Construction Lien Protection Laws Change July 1, 2012
Lien release and notification forms on CSLB website reflect changes in mechanics lien laws
SACRAMENTO —The Contractors State License Board (CSLB) is alerting consumers who are hiring contractors for home improvement projects that legislation concerning liens against their property takes effect on July 1, 2012. While the new laws don’t substantially change protections for property owners, the wording and formatting of the release and notification forms have been altered. Property owners should use the new release forms after July 1, and contractors should use the new preliminary and mechanics lien notice forms to protect property from liens and uphold lien rights.
Under California law, a contractor, subcontractor, laborer, or materials supplier who does not receive payment for the services or goods they provide can record a lien against the property to force its sale and pay them what they are owed, provided they give proper notification. This provision of California law, which has existed since the 1850s, is known as a mechanics lien.
Even if the person who is owed does not foreclose on the lien, when a lien is recorded it remains on the property title until it is cleared. Having a lien on the property title can affect the owner’s ability to sell, refinance, or obtain a line of credit on it.
To avoid having a lien recorded, signatures on release forms indicate that all parties have been appropriately paid. The new versions of the conditional and unconditional lien release forms are available on CSLB’s website.
Before the subcontractor or supplier is paid, use the conditional release form for progress payments as portions of the job are completed, and for final payment when the entire project is completed. Use the unconditional release forms as progress payments are received, and upon receipt of the final payment.
California’s mechanic lien laws can be confusing. The following is a summary of how they work. To learn more, read the CSLB brochure, A Homeowner's Guide to Preventing Mechanic's Liens.
First, subcontractors and materials suppliers must serve property owners a preliminary notice to maintain their right to record a lien. This notice must be given before work begins or any product is delivered, and up to 20 days after. Notice may be given after 20 days; however, they may only be paid for work performed or products delivered up to 20 days before notice was given, and anytime thereafter. Homeowners should note the date each preliminary notice was received, and note the date each contractor or supplier began work or delivered materials.
If a contractor or supplier is not paid, a notice of mechanics lien must be given to the property owner, along with the claim of lien, to be enforceable. The claim and notice must be sent by certified, registered, or first-class mail, with a receipt proving the documents were mailed.
Homeowners also should be aware that their prime contractor (called a direct contractor in the new law revision) also may file a lien if not paid. Unlike the subcontractor or materials supplier, the direct contractor does not have to deliver a preliminary notice because the mechanics lien warning is included in the original home improvement contract. Laborers who work for the direct contractor or subcontractors do not have to give notice either, but they may record a lien on your property if they are not paid. The direct or subcontractor is required to inform the property owner if any delinquent payments are due to laborers. Failure to provide this notification is cause for discipline by CSLB.
If a construction loan is financing the project, the homeowner must inform the direct contractor so that this information can be given to subcontractors and suppliers. If any additional loans are obtained after the project starts, the homeowner must provide that information to the direct contractor and every subcontractor or supplier who gave them a preliminary notice.
CSLB urges consumers to follow these tips when hiring a contractor and keeping track of their home improvement project:
- Hire only licensed contractors and ask to see their license and a photo ID to verify their identity. Make sure that any project subcontractors also have the appropriate licenses and that the contractor has a good payment history with those supplying the materials.
- Always check the license numbers on CSLB’s Instant License Check or www.CheckTheLicenseFirst.com to make sure the licenses are in good standing, and that employees are covered by workers’ compensation insurance.
- Don’t pay more than 10 percent or $1,000, whichever is less, as a down payment. There is an exception for about two dozen licensees who carry special bonds to protect consumers. These exceptions are noted on CSLB’s website.
- Don’t pay in cash, and don’t let payments get ahead of the work. Make sure to have subcontractors and suppliers sign lien release forms as portions of the job are completed, and when the entire project is finished as these individuals are paid.
- Keep accurate records of when notices are received and when filings are made with the county recorder’s office if any are filed.
The Contractors State License Board operates under the umbrella of the California Department of Consumer Affairs. More information and publications about hiring contractors are available on the CSLB website or by calling 800-321-CSLB (2752). You can also sign up for CSLB email alerts. CSLB licenses and regulates California's 300,000 contractors, and is regarded as one of the leading consumer protection agencies in the United States. In fiscal year 2010-11, CSLB helped recover nearly $45 million in ordered restitution for consumers.
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