On July 1, 2012, a whole host of changes to California’s mechanics lien law went into effect. Given the substance of these changes and new requirements, the Lien blog published a series of articles describing the modifications to California’s mechanics lien law. But have the changes actually led to any change in the number of preliminary notices and mechanics liens that are actually filed?
A Summary of the Changes to the Law
Many changes went into effect on July 1, 2012 to California’s mechanics lien law. As we previously summarized, some of the most important changes to California’s mechanics lien law are as follows:
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- General contractors must now send preliminary notice in California. Previously, general contractors, or, as they are called under California law, “direct” contractors (those who have a direct relationship with the property owner) were exempt from preliminary notice requirements. The new laws changed that; so long as a “construction lender” exists on the project, the general or direct contractor is now required to send preliminary notice.
- Subcontractors still must file preliminary notice under California mechanics lien law, but a new law actually imposes disciplinary consequences on a party that doesn’t send notice. This penalty, which is applicable to any contracts worth “more than $400,” is of course in addition to the fact that a subcontractor who fails to file preliminary notice forfeits mechanics lien rights.
- Mechanics liens that contain factual mistakes – such as the wrong digit in an address – will not be overturned so long as those mistakes were “not in bad faith.” Of course, whether or not a mistake in a mechanics lien is in good or bad faith is a fact-based query, but this change to California mechanics lien law does give parties who made innocent or good faith mistakes an out for an otherwise fatal procedural error.
Other changes went into effect as well.
Have the Changes Had Any Practical Effect?
It’s one thing for a state legislature, as they so often do, to enact changes to their mechanics lien law. Whether changes to a state mechanics lien law actually have any effect on the raw numbers of filed liens, however, is another issue entirely.
As a recent article noted, the number of mechanics liens filed in California as a result of the changes that went into effect last year has neither increased nor decreased dramatically. This makes sense. Perhaps a more telling statistic would be the number of preliminary notices filed in California over the last 10 months. Unfortunately, however, this number is much harder to determine. If the number, adjusted for the number of projects year over year, did not go up, there are some direct contractors in California that failed to protect their right to lien.
What really has an effect on the number of liens filed is, not surprisingly, the economy. The reality that the economy, not the law, is what drives people to file mechanics liens. It should be the law however, that focuses change in the sending of preliminary notices. All to often, parties on a construction project don’t think about protecting their lien rights until they need to file a lien. By this point, it’s too late. A good lien policy requires compliance with all notice requirements to protect lien rights. If the economy drives lien filings, and contractors are not pushed to action by changes in the law, they run the risk of filing an invalid lien when they actually need one.