Webinar: Nuts & Bolts of California’s Mechanics Lien Law
California’s mechanics lien laws provide substantial protection for contractors and suppliers. However, there are many requirements that must be followed in order for a construction participant to qualify for, maintain, perfect, and enforce lien rights. Whether you’re a GC, a subcontractor, or a material supplier, you’ll be able to walk away from this webinar with a better understanding of the statutory remedies that you can leverage to help you get paid on a construction job in California.
About Christopher Ng
Chris is the Managing Partner of Gibbs Giden, LLP, a law firm with offices in California and Nevada. Chris primarily represents construction industry clients, including material suppliers, contractors, design professionals, and property owners. He represents them in connection with all aspects of private and public construction projects, including the enforcement and defense of contract, mechanics lien, stop payment notice, payment bond, and other statutory claims and remedies. Chris is also an adjunct professor, active speaker, and published author, and is nationally recognized in the field of construction law.
About Seth Bloom
Seth is the Senior Director of Attorney Services for Levelset. Since 2004, Seth has managed his own law firm in New Orleans, specializing in criminal defense, personal injury, property and insurance law, and oil spill litigation. He is an accomplished New Orleans criminal defense and personal injury attorney.
Full Webinar Transcript
Seth: Hello. We’re really excited today to be here with Chris Ng. I’m Seth Bloom. I’m the Senior Director of Attorney Services focusing on the Expert Center. We’re really happy to have Chris with us today, who’s the managing partner at Gibbs Giden, which is a highly respectable big firm, so we’re excited to have him today. He has a lot of experience with doing educational seminars on things like mechanic liens. So Chris, I’ll let you take it away with it, and you’ve been one of our super active participants on the Expert Center, answering questions for contractors and people in the construction industry now for a number of months, so take it away.
Chris: Thanks, Seth, and welcome everybody. This is Nuts and Bolts of California’s Mechanics Lien Law. Seth said, we are … I won’t say we’re a big firm necessarily, but we have four offices in California. We also have an office in Las Vegas, Nevada, and we are construction lawyers. I sit on a few national boards, including the American Bar Association Forum on Construction Law representing suppliers and subcontractors. So the issues that most of you have are issues that are close to my heart, and they’re issues that I talk about on a national level to make sure that we are advocates for the industry, and making sure that at the end of the day, we get paid, and that’s what today’s 30-minute seminar is all about.
Chris: It is California’s Mechanics Lien Law, which is much more broader than typically what you hear is the mechanics lien document that you’re going to record against a property. The Lien Law, when we use that term, actually refers to all of the statutory remedies that you, as contractors or suppliers in the industry, can benefit from. So for the next 30 minutes or so, we’re going to talk about generalities when it comes to these statutory remedies. In the future, Levelset will do more webinars like this and will focus in on particular topics that are of interest to anyone out there. Feel free to make your requests, and we’ll set up webinars separate and apart that are focused on particular topics, and we can do a little bit of a deeper dive. Today, we’re going to be a little bit more general in our approach.
Chris: One thing I like to always start with is just a little look at the economy in general, not the macro economy, but as far as the construction industry. And yes, we look at it on a regional basis, and we look at GDP numbers and all that, but really what is interesting to us, is always the AIA number. The AIA is the American Institute of Architects. They put out a consensus survey twice a year, the last one in July 2019, and it shows that we are still growing.
Chris: So for all the talk of recession, recession, recession, at least as far as the construction industry goes, we’re pretty healthy. I mean that’s why I put healthy in quotes because I know there’s a lot of negativity out there, but as far again as construction, we’re looking at growth, slower growth perhaps for 2020, but when architects are still billing, that puts projects in the pipeline at a solid growth rate for between now and the next many months where a lot of you will start getting your orders or contracts, it still looks healthy.
