Is the construction lender required to be shared with a contractor on a job in California?
Is the construction lender required to be shared with a contractor on a job in California? If the information is not provided, and I’m not able to send a notice to that party, does that affect my lien rights?
For parties on California construction participants, finding the identity of the property owner, GC, and construction lender, can be a crucial but difficult task. Finding the property owner can be simple because there are a lot of databases with this information. But, there are very few databases and no state registries of construction lenders, sureties, tenants, and general contractors.
Since a California preliminary notice is required to be sent to the owner, the GC, and the construction lender (if any) it is important to figure out who these companies are.
As I mentioned in the answer to another question regarding finding the identity of the construction lender on California projects, a party may request the identity of a construction lender from the GC or the property owner. The provision of California law allowing a “request” for certain information holds that: “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.” Owners are only purportedly required to provide information regarding construction lenders when the loans are obtained “after the commencement of work.”
However, despite the language that the identity of the construction lender “shall” provide the identity of the construction lender (and other information), it may not practically be the case. The consequence for failing to provide the “required” information is unclear, and it appears that there is little of consequence for a GC or property owner who does not provide the information, or provide it timely.
Additionally, there is some case law in California that sets forth a further obligation to inquire into the identity of a construction lender. Romak Iron Works v. Prudential Ins. Co. 104 Cal.App.3d 767, (1980) held that a claimant may not solely rely on a representation by the general contractor for purposes of determining a construction lender. In that case, the lien claimant asked the GC to identify the lender and didn’t receive any identifying information. Because of this, the lender was listed as “unknown” on the claimant’s preliminary notice. The court held that the claimant had a duty to inspect the building permit and the construction trust deed for the listing of the lender’s name and address. While it is not clear that this result would be the same if the GC or property owner withheld the information in bad faith to avoid lien liability, it is likely worth it for a potential claimant to make some additional effort to find the lender for the purposes of preliminary notice compliance.
If required information is not included on a preliminary notice, there will be a fight about the validity of any subsequent lien, at the very least. And, it is a difficult position from which to argue, as the requirements regarding the contents and delivery of preliminary notices are generally strictly construed.