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Liens and Stop Notices, oh my!

August 25th, 2006 · No Comments · General Contractors & Mechanics' Liens

Suppose that you are building your dream home, or rather, you have engaged a general contractor to build your dream home.  As is inevitable with such a project, you may have changes that you wish to implement that differ from the original drawings.  To memorialize the cost and labor difference, the parties should have a change order.  The change order is especially crucial if your GC has agreed to a fixed price contract.

This change order ensures that he or she will be paid for the extra work.  Without this change order, both parties are vulnerable to the uncertainties of payment and job completion on the increased scope of the job.

What happens if the homeowner and the general contractor cannot agree?  Perhaps the homeowner had different expectations or perhaps there is a certain area of the job that demands more labor from the GC.  If the disagreement cannot be resolved, there is always the fear that the homeowner will either demand the GC leave the job or the GC will walk because of the homeowner’s refusal to tender a milestone payment.

The GC is gone, the job is half done.  Now what?  Well, if the GC is owed payment, they can record a mechanics’ lien against the property.  The mechanics’ lien remedy is very powerful, and is written into the California State Constitution.  Further, once the lien has been recorded, the general contractor (or unpaid sub) must file an action to foreclose the mechanics’ lien within 90 days (or 60 days, if the job is already complete).  Mechanics’ lien remedies are powerful, but also hyper-technical and require a 20 day preliminary notice prior to the recordation of the lien.

Additionally, failure to file a suit after the 90 days from recordation renders the lien stale.  However, even if the mechanics’ lien is stale, the general contractor may still seek a pre-judgment Writ of Attachment against the homeowner.  If granted, that Writ may attach to more than just real property, and can attach to personal assets (checking account, vehicles, etc.).

If the project is being funded by a lender, the contractor also has the remedy of the stop notice, which can halt funds from being released to the owner-builder. 

As for the homeowner, if the lien is wrongfully recorded and no lawsuit is filed by the contractor to foreclose the lien, then the owner can bring a motion to have it expunged.  The problem with the lien is that even after they are stale, they will continue to be on record until a release of mechanics’ lien is recorded.



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