Proven Methods to Protect Your Cash with California Lien Rights

California construction attorney, Andrew Carlton, has helped a lot of contractors protect themselves and use their lien rights effectively get paid. Now he wants to walk you through the ABC’s to CYA.

Watch this webinar to learn:

  • 3 simple steps to protecting your money
  • Lesser known tips to using lien rights effectively

Full Transcript

Seth:
I’ll just introduce myself. I’m Seth bloom with levelset. I’m senior director of attorney services. I’m happy to put on these webinars. We’d love people to check out our expert center, our attorney network, ask questions. There’s a lot of resources there to help you save money and navigate your business and the legal world, and also to meet great lawyers like Andrew Carlton, who we have today. We’re gonna be doing a webinar called proven methods to protect your cash with California lien rights. Andrew is a attorney in the Southern California area practicing out of orange County, but they handle cases all over California. So I will turn it over to you now, Andrew, thank you so much for this webinar. I know we have a lot of people out there looking forward to it.

Andrew:
Thank you, Seth. Hello everyone. My name is Andrew Carlton, as Seth said, I’ve been a licensed general contractor in California since 1989. I was the owner of a design build firm, co owner of a design builtdfirm in the late eighties and nineties. We’ve focused on high end residential projects. I got my law degree in 2000 and I have practiced construction law for the last 20 years. I’ve been involved in three separate appellate cases where new law was made in favor of contractors in California. I’ve lectured on various construction related subjects, including change orders in California for the Lorman education services. I wrote an article entitled the tools available to contractors for recovery of attorney’s fees that was published in the Los Angeles lawyer magazine. In 2012, I was voted the affiliate of the year by the engineering contractors association in 2011.

Andrew:
And I served on the engineering contractors association, a board of directors in 2016 and 17. I was the chairman of the Southern California contractors association, legal committee in 2014 and 15, I have authored and published the ABCs to CYA: subcontractors and material and equipment providers on private works. I’ve also published a similar booklet for public works and private works jobs. Excuse me today’s presentation. I’m going to essentially go through the ABCs to CYA on private works. Though the, this presentation’s focus is on subs and material and equipment providers, the presentations also for general contractors in that it will hopefully educate GCs as to whether or not their subs have complied with certain California law. So give my firms Carlton and Alberola. I’m Andrew Carlton. My partner is Edward Alberola. The firm’s focus is construction. So that said this is about the value.

Andrew:
The value of your mechanics lien on private works only, obviously there’s no mechanics liens on a public works project. The value of your stop payment notice, which a lot of residential guys or smaller contractors don’t utilize and the value of your payment bond claim, the value is leverage. The leverage with the mechanics lien. Obviously the owner is going to demand that the general contractor that’s the party you contracted with, or you may have contracted with the subcontractor depending on the tier, but they’re going to want the lien off their property. So they’re going to hammer the general contractor to get that lien up the property. So you have leverage there. With a stop notice on private works, the lender or the public entity on a public works project will withhold at least a hundred percent of your stop payment. Notice. You have to think of a stop payment as a lien on the money, lien on the construction loan, where mechanics lien of course is a lien on the property, but you want to utilize all your tools to collect the money that’s owed to you.

Andrew:
With a stop notice, the general contractor, which the party you contracted with will want to resolve your claim to free up its portion of that money. Because if you have a contract, you know, he has a piece…the contractor has a piece of it. This is also about leverage with a payment bond claim. So it’s not used a lot, obviously in smaller residential projects, but if you’re doing projects of any significance, you’re probably familiar with payment bonds. And the leverage there is bonding capacity because if you’re able to affect a, a contractor’s bonding capacity, I mean, you’re affecting, you know, its lifeblood. So, so the leverage here with respect to a bond claim is the contractor survival. So how do you, how do you lock down this leverage and get paid? It’s you follow the ABCs to CYA. The ABC’s to CYAs,

Andrew:
Like I said, there are booklets that I prepared for subcontractors. General contractors can utilize it also. And it literally walks you through the steps that you need to walk through to have the leverage. You need to get yourself paid, where do you get them? I’ll send them to you. I’m going to leave. I’m going to give you my email address at the end of this presentation. This is what it looks like. This is the cover of the ABCs to CYA. This is the cover of the private works booklet. And there’s also one like a separate public works projects to start out the most important information is the required information to cover your assets. And this is a booklet in the the booklet. This is a page in the booklet that we provide. Second item is the preliminary notice. We’ve all seen preliminary notice.

