Lien Filed by Contractor Is Prod to Action
It’s a sure attention-grabber--a “Notice of Involuntary Lien” from the county recorder, warning the “debtor” of a possible lien against his property and suggesting that he contact the claimant or an attorney. It’s particularly frightening to the homeowner, who was only trying to fix up his house and now must fear losing it.
Such claims may be filed by the homeowner’s own contractor, trying to force him to pay a disputed portion of the bill. They could also be filed by a subcontractor the owner doesn’t know, who never got paid by the contractor--and who could make the homeowner pay a second time or even sell his home to come up with the money.
“As a result, this kind of lien--called a mechanic’s lien--may be the most unaddressed consumer issue in our laws,” says Richard Elbrecht, head of legal services for California’s consumer affairs department. “The consumer’s home stands as security for a debt between the general contractor and one of his subcontractors.”
A lien, generally speaking, is “a claim against real or personal property,” Elbrecht says. It’s a property interest held as security for some obligation of the owner; until the debt is discharged, he doesn’t have the clear title necessary to sell or refinance his property and could even be forced to sell it to satisfy the debt.
‘Two Innocent Parties’
All states have mechanic’s lien laws, differing only in procedural requirements. California’s, for example, amplify a provision of the state Constitution that gives people who help improve property a claim against that property in the amount of the payment due them. Anyone who provides labor or materials and contributes to the improvement can claim a lien, from plumbers to concrete companies.
General contractors who file liens usually already have a contract with the property owner and could conceivably just file suit and attach the property. But establishing the mechanic’s lien first gives them added security as a creditor.
The mechanic’s lien may be of greatest benefit “for somebody who has no right to sue you, usually a subcontractor or supplier who has no contract with the owner,” says Sam Abdulaziz, a North Hollywood attorney expert in construction law. In fact, their claim is really “against the general contractor, who may have taken the money and gone south, leaving two innocent parties--one who already paid and the other who didn’t get paid .”
Suppliers probably file more lien claims. For one thing, they’re often first to deliver and last to be paid, and they usually extend credit to whoever orders the materials. For another, they’re usually larger businesses, with office staffs, attorneys and more business background: “Subcontractors tend to be small businessmen, who come out of the trade,” says Colette Nelson, director of governmental relations for the American Subcontractors Assn. in Alexandria, Va. “They can build but don’t always know the paper-work rules.”
Easily Recorded
No one really likes to file a lien. “I find subcontractors are hesitant to file a lien because they want to work with the contractor again,” says Nelson. Suppliers may also be reluctant, “but unfortunately it does become necessary; the developers we have now are different,” says Don Hollman, credit manager for Blue Diamond Materials, a Long Beach supplier of sand, gravel, asphalt and concrete. “We used to think a dozen claims a year was a lot, but now it’s 30 to 40.”
A lien is easily recorded. The county recorder doesn’t judge or question its veracity, and the recording entails no official judgment of justification. In fact, liens are meaningful only as a warning that someone with a potential weapon is unhappy. “You still have to sue to recover,” says Abdulaziz.
Procedural rules, however, should ensure that mechanic’s liens aren’t filed and acted on capriciously. The subcontractor or supplier must give the owner preliminary notice within 20 days of when he first supplies labor or materials, saying in essence, Abdulaziz says, “Warning: this person can sell your property in the event there’s a dispute.” The lien itself must usually be recorded within 90 days after completion of the job, and a lawsuit must be filed within 90 days of recording the lien claim.
Property owners are not without defense, much of it preventive: There are ways to make sure everyone involved gets his share of the payments. Owners can take out a performance bond on the contractor, which insures the completion of the job, “so that if the contractor doesn’t pay the subs, the bonding company does,” Abdulaziz says. They can make out periodic payment checks to both the contractor and the people involved in a given portion of the job. And they can insist on getting releases from all subs and suppliers after they finish their work and before the contractor is paid for it.
Even when a lien claim is recorded, it’s more a notice than an action, an easy-to-file declaration that a problem exists. When he gets it, the property owner could always pay off the obligation and in return the claimant would file a release. If he disputes it, he could just ignore the notice for the moment: It might never be acted on, or it might become a lawsuit, in which case the dispute will be heard in court.
It is, however, a threat, and could cause trouble if it’s not resolved in some way--release or the filing of a suit. Like any recorded document, it stays on record. Credit bureaus don’t generally include such liens on credit reports because, unlike tax liens or liens resulting from court cases, no judgment was involved in the filing.
But title insurance companies like things neat and clear, and if there’s no release on record, may not insure title to the property for a year--a refusal not justified by law and open to what Abdulaziz calls “negotiation.”