Chris: So for us, it’s all good stuff, but it does remind us as we turn the corner now on, what, 11 or 12 years of a really good market, that the time will come when it will turn, it will change, and we will have to get back to good business practices, and a lot of this is making sure we understand the Lien Law, and we stay up with new California statutes and case law. In fact, whatever state that you are working in, making sure that you’re always on top of this stuff and participating in webinars like this to make sure that you are the educated person for your company, you can come back and tell them about all the new, wonderful things you’ve learned.
Chris: Some of the statutes that we have in California, there’s a litany of them. In fact, there’s hundreds of them that are going to be effective as of 1/1/20, some more important than others to the industry. We will do separate webinars about the new 2020 laws coming up, including California’s Consumer Privacy Act, which is a big one. It goes into effect 1/1/20. If you do more than $25 million and you are collecting personal data of customers or individuals, officers, directors of customers, you’ve got to comply with the CCPA. A big deal, it’s taken a lot of companies, small and large, by storm and so, making sure that you are on top of that, super important.
Chris: Other things that I point out here, I won’t go through all of the statutes that you might see on your slide, AB 1565, which has undergone a couple of iterations in the last 24 months, is one that doesn’t seem necessarily perfectly important to most of the audience that’s out here today. It is direct contractor liability for subs, and sub subs, and sub sub subs for failure to pay wages. I raise that because increasingly, general contractors are using Labor Code 218.7 to withhold payment from subs that cannot open their books and show payroll records and compliance with all the requirements of 218.7, so it’s giving another excuse to GCs not to pay subs.
Chris: And sometimes if you are a supplier out there, you’ve heard, “Well, I haven’t been paid yet.” And so part of the reason that we’re seeing some of these failures to pay downstream is Labor Code 218.7, and we’re seeing more subcontractor defaults than we probably have seen in the last several years. I would say since 2012, I haven’t seen so many defaults in the last 12 months or so. Part of that might be due to 218.7, so I raise that here.
Chris: Some of the new California cases that are out there, we had a slew of them in the last few months. One, Precision Framing that deals with the timing to record mechanics liens. It’s become a really gray area here in California, which was not made better, unfortunately, by the appellate court. We’ll talk about timing in a minute when we get there, but a couple other cases that are also important like the ACCO case, which really helps those of you that make claims on license bonds. It takes out the specific intent requirement from the requirement to make a claim, which makes it easier to assert a license bond claim when necessary against your customers.
Chris: All right, so with that said, let me launch in a little bit into the Mechanics Lien Law overview. The lien law has been around for a long time, right? It’s been around since Marcus Aurelius and we don’t change it much here in California. It came to us 150 years ago. It was put in our Constitution back in 1879 and it is a constitutional right, so you’ve got the right to remain silent and you have the right to get paid as a contractor or supplier in California.
Read more: Mechanics Lien Law Guide & FAQs
We take it seriously here and so, you’ll see on the Levelset forums and website, you’ll see all sorts of references, references to the approach of our courts, which are to liberally construe the California Lien Law to favor contractors and suppliers to make sure that you get paid. And so courts typically do follow that and so that’s a really nice thing to do is to know that you have that protection and that benefit from the courts, which are going to try to do everything they can to get you paid for the most part.
Chris: The last overhaul we had was in 2012 when all of our code sections changed. We did a lot of discussion about that when it changed. For the most part, the law remains intact. For those of you that have been doing business in California prior to 2012, the code sections have changed, but you’ll still see people using old forms, forms that’ll say 3262 on them perhaps or 3260.1 or 0.4, those are all outdated. We don’t want to use those forms. When you see people in industry that are using the old waiver and release forms, you know that they are not doing their homework and not participating in things like this to make sure they are up to date with the new laws.
Chris: The Mechanics Lien Law covers several arrows in your quiver, okay?
Seth: Let me ask a question. So what happens if people aren’t using the most current forms? What kind of a scenario does that set up if a problem occurs?
Chris: Yeah, it’s a great question. So it depends. In cases like preliminary notices, I’m litigating a few of them right now where folks have used the old forms, and we have some case law in California that says if you do not use the current up-to-date form that’s compliant with the statute, even the boldface text in the warning language that appears on the prelim that your prelim is invalid.
