MECHANIC'S LIENS, STOP NOTICES AND CLAIMS ON PAYMENT BONDS

It's all about money. It's all well and good to get a nice contract but if you don't get paid, you should have stayed home.

If you are the subcontractor on a project, and the general contractor is not paying you, there are three ways to get someone else to pay you for your work.

• The Owner. If you record a mechanic's lien, you will have a lien on the project and can sue to foreclose the lien. This means that if you prevail in the lawsuit, the court could order the property sold to satisfy your lien. If you record a mechanic's lien, the owner can obtain a mechanic's lien release bond to get the lien off its property. In that case, your claim is "converted" to a claim on the bond. This is good. If you prevail in the lawsuit, you will be paid by the bonding company and you will not have to wait for a foreclosure sale to take place.
• The Construction Loan Lender. If you serve a Stop Notice on the Construction Loan lender, and there is still money to be paid out under the loan, the lender will hold back sufficient money to pay your claim. You still have to file a lawsuit to enforce the Stop Notice. Sometimes there is no lender and the owner is funding the construction costs itself. In that case, when the owner is served with a Stop Notice it should hold back sufficient money from the money due to the general contractor to pay your claim.
• Surety on Payment Bond. On public works jobs, the general or prime contractor is required to post a payment bond which guarantees that the subcontractors will be paid. The owners on some private projects may also require the general contractor to post a payment bond. If there is a bond, you can make a claim on the bond for payment. You will still need to file a lawsuit to enforce your claim.

Now, here is what you need to do when you are preparing to enter into a contract with a general contractor or owner on a project in order to set up your right to record a mechanic's lien, serve a Stop Notice or make a claim on a payment bond:

1. Get it in writing. Obviously your contract or subcontract should be in writing. Make sure you obtain the following information in writing from the general contractor or owner:

a. A legal description and a street address for the project. The owner should have this information available.

b. The exact name and address of the owner. Sometimes the general contractor is sloppy about the exact name of the owner.

c. The exact name and address of the general contractor.

d. The exact name and address of the construction loan lender and the loan number if possible.

e. The exact name and address of the surety on any payment bond, and the bond number.

2. Serve the Preliminary Notice.

a. Who needs to serve a preliminary notice? Mainly subcontractors. "Laborers" are not required to serve a preliminary notice. Contractors in direct contract with the owner do not need to serve a preliminary notice on the owner but should serve a preliminary notice on the construction lender.

b. What is a Preliminary Notice? You can buy the form at a stationery store.

c. Who should you serve with the Preliminary Notice? If you're the subcontractor, serve the owner, general contractor, and the construction lender. If you're the general contractor, you should serve the construction lender. You do not need to serve the owner because you are in direct contract with the owner. File a copy of the Preliminary Notice with the county recorder as well.

d. What information should be contained in the Preliminary Notice? Follow the form. Essentially the information should include a general description of the labor, service, equipment or material furnished and an estimate of the total price, your name and address, the name of the person who contracted for the purchase of the labor, etc., a description of the job site, and some boilerplate language.

e. When should you serve the Preliminary Notice? Serve the Preliminary Notice no later than 20 days after you first provide labor, etc. If you miss the deadline, serve one anyway as soon as you can.

f. How do you serve the Preliminary Notice?

i. Private work of improvement.

In state: personally, or by leaving it at residence or place of business with some person in charge, or by first-class registered or certified mail, postage prepaid. Can use address on building permit.

Out of state: same as in state. But, if Notice cannot be personally served, then certified or registered mail addressed to the construction lender or general contractor.

ii. Public work of improvement.

If in direct contract with general or prime contractor, no need to send preliminary notice. But, it doesn't hurt to serve a preliminary notice.

If not in direct contract with general or prime contractor, serve general or prime contractor and public entity. Same method of service as private work of improvement. Make sure you serve proper public entity. (Civil Code Section 3098 (a)).

3. Proof of Service of Preliminary Notice. (Civil Code Section 3097.1)

a. By mail. Complete proof of service affidavit accompanied by return receipt or by photocopy of the record of delivery and receipt maintained by post office, or in the event of nondelivery, by the returned envelope.

b. In person. Complete proof of service affidavit.

4. What if you screw up?

a. If you forgot to serve a preliminary notice, or you didn't serve it properly, serve one as soon as you can.

b. On public works project, even if you were required to serve a preliminary notice but failed to do so, you can still enforce a claim on the payment bond by giving written notice to the surety and the bond principal (i.e., the prime contractor) within 15 days after the recording of a notice of completion or acceptance. If no notice of completion/acceptance recorded, you have 75 days from date of actual completion. Serve written notice in same manner as you would a preliminary notice.

MECHANIC'S LIEN

Mechanic's Liens can be recorded in connection with private works of improvement. They cannot be recorded in connection with public works of improvement. The following is a table regarding deadlines:

STOP NOTICES

You can serve the Owner or construction lender with a Stop Notice on a private or public work of improvement. In some instances you will want to use a bonded Stop Notice. The owner or lender can record a Stop Notice Release Bond. Here are the deadlines:

PAYMENT BOND

On a public works project, there should be a payment bond. There may or may not be a payment bond on a private works project. Here are the deadlines:

5. Prompt payment statutes. Failure to promptly pay can lead to imposition of high interest rates and allow party to whom money should have been paid to recover its attorneys fees.