice of Mechanic’s Lien as provided by section 8416 renders the lien invalid.
Landscape Architects Added As Design Professionals Who Can Assert A Design Professional Lien – Civil Code Section 8014
Landscape architects have now been included as a design professional entitled to assert a design professional lien.
Design Professionals’ Liens Can Now Be Converted Into Mechanic’s Liens – Civil Code Section 8319
Under existing law, design professional liens were extinguished upon commencement of work. After July 1, 2012, design professionals have the added protection of being allowed to convert their design professional liens into a mechanic’s liens.
Construction Contracts: Space Provided For Identification Of Lender – Civil Code Section 8170, Subdivision (b)
Construction contracts after July 1, 2012, must provide a space for the owner to identify any construction lender. This requirement does not apply to home improvement contracts or pool contracts. Also, this section does not relieve a contractor from the service of preliminary notice requirements. If a construction lender is not identified in the contract, a contractor as part of its due diligence should conduct a search of the county clerk records to identify any undisclosed construction lenders and serve them with the required Preliminary 20-day Notice prior to commencement of work. For subcontractors, Civil Code section 8202 requires direct contractors to make owner and construction lender information available to subcontractors seeking this information for their Preliminary Notices.
Terminology Updates
- The term “stop notice” has been replaced with “stop payment notice.” (Civil Code section 8044.)
- The term “original contractor” has been replaced with “direct contractor.” (Civil Code section 8018.)
- The term “materialman” has been replaced with “material supplier.” (Civil Code section 8028.)
Recordation Of A Certified Copy Of An Order Or Judgment Dismissing A Lien Foreclosure Action With Prejudice Releases The Property From The Lien – Civil Code Section 8490, Subdivisions (b) And (c).
In the event of a judgment or order dismissing a lien foreclosure action with prejudice, and provided the order contains the information required by Civil Code section 8490, subdivision (a), a property owner can have the property released from the lien by recording a certified copy of the order or judgment with the county clerk and recorder.
No Notice For Untimely Foreclosed Upon Mechanic’s Liens – Civil Code Section 8494
Persons dealing with property subject to a mechanic’s lien that has not been timely foreclosed upon are not charged with notice of the lien.
Priority Given To Optional Advances Made To The Limit Of The Original Construction Loan – Civil Code Section 8456
As long as the total amount of optional advances do not exceed the original amount of the construction loan, optional advances will relate back to the date of the recordation of the construction deed of trust and will have priority to mechanics’ liens. This change will benefit construction lenders, who can now wait until the last minute to decide whether to advance funds to a borrower who is in default under the loan agreement with the security that their trust deed will remain senior to mechanic’s liens.
Errors In A Claim Of Lien Will Not Invalidate The Lien – Civil Code Section 8422, Subdivisions (a) And (b)
This new Civil Code section codifies existing case law that holds that errors in a claim of lien (i.e., errors in a claimant’s demand, credits, and offsets deducted; the work provided; or the description of the site) do not invalidate the lien. However, such errors will render the lien invalid if a court determines that: (1) the claim of lien was made with the intent to defraud or slander title; or (2) an innocent third party, without notice, actual or constructive, became the bona fide owner of the property after recordation of the claim of lien, and the claim of lien was so deficient that it did not put the party on further inquiry in any manner.
If you need assistance updating forms or complying the new laws, please contact Marks, Finch, Thornton & Baird, LLP.