New Year Brings New Rules for Mechanic's Liens

For those who record and enforce mechanic's liens, the New Year will likely require changes to your policies and procedures for handling mechanic's liens. Starting January 1, 2011, changes to the existing lien laws will attempt to address the "double liability" problem that was largely brought about by the recent turmoil in the residential housing sector.

The CSLB received numerous complaints from homeowners that had paid a contractor only later to find out that subcontractor and material-supplier lien claims remained outstanding. In many instances, homeowners found themselves paying twice for the same work. As a result, the CSLB lobbied for new, more stringent, notice requirements for lien claimants.

Civil Code section 3084, the statute governing the form of mechanic’s liens, will now require that a lien, together with a "Notice of Mechanic's Lien" be served on the property owner.  Current law does not require the lien to be served in order to be recorded and enforced, and does not require any sort of notice to the property owner.  The revised statute also requires that specific language appear in the "Notice of Mechanic's Lien" that must be served—language that advises the owner of the possible consequences of the lien filing. The statute likewise specifies acceptable service methods.  These new requirement are in addition to the existing 20-Day Preliminary Lien Notice requirement with which many contractors, owners, and subcontractors are already familiar.

While the changes arose largely from the residential construction world, the revised statute makes no distinction between residential and commercial projects.  Subsection (f) of the revised statute states: "Failure to serve the mechanic's lien, including the Notice of Mechanic's Lien, as prescribed by this section, shall cause the mechanic's lien to be unenforceable as a matter of law."  Participants in the construction industry at every level should be mindful of the new rules.

• Commercial owners will now be seeing both 20-day preliminary lien notices and notices of lien served on them during the course of the project. It will remain important that owners remain vigilant to ensure that lien claimants are paid in due course, and that if a "Notice of Lien" is received, appropriate action is taken. Owners will also have a new tool to challenge liens recorded after January 1, as it may take some time for lien claimants to become aware of the new statutory requirements.

• For lien claimants (including contractors, subcontractors, and materials suppliers), the changes will be the most significant. Lien forms and procedures must be revised to comply with the new standards. Lien claimants should consult with their counsel or at least study the new statutes carefully before recording liens after January 1, 2011. The changes are significant, and the consequences for failing to comply could result in an unenforceable lien.

• Contractors can expect to receive more concerned calls from owners if liens are recorded on a project, and we may see a rise in requests by owners to tender

  defense of the lien claim to the contractor under Civil Code section 3153. For these reasons, it will be as important as ever to stay on top of payment disputes and avoid lien claims where possible.

These changes do not absolve the owner of the ultimate responsibility to make sure that lien claimants that comply with the lien statutes are paid, but do help ensure that the owner will be aware if and when mechanic's liens are recorded. The legislature has also been considering a wholesale re-write of the entire mechanic's lien statutory scheme, and the changes to section 3084 may ultimately be a stop-gap measure to address many perceived inadequacies in the current system. Come January 1, however, the revised section 3084 is the law of the land.