Read more: California Preliminary Notice Guide & FAQs
So it’s super important to make sure that you are using the correct form. And obviously, Levelset does use all the current updated forms that are compliant with California Law. If you’re trying to do them on your own, that’s one big obstacle because a lot of times, I’ll see forms that are the old forms or forms that just don’t comply, that people copy and pasted from the internet and those can get you in trouble.
Chris: So as I talk about lien law, we talk about the Mechanics Lien itself. We talk about the Stop Payment Notice, which for some of you that are experienced in California, you know what it is. Most of you have used it on California projects. You may not use it on private projects, but you should always be thinking about it as we’ll talk about. The Payment Bond Remedy, Contractor’s License Bond Remedy I throw in to this quiver of yours, Prompt Payment Penalties, which we won’t have time to do a deep dive in today, but is fantastic pressure and leverage for subcontractors against general contractors that haven’t paid timely. And then, of course, you do have your Contract Rights and Rights Against Third Parties, things that, again, we won’t talk about today, but if you are a supplier, you’ve got a credit agreement in place with your customer or a distribution agreement perhaps or if you have a joint check agreement, that’s what we’re talking about as far as Contract Rights and Rights Against Third Parties.
Chris: But the ones that I mentioned initially, the lien, the stop notice, the bonds, those are things that some people consider as secured claims. It’s secured if you do it right, but it doesn’t mean 100% security unless you follow all the rules. So we’ll walk through some of that today so that you are better armed with the knowledge that you need to know so that we do it right in the future.
Seth: Chris, if you would pause for a second, I think one of the attendees has a question. I’m not sure if you see it or I can read it to you. Well, it’s coming right now. They ask about, “What about the scenario when a GC and a sub have had a toxic relationship from the beginning? How does that change things?”
Chris: Well, I’m assuming this is the subcontractor’s perspective perhaps. I don’t know if it changes anything. These are remedies that you as a subcontractor or a general contractor, of course, have to protect yourself, to assert your leverage on a project to make sure you get paid, and also, of course, be secured. I mean it’s all about security and leverage when we’re talking about these two things. So the fact that you are in conflict doesn’t necessarily mean it doesn’t really have any impact on these rights.
Seth: I think they’re specifically asking if what if they can’t agree on the percentage of completion so that the sub’s not getting paid. The subs file a mechanic lien. Is that prematurely filed?
Chris: So yeah, we’ll talk about that. Typically, you have to be done with your performance to record a Mechanics Lien in California. In fact, we had a case a couple of months ago, Precision Framing, which talks about this issue. So if you prematurely record your lien and you are not done, your lien may be invalid. Now the court in that case, again, issued two months ago, did leave the door open and said that you can re-record your Mechanics Lien when you are done. But in practicality, one of the decisions that you often will come up against when you are a subcontract or even a GC is when am I going to call it quits? When am I going to walk off a job? And so, that decision, is it important? For many reasons because you are putting your neck out there and potentially not completing a job, which may … you know that the owner or the GC is going to claim that you abandoned and walked off the job and breached your contract and you, of course, are you’re going to say, “Well, I haven’t been paid yet. So you breached the contract.”
Chris: And so, in general, we always encourage our clients to try to complete the project, complete their work when possible. But when it’s not possible, one thing that you might consider doing before taking advantage of these remedies, especially the Lien Law remedy is to declare your contract complete. In other words, issue a final deductive change order. Let the owner know that you are or the GC know that you are done on this project, and you are going ahead with your Mechanics Lien Rights. That’s something that you should talk about with your attorney because it will depend on your particular situation.
Chris: Okay, so one thing I want to point out before we launch into these remedies individually is there’s only a few different ways that you can release your rights in California, okay. As a general contractor, it is true that you can sign subordination agreements. You can give up your lien rights in advance prospectively. That’s another Moorefield case that came out in 2014, but as a subcontractor or supplier, there’s not really many ways that you can give up your rights. They are you accept a joint check that’s payable to you and your customer and then, you sign it and give it to your customer and your customer runs off with your money. Unfortunately, you’ve been deemed paid and so, of course, most of you probably don’t do this, if you get a joint check and some of your money is in that joint check, you want to make sure it’s your customer who signs off on that check and it’s not you signing over the check to your customer because that’s one way that you can waive your lien rights.