Andrew:
This is the form that I had created and placed in my booklet that can be photocopied on a copy machine and utilized. And then this tells you, you know, how to take care of it. Relatively new change in the law requires the notice this language, which is notice to the property owner. And by the way, everything I’m going to tell you here today is just straight out of the code. There’s nothing made up here. I’ve gone through the code enough times over the years, to where I’ve, you know, been able to call out. What’s important, what to pay attention to. You have to send copies of your notice certified mail return receipt. You send it to the owner, the direct contractors, the lender, the surety though not required by the code. And I’ll explain that later. And the person or entity you contracted with you might be a lower tier sub. So then you would also send it to that entity. If you’re not contracting with the direct contractor, how do you know where to serve the owner, the lender, et cetera. Presumably someone gave you a pre lien sheet with all this information. When you started the job, it should be part of your contract documents.

Andrew:
On the other hand, you can be. So, so with that pre-lien sheet, you should know where to serve your prelim. Mechanics Lien and other forms, you can follow that pre lien sheet, or you can be absolutely sure by following the code, the code says the owner is the person’s residence place of business or the owner’s address on the construction contract, building permit or construction trustees. So if you get the information from one of those items, you’ve satisfied your obligations under the code for the direct contractor or, or a subcontractor it’s the contractor’s residence place of business or add contractors address on his contract building permit or the CSLB records, which anybody can look up at a moment’s notice. The lender’s a little tougher, it’s the lender’s address on the construction loan agreement or construction trustee. And it has to be given to the lender’s manager or other responsible officer, a person at the branch that’s administering the loan funds.

Andrew:
So it’s a little more complicated, but you do your homework and you can find out and of course you get this information early on. You don’t wait until you have a potential claim because it’s going to be a lot tougher, pry, this information out of, out of the GC or the person you contracted with if you haven’t gotten that already. As far as the payment bond, you serve it on the surety’s address, shown on the bond or other documents or on the records for the department of insurance, but you can all get online. So for the payment bond principle it’s the principal’s address shown on the bond. So that’s usually the contractor’s address. This would be usually the principal on a payment bond. As far as identifying the project site, what the code says, it’s a description of the site sufficient for identification, including the street address of the site.

Andrew:
If any, if you’re doing new construction, new development, there might not be an address. So you might have to say the Northwest corner of fifth and main that’s sufficient to, for identification of the property to comes down to it. Maybe you definitely would want to talk to an attorney or have somebody, you know, determine that. So where do you all, if all of the information as to the owner, direct contractor lender, surety and project address is not provided to you on a pre-lien sheet in the ABC’s to CYA, I have this letter, which you can plagiarize or cut and paste or burn a copy of it and just fill it out and send it, which basically tells the person you contracted with it. You’re entitled to this information because the code says that the contractor has to give you this information. And in fact, you’re in violation of California code.

Andrew:
If you fail to give a preliminary notice a lot of times I get a call from a a subcontractor you know, saying, Hey, I haven’t been paid. I want to do a lien. And my first question is, did you serve a 20 day pre-lien anyway? So in most cases you can rely on information on the pre-lien sheet, but if you want to be certain, you are in compliance with the code, you should verify the correctness or you could lose your lien rights. Now, the reason that you may be able to rely on a pre-lien sheet ,that is information that’s provided to you without doing a bunch of homework and investigation is this case, which is force framing. It was back in 2010, it’s a framing contractor. I represented it. You don’t need to read everything on the screen there. I’ll tell you quickly general contractor, framing contractor, excuse me, did, did the work he was owed, I think, close to a million dollars.

Andrew:
It was some condominiums, the general contractor died in a plane crash. So he wasn’t getting paid. Well, my guy had sent his preliminary notice to the wrong bank because we were going to do a stop payment notice and try to recover the money. He sent the notice to the wrong bank because off the pre lien sheet that he got, they identified the wrong lender. So we had to go to court and basically argue that even though force framing sent the information to the wrong lender it wasn’t his fault because he got the information from a faulty pre lien. This went all the way through the appellate court, but the court ultimately said, you know what? As long as the information is sufficiently reliable, as long as that subcontractor got information from someone that he should be able to rely on, it doesn’t matter if he sent it to the wrong lender.

