Significant Changes to California's Mechanic's Lien Law

Major changes have taken effect to California’s lien laws. Originally signed into law on September 30, 2010, Senate Bill 189 (“SB-189”) rephrases and reorganizes all California Civil Code provisions dealing with Mechanic’s Lien Law, from sections 8000 to 9566 and including the stop notice, payment bond, and prompt payment statutes on both private and public works.

Two changes took effect on January 1, 2011. First, Civil Code section 3084 requires that the lien claimant serve a Notice of Mechanic’s Lien on the owner of the property to be liened before recording the lien. The Notice of Mechanic’s Lien must also include a signed “proof of service affidavit” to be enforceable. Second, Civil Code section 3146 makes it mandatory to record a Notice of Pendency of Action within 20 days after filing a mechanic’s lien foreclosure lawsuit.

Beginning on July 1, 2012, the balance of SB 189 took effect, making many additional, significant changes to Mechanic’s Lien Law. Although not every change is identified, some of the most meaningful changes are detailed below.

• Preliminary Notice: The “Preliminary 20 Day Notice” document is now simply called the “Preliminary Notice.” Although service should still occur within 20 days of providing work or materials to a project, the Preliminary Notice can now be served by overnight delivery by an express mail carrier or in the same manner in which a summons and complaint is served in a civil action, as well as the previously acceptable methods of hand delivery and certified or registered mail. The Preliminary Notice must now describe “the relationship to the parties of the person giving the notice” and provide an “estimate of the total price of the work provided and to be provided”. Also, where a construction loan is obtained after commencing work of improvement, the owner must provide each person who previously received a preliminary notice the identity of the construction lender.
• Waiver and Releases on Progress and Final Payment: The Conditional Waiver and Release on Progress Payment now permits the exclusion from the waiver and release of all sums for which the claimant has given a prior Conditional Waiver and Release and for which payment has not been received.
• Mechanics Lien: Beginning in 2011, a major change to the Mechanics Lien form took effect, including an important new notice provision and new service requirements. The changes that took effect July 1, 2012 are relatively minor.
• Stop Payment Notice: The “Stop Notice Form” document is now more-accurately called the “Stop Payment Notice”. As with the new Preliminary Notice, the new Stop Payment Notice can now be served by overnight delivery by an express mail carrier or in the same manner in which a summons and complaint is served in a civil action, as well as the previously acceptable methods of hand delivery and certified or registered mail. Unlike the Prior Stop Notice, however, the new Stop Payment Notice must be served on the “direct contractor” (previously termed the “original contractor”) as well as the owner or reputed owner and the lender, if any.
• Payment Bond Notice: A companion Bill to SB 189, SB 293, results in new Civil Code sections 8612 and 9560, which prohibits a potential Payment Bond claimant who failed to serve a Preliminary Notice and wished to cure this failure by sending the Payment Bond Notice within 15 days of a Notice of Completion or 75 days after actual completion (if there is no notice of completion) from successfully making such a Payment Bond Claim if either “(1) All progress payments, except for those disputed in good faith, have been made to a subcontractor who has a direct contractual relationship with the general contractor to whom the claimant has provided materials or services” or “(2) The subcontractor who has a direct contractual relationship with the general contractor to whom the claimant has provided materials or services has been terminated from the project pursuant to the contract, and all progress payments, except those disputed in good faith, have been made as of the termination date.” The Payment Bond Notice Form may also be served by overnight delivery by an express mail carrier or in the same manner in which a summons and complaint is served in a civil action, as well as the previously acceptable methods of hand delivery and certified or registered mail.
• Notice of Completion: “Acceptance by the owner” is no longer equivalent to completion. On public works, the 30 day cessation of work period is now expanded to 60 days or more to constitute completion. Also, the Notice of Completion is now generally valid if recorded within 15 days after the true date of completion of the work of improvement.
• Lien Release Bond: The bond amount required to release the property from the affect of a lien has been reduced from 150% to 125% of the amount of the lien.
• Petition to Expunge and Removal of Liens: The previous $2,000 cap on attorneys’ fees is removed where an owner obtains an order removing a “stale” lien that has not been foreclosed by the claimant.
• Other Forms: The aforementioned changes necessitated changes to the “Release of Mechanics Lien”, “Partial Release of Mechanics Lien”, “Release of Stop Payment Notice”, “Partial Release of Stop Payment Notice”, “Notice of Cessation” and “Extension of Time to Enforce Mechanics Lien”.

With the exception of the thirty-six enumerated sections identified in SB 189, Section 107 states that the recodification “is intended to be nonsubstantive in effect.” Court decisions interpreting the former laws continue to apply, but the full effect on prior court decisions remains uncertain.