Chris: The other way is through these four forms. The four forms that are probably the bane of most of your existence, the Conditional and Unconditional Waivers and Releases Upon Progress and Final Payments, these are typical in most states around the country and they take special meaning here in California. These are the ones that you are going to use every month to procure payment and then at the very end of the project, hopefully, to get your final payment if you’re a sub looking to get your final retention payment. These are the four forms. This is the other classic way that you typically give up and release your lien rights, okay?
Chris: So if you haven’t signed over a joint check and you haven’t given one of these waivers and releases, chances are you, hopefully, have a good lien right assuming your materials and labor went to the particular project that you are making a claim upon and that you have timely served a preliminary notice. And I know most of you know how important that is, but it is very important that you timely do a preliminary notice and do that at the outset of construction, the outset of when you first furnish your materials to a job because that’s how you make sure that you are going to get paid and get covered for everything.
Chris: Now, one caveat or, I’ll say-
Seth: Sorry to interrupt, but I want to keep a little bit of a Q&A going, if that’s okay. We have Jessica who asked a question, and maybe it was applicable a few minutes ago, but she was asking, “What if they’re slow to pay? If they’re not paying according to what the contract is that’s been agreed, does that justify? Doesn’t that justify a mechanics lien at that point?”
Chris: Well, it may justify a mechanics lien. So part of your analysis with these rights is if you’re not done yet and you still have work to be performed, you may not do a mechanics lien unless you’re going to declare that your contract is over. And so, that’s a big step as I mentioned. That’s a big … You’re going into the ring and taking your chances when you do that. So it’s a careful decision that you really have to take a lot of thought about with your attorneys to make sure that you’re making the right call. It theoretically could be. There are cases, federal and state, which talk about whether a failure to pay timely is a breach, what we call a material breach of the contract, and you can argue it both ways. That’s what lawyers are paid to do.
Chris: We can argue that the fact that we paid you five days late doesn’t really matter. And so, we can play with the numbers all day long. But again, you prefer not to be paying a lawyer to fight the fight. So it’s a better idea to get in front of it, toss your individual situation out to a lawyer so that they can discuss with you what’s the right thing for you to do.
Chris: So the caveats I was going to mention real quick is if you are a subcontractor, always making sure that you are licensed and properly licensed at all times, especially in California. We call it the death penalty for contractors. If your license is suspended for one day on a project, doesn’t matter how long you’ve been on that project, you are at risk from not getting paid a dime on that project and having to give up all the monies you’ve been paid. We know it well since we’ve handled cases before the California Supreme Court on this issue. So please, as a subcontractor, do everything necessary to make sure that your license is always up to date, does not lapse for any reason whatsoever.
Chris: As a supplier, make sure that you are not a supplier to a supplier. And I say that because there are lots of, I know in the industry, requests for you all to sell through DBEs, disadvantaged business enterprises, especially in public projects, mostly on public projects, some federal, some state, this happens all around the country, there are lots of horror stories, not just because you are cutting off your own lien rights when you’re a supplier’s supplier, but you also can be implicated into DBE fraud. So we don’t want to enter into that foray. It’s a separate 30-minute or we can do three-hour webinar really on the topic, but it’s a webinar that we can dive into to make sure that you avoid DBE fraud sorts of issues. From a perspective of a supplier trying to enforce rights, that’s one way that you do cut yourself off, okay.
Chris: So yeah, make sure that you know how to use these four forms safely and correctly. If you don’t, make sure you sign up for the next Levelset webinar that we’ll do on using statutory waivers and releases properly.
Chris: And again as I mentioned earlier, it’s all about timing, timely service of your prelim, timely service of your lien, stop notice or payment bond claim, timely recording that lien and then timely initiating your lawsuit if and when necessary.