Andrew:
So that was the outcome of that case. It was a good outcome. My guy got paid. So as for the prelim, send it immediately, you have 20 days to send it, but there’s no reason to wait, make sure the estimated value of your work is based on a rational analysis or calculation. I see guys that write on their pre lien sheet, you know, a hundred thousand dollars, $10,000, a nice round number that is dangerous because there’s a case out there that says if your pre lien sheet isn’t based on some sort of analysis or calculation, it might not be good. Don’t forget to execute and complete the proof of service on your preliminary notice as for the certified mail receipts. When you send them off, if it comes back undeliverable, keep it sealed up and closed because that’s your proof that you serve your prelim on that entity.

Andrew:
Of course you have to address the envelope properly. As for the claim on mechanics lien, this is what it looks like in the ABCs booklet. It just tells you what to do and when to do it a relatively recent change in the lien is this language and mechanics lien has to have this language. Most mechanics liens you see are multi page documents. I boiled it down to one document. Everything is on this one page. You have to execute this proof of service affidavit, which states that you have served the owner or reputed owner with the claim of lien. When do you record it? A lot of people ask this question over and over. You record your lien after you have ceased work. And within 30 days after recordation of a notice of completion or a cessation, which is whatever date, or no notice of completion or cessation has been recorded is 90 days after completion of the work of improvement.

Andrew:
It’s not 90 days after you finished your dry wall. It’s not 90 days after you finished your roofing work or 90 days after you finish your framing work. It’s 90 days after the project, the entire project was complete. So you know, you probably want to be talking to a lawyer. If you’re getting to this point when to enforce it, you enforce your mechanics lien claim before you file. You must file your lawsuit on or before the date you recorded, plus 90 days. That’s the answer. That’s the short answer.

Seth:
Andrew, I just wanted to interrupt for a second and just talk to everyone that’s in the room and encourage them to ask questions. Andrew and lawyers like this started a lot of money. So you have your opportunity now. If there’s any questions out there, just go ahead and post them and we’ll get that to them. Just wanting to put that out there at the halfway point. Okay. All right. Thanks.

Andrew:
Okay. So going on with respect to the sum of your claim, a mechanics lien, we know how much, how much is your lien worth. People want, you know, sometimes pain and suffering for not being paid. That doesn’t fly. The amount of your mechanics lien, it’s all the money due to you under your contract. And that includes change orders. Because change orders, is money owed to you on your contract or the reasonable value of your work, whichever is less, but there’s, there’s cases out there that say your contract amount is the reasonable value. So you can’t put your delay damages in there. A lot of guys think they can do that. Don’t do it. If you overstate your lien intentionally, it could be moot. Now, if you think you’ve missed a deadline to record a mechanics lien or stop payment notice it’s possible, you did it.

Andrew:
And it goes back to serving your preliminary notice and what the code says, except for very small projects, except for we’re an owner occupied the property of four or fewer units. If you, if you serve a owner with a prelim preliminary notice, they have to give you notice. If they’ve recorded a notice of completion or notice of cessation, if they fail to give that to you, then you have basically 90 days, it says it right here. So the owner fails to give within 10 days of recording a copy of its notice of completion or cessation as the claimant, you shall have 90 days from completion. So a lot of people say, Oh, I blew it because 30 days has gone by since the owner recorded a notice of completion. And I said, well, maybe you did it because the owner had to give you notice within 10 days of recording that notice of completion. And if that owner failed you, it defaults to 90 days. So there’s things like that, that you gotta, you gotta stay, you know, abreast of

Seth:
Andrew, I have a, got a couple questions here. One’s pretty specific. So I don’t think you’re going to cover this one. Ben asked if he did the job in a shopping mall, who’s the owner, is it the brand or the mall?

Andrew:
Okay. Well, I mean with the owner, it’s with me, it’s I don’t know who the owner is. What I do is I find out the legal address and I have a a an account with first American and I look it up and I find it. So it’s, whoever’s on the deed. I mean, now the, if you have a pre lien sheet from your general contractor, whoever you contracted with, they should have, they should identify the name of the owner and you could generally rely on that information,

Seth:
Andrew we’re getting a couple different questions and I answered, one of them, people are asking, people are coming in from different jurisdictions, different States you know, whether or not this lien law works in different States. And I basically am telling people, and you can add something to that, that generally the concepts are similar in most States, but that the specific law is going to be different. Wouldn’t you?

Andrew:
Yeah. I completely agree with that. And not only that, the deadlines might be different, you know, California’s 30 and 90, you know you know, I don’t know what the other states are. Definitely wouldn’t want anyone to rely on the deadlines that I’m suggesting for any other state in California. Okay.

