I’ve sent out preliminary notices to my customer and homeowner for a completed job. I never received the payment, I then sent out an intent to lien notice. Now I have the homeowners lender information. Can I send the lender the stop notice?

4 months ago

We have had trouble collecting payment from one of our contractors. I’ve send out preliminary notices to both the contractor and homeowner, but found out the homeowners address is unoccupied. So, the letters never got to them. I then received the lenders information, I would like to know if I can send them the stop notice or what my best options are at this point.

Senior Legal Associate Levelset

I’m sorry to hear about that – nonpayment is frustrating, but it’s that much worse when you’ve taken all the right steps but not been paid. Before diving in – it’s worth noting that sending a copy of a Notice of Intent to Lien to a project’s lender can be an effective tool, too. While an owner and a contractor will typically take the threat of a lien claim very seriously, a construction lender will typically be very wary of threats to their investment – like a mechanics lien – and they can help put additional pressure on the parties who have failed to resolve the issue and make payment.

Preliminary notice
Further, before talking stop notice, let’s also look at the effectiveness of preliminary notices sent but not received since a stop notice can’t be sent unless preliminary notice was given. In California, under § 8116 of the California Civil Code, preliminary notice is effective upon mailing if it’s properly sent to the required recipients. Further, notice is effectively sent if it’s sent to the recipients’ residence or place of business under § 8108. Additionally, preliminary notice that’s sent to the owner’s address as shown on the direct contract, the building permit, or a construction trust deed will be effective, and notice sent to the contractor at the contractor’s address as shown on the building permit, on the contractor’s contract, or on the records of the Contractors’ State License Board under § 8108(a) and (d).

Re-sending Notices of Intent to Lien
Note that, even if preliminary notice is effective, it might be a good idea to resend Notices of Intent to Lien so that the contractor and owner actually receive them. Because it’s not a required notice, the real power in a California Notice of Intent to Lien is the effect it has on recipients. When they receive a Notice of Intent to Lien, they know that the claimant means business and isn’t afraid to take whatever steps are necessary to get paid. So, if there are other addresses where a contractor and owner can be found, it might be wise to send them a Notice of Intent to Lien at an address where they’ll receive it.

Stop notice
Under § 8530 of the California Civil Code, a claimant who would be entitled to file a mechanics lien is also entitled to send a stop payment notice to the project’s construction lender. This notice, when sent, calls for the lender to stop releasing payments until the dispute is resolved. A stop notice can be “bonded” (meaning, paired with a surety bond that equals 125% of the amount of the claim) or “unbonded” (sent without also securing a surety bond). Note, though, that under § 8536(b), a lender can decide not to withhold funds if (1) the stop payment notice is unbonded, or (2) if the claimant is someone other than a direct contractor and if the project has a payment bond on record. Otherwise, the lender must withhold payment.

When necessary, mechanics liens typically lead to payment
Nobody likes mechanics liens. But, sometimes they’re necessary. If preliminary notices, Notices of Intent to Lien, and even stop notices aren’t effective, pursuing a lien claim just might be. After all, mechanics liens are the strongest payment recovery tool in the construction industry. It’s unfortunate when a lien must be filed, but when push comes to shove, filing a lien will often get the job done. More on that here: How Do Mechanics Liens Work? 17 Ways a Lien Gets You Paid.

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