To preserve the right to file a mechanics lien in California, subcontractors and suppliers are required to deliver a preliminary notice within 20 days of first furnishing work. Additionally, that preliminary notice must be delivered to the property owner, the “direct contractor” and the lender, if any.
There has always been a dilemma with this requirement, however. Subcontractors and suppliers never had a way to know whether a lender existed, or who the lender was. Finding lender on a California construction project can seem like a challenge.
California’s new mechanics lien law went into effect July 1st, 2012 and it’s §8208 and §8210 offers a solution to this long-standing problem in the state. These statutes provide:
§ 8208. A direct contractor shall make available to any person seeking to give preliminary notice the following information: (a) The name and address of the owner. (b) The name and address of the construction lender, if any.
§ 8210. If one or more construction loans are obtained after commencement of a work of improvement, the owner shall give notice of the name and address of the construction lender or lenders to each person that has given the owner preliminary notice.
The Great News – You Can Ask For The Lender
The great news for subcontractors and suppliers is that direct contractors and property owners now have affirmative obligations to inform them of who is lending to the project. Prior to this amendment, it was common practice and courtesy for direct contractors to provide this type of preliminary notice information, but there wasn’t a provision in the law requiring them to disclose this information.
Obviously, it’s quite difficult for a lien claimant to unearth this information. It would require a trip to the recorder’s office and a scan of public records to see who last financed on the property. Multiply that expense times the number of projects most companies manage, and the expense was never quite worth the benefit.
The law now makes clear that the information shall be made available to anyone required to deliver the preliminary notice.
The Bad News – Who Knows What This Means?
You heard the great news, but let me dispense some bad news: the law is a little ambiguous and California attorneys cannot be sure what it means, how it will be interpreted and what happens if the requirement is violated.
For example, §8208 requires only that a direct contractor “make available” the lending information. Does this mean it must be distributed to all subcontractors or suppliers, or may the direct contractor sit back and wait for the information to be directly requested? Once the information is requested, how long does the direct contractor have to reply with the information?
Plus, what are the consequences when the information is withheld, provided to the requesting party inaccurately, or if the direct contractor takes so long to get the information to the requestor that it defeats the purpose of sending the preliminary notice?
I can see a court punishing a direct contractor or a property owner for failing to distribute the lending information, but will a court punish the innocent lender?