Seth:
And yep. That’s all we got for now.

Andrew:
Okay. So, all right, then I’ll just go on. So what if you failed to enforce your lien within 90 days of recording your mechanics lien, you lose your right to bring an action to foreclose on the property to recover your money. So you’re going to lose that leverage. Because again, I mean the power of mechanics lien, you know, is that the owner is now going to be an advocate for you, that, that you get that lien off its back.

Andrew:
I mean, I’ve been doing this for 20 years and I can tell you that the power of a mechanics lien that’s done properly and you have the leverage is and as long as you’ve done the work and everything’s on the up and up, you know 99.9% of the time you’re going to get paid. So when the property owner has a lien against it, that owner is like I said, it’s gonna apply pressure against the party you contracted with. There’s a law out there that you can extend your time beyond 90 days. I’m not going to talk too much about this. Other than say, you can cut a deal with the owner to extend your, your deadline, to file a, to file a lawsuit, to enforce your mechanics lien. If you’re negotiating, if you’re in a good faith negotiation, yet you record this document and then you’re good to go.

Andrew:
If you withdraw your lien, you can still come back and re-record it so long as you’re within the timeframe to record a lien in the first place. So, so if your time to record has expired and you’ve not timely enforced your lien though, you should voluntarily release it because technically under the code that owner could file a petition to come petition to expunge the lien and that owner, if he prevails on the claim, which he will prevail on the claim of you blew your deadline, he can get a, that owner could get its attorney’s fees. Okay. Stop Notice. I’m going to go through this quick same thing with the is to see why this is the form you’re looking at. This is the book opened up. There’s some, you know, you just got to fill it out and you gotta dot the I’s and cross the T’s.

Andrew:
I don’t need to spend a lot of time on this. It’s just like a mechanics lien. You have to serve it, which means mail it certified mail return receipt within 30 days after recordation of a notice of completion or cessation, or if that hasn’t been done 90 days after completion. So stop payment notice and mechanics lien go hand in hand as, as the timing issues. And I encourage you to start using your stop payment rights on projects, where there’s a lender, because it’s a powerful tool. You serve it. Like I said, certified mail return receipt to the owner or the owner’s architect. If you don’t know the owner or to the construction lender, you know, the construction lender and that information is in the book. When you commence your claim, well, it’s 10 days after you serve your stop payment Notice, you have to wait that long.

Andrew:
And then it’s just like the mechanic’s lien. Within 30 days after recordation of a notice of completion or 90 days, if that hasn’t been done, plus 90 days. So you sit down, you fill in these, this information, you add it up and that’s the day. Of course you would never wait until the last minute to file a lawsuit. And you’d always be talking to a lawyer well in advance of any deadline to file a lawsuit. Last thing a lawyer wants to hear is, you know, on Friday night, you call them up and saying, Hey, my deadline to file lawsuits on Monday, you know similar to a claim of mechanics lien, stop payment notice should include all of the money that’s owed you. It’s just like the lien no delay damages, just your contract and change order work. There’s, there’s two types of stop payment notices, bonded and unbonded.

Andrew:
And I’m gonna just tell you that you want a bonded stop notice. It’s going to cost you a few bucks, but there’s a great reason why you want to get a bonded stop payment notice. With the unbonded stop payment… Well with the bonded stop payment Notice, the lender must withhold the money. If it’s unbonded, it doesn’t have to. And trust me, lenders know the law; lenders have lawyers. They will not withhold the money. If you’re in an action to enforce a bonded stop notice, you can get your attorney’s fees. If it’s unbonded, you cannot. If it’s bonded, you can get your interest. If it’s unbonded, you cannot, like I said, it’s going to cost you a few bucks.

Seth:
Andrew, we got, Glenn has a question for ya. All right. What happens when your pre lien amount is accurate, but then the project has many changes, and this is adding up to a substantially higher amount. Can you amend a pre lien or add to the total amount in some other way?

Andrew:
That’s a good question. Actually, that happens a lot. What the code says, you only need to serve one 20 day prelim. So I believe you it’s legally sufficient just to leave it as is. I mean, when you serve that 20 day prelim, that is the dollar amount that you entered into. And you’re fine. Now that being said, I will often just have my clients serve an amended one. You know what I mean? But if you fail to do that, I’m confident that you haven’t messed yourself up. Okay. so moving on here, I guess I’m looking at the clock and see it’s 11:25 on the West coast.

