Is a General Contractor exempt from filing a preliminary lien notice on a HELOC funded remodel?

1 week ago

Is a General contractor exempt from filing a preliminary lien notice on a HELOC funded remodel?
We are currently wanting to file a lien on a project due to non-payment.

Senior Legal Associate Levelset

The California Civil Code doesn’t really specify what types of lending arrangements will and will not require notice to be sent to the job’s lender. Under § 8200(e)(2), “A claimant with a direct contractual relationship with an owner or reputed owner is required to give preliminary notice only to the construction lender or reputed construction lender, if any.

Further, § 8006 defines a “construction lender” as:

(a) A mortgagee or beneficiary under a deed of trust lending funds with which the cost of all or part of a work of improvement is to be paid, or the assignee or successor in interest of the mortgagee or beneficiary.

or

(b) An escrow holder or other person holding funds provided by an owner, lender, or another person as a fund for with which the cost of all or part of a work of improvement is to be paid.

So, based on those definitions, any party who is lending funds being used on a California construction project may be considered a “construction lender” for the purposes of the California mechanics lien statute.

Recovery options other than filing a California mechanics lien

Of course, keep in mind that there are always options for recovery outside of the mechanics lien process that can be valuable for recovering payment.

Invoice reminders

Before diving straight into something more serious, providing a simple invoice reminder can help to get paid. Invoice reminders act as a gentle push in the right direction by reminding a customer of the debt that’s owed. And, sometimes that’s all that’s necessary to get paid.

Demand letters

If things do get a little more serious, sending a demand letter can help to get paid. A demand letter will typically include specific legal threats that will become a reality if payment isn’t made. More on the effective use of demand letters here: Demand Letters for Contractors – How To Write One That Gets You Paid.

Notice of Intent to Lien

Mechanics liens are incredibly powerful. So powerful, in fact, that the mere threat of a lien claim will often lead to payment. By sending a document like a Notice of Intent to Lien, a claimant can let recipients know they’re serious about getting paid and willing to do whatever it takes to make sure that happens. More on that here: What Is a Notice of Intent to Lien and Should You Send One? Of course, claimants should be careful using empty threats.

Finally, there are other recovery procedures that will be available, regardless of whether a mechanics lien is on the table. Payment is a key term of every contract, and a failure to pay could give rise to breach of contract claims. And, California is also home to prompt payment laws which institute penalties for late payments – and threatening to use (or actually using) these laws to make a claim could be effective, too. Of course, before deciding to pursue any legal claims, it would be wise to first consult a local construction attorney – they’ll be able to review the situation, documentation, and any other relevant circumstances and advise on how best to move forward.

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