Andrew:
So the, the, some of you may know about payment bonds, payment bonds are great tools. You know, it’s what happened is a lot of times an owner on a significant project will say, Hey, listen, if you don’t pay your guys, I want to bond out there. That’s gonna pay everybody off. And so if you do get a, if there’s a bond on the job, when you, when you get this job, you, you find out that there’s a payment bond, take advantage of it. This you’re looking at the page and the ABC’s to see why they tell you how to, what it’s all about. There’s a proof of service at the bottom. That’s relatively new. Here’s some important issues. If you haven’t got a 20 day prelim. You could still pursue a bond claim. That’s a pretty big deal for somebody that’s blown their 20 day pre-lien.

Andrew:
You have to give a written notice of your bond claim to the surety in principle, 15 days after recordation of a notice of completion. Now, why isn’t it 30? I don’t know to screw you up, but you only have 15 days. If there’s no notice of completion, you have 75 days. Why isn’t it 90? I don’t know. You gotta keep your eye on the ball. When to enforce it, this is really good news that the time may be longer, but you have at least six months to commence a claim on a bond claim. So that’s a very good thing. It’s like an… It’s it’s, it’s not insurance policy, but it’s close to that. It’s analogous to that. So whether you served a preliminary or not, it dictates that the, that the prelim be set to the surety. Okay, so completion’s a big question.

Andrew:
I talked about it. What is completion on a project? Private works project with a code tells us it’s a bunch of things it’s actual completion. It’s occupation or use accompanied by cessation of labor.it’s cessation of labor for continuous 60 days. It’s recordation of a notice of cessation after cessation of labor for 30 days. And if it’s subject to approval by public entity, it, it occurs on acceptance to the point of all. This is it’s, it’s blurry. It’s not clear what completion is. So you should consult an attorney. If you think it’s close be aware of multiple contracts. If, if your general contractor is entered into two or three contracts with the owner, but you only have one contract with the general contract, a contractor and covers all three of those projects, you have to be careful because as those phases complete your debt, your clock starts to run.

Andrew:
So that’s all I’m going to say on that. So like saying here it is, if this goes back to the first page, I showed you in this presentation, there’s your required information. When you start a job, you should have this information. This information is easy to obtain early on in the project when everybody’s holding hands and everything’s good. But when, when there’s money on the line, down the road and your own owed a lot of money, good luck getting that payment bond information, good luck getting that lender information. Good luck. Getting that owner information. That question from Glenn, you know, I don’t know where he is in the project, but at the beginning of the project, I bet you could have got owner information a lot quicker and easier. So my advice don’t cut it close. Record or serve well before your deadlines.

Andrew:
Remember the deadlines are based on completion and that’s different, you know, it’s 30 days or 90 days on your mechanics lien and stop payment notice it’s 15 and 75 on your bond claim. If you think you’ve missed your deadline, you still might have time. If your last day to file or serve a document is a weekend or holiday do it before. Okay. Don’t wait if you’re working on a commercial property and there’s posted a notice of non-responsibility. That means the owner has freed itself from a lien claim. So keep your eyes open for postings on commercial properties. And if you don’t have mechanics lien and stop payment on us or bond claim, you always have your breach of contract claim, which are good for four years on a written contract. If you like to get the ABCs to CYA and you’re out there, there’s my email address. If you email me, I will send you either the private works booklet or the public works booklet, or both, if you let me know in your email and it’s 11:30, if you have any questions, I’d be glad to answer them.

Seth:
Yeah, Andrew, I just wanted to thank you so much for doing this and see if there’s any last minute questions out there. If you do have questions and they, you think of them later, you can certainly email Andrew directly. You can post them on our expert center. You can do all of that stuff and any questions that come up in any jurisdiction, especially here, since we’re doing with California just go ahead to the expert center and post them. I don’t see any other questions coming in right now, but Andrew, I just wanted to thank you so much for taking time out of your busy day, especially with this pandemic and everything that’s going on now, I know it’s hard for everyone and we want to help our people out and that’s our customers or our contractors or people that use our services. So just thank you so much and we look forward to more webinars from you in the future.

Andrew:
I sat, I thank you. I want to thank Pierce also. And thank levelset. I mean, I think it’s a great website and it’s really a good tool for contractors, for sure. Thank you so much, everyone have a nice and safe day. Thanks guys.