Chris: This graphic is a one that Levelset provides to give you an indication of what it looks like for the preliminary notice requirement around the country. Most of the Western United States follows the same rule as we do here in California, which is we call it the 20-day preliminary notice for a reason because it captures the value of labor and materials furnished in the 20-day period prior to when you serve your preliminary notice. The form looks something similar to this. Of course, when you use Levelset, it goes directly into their system, spits out the form. It’s all automated, which is fantastic. You don’t have to worry about completing this scary looking form all on your own. And so, that’s one of the wonderful things that Levelset offers for you is the ability to safely and properly and timely complete your preliminary notice, which forms the backbone of all of these wonderful lien rights that we talk about.
Chris: Now, one common thing that you hear is “Don’t do a prelim on this job. Why don’t you trust me? I don’t want to piss off the owner,” all sorts of things that you might hear, right? There really isn’t a good reason to not do a preliminary notice on a job account, okay? Now everyone has their own thresholds. I work with clients that are publicly traded. I work with clients that are mom-and-pop operations, and they all have their different thresholds for when they do prelims. If you are a subcontractor and you’re listening to this webinar, know that you must serve a preliminary notice on every job over $400, and I bet a lot of you have never heard that before. It is in Civil Code 8216. It is one sentence long. It’s very simple and straightforward.
Chris: A lot of you say, “Wait a minute, I don’t do prelims in every job over 400 bucks. I’ve never done that. None of my friends do it.” Well, one reason why you should be doing it is, especially in California, Sacramento has a lot of money and so what that means is the Contractor State License Board has a lot of funding and they are setting up stings and they are going to job sites and they’re doing audits. They go around, they look at trucks, they look at uniforms, they go to the owners, get lists of preliminary notices of who they’ve gotten prelims from with a general contractor, and then they go around and say, “Okay, ABC Window Company, John Doe Plumbing, Mary Jane Painting Company, where are your prelims?” I don’t have any prelims here. Five thousand dollar penalty, third time, a suspension and possible forfeiture of your license. So it’s a big deal.
Seth: Chris, to some extent that goes back to business is business and don’t get insulted about a preliminary notice, correct, I mean-
Chris: Yeah, absolutely, Seth. I mean and it’s really reflective of when you hear that request, it just means that usually, it’s somebody that’s not sophisticated or just doesn’t get the process, right. On every single construction project in the State of California, except for maybe residential improvements, people know, general contractors and owners know about prelims and they expect prelims. In fact, representing an owner or lender, which I do from time to time to keep myself honest, to make sure that I’m advocating for subcontractors and suppliers correctly, I do make sure that I have my checklist. How do I know who I’m going to pay every month is my checklist is composed of prelims that I get from subcontractors and suppliers. When I don’t get them, that makes me upset because I know there’s people on my job that I don’t know who they are and that’s not okay, especially with workers’ compensation laws and everything else under the sun so-
Seth: When I see some questions coming up, I apologize to all the attendees if it seems disruptive, but did you want to answer a question or two or you want to finish your thought? I’m sorry.
Chris: No, totally fine. My final point here is that the process, as you said, Seth, should not be one that should require much thought. It is it’s $400, I got to do a preliminary notice because that’s the law in the State of California. Suppliers, they can do something that’s more than that. Set their threshold at a thousand bucks, 5,000 bucks, whatever it is, but you should be able to always push back on your customer who says, “Don’t do a prelim,” with a simple education process of, “Well, I hope you know that you have to do your prelim,” and saying, “Hey, we’re ready to give waivers and releases upon request. We don’t delay. This isn’t going to be a difficult thing. This is how it works in California to protect our company, to protect ourselves, and to help protect you as well.”
Seth: Okay, I’ll give our first question. I have two questions from attendees. The first one is on releases, are electronic copies good in court or do they need an actual physical wet signature?
Chris: Another great half hour topic, Seth. However, I will say that for the most part, electronic signatures are okay. Since the year 2000, under federal and California State law, we do typically authorize and allow digital or electronic signatures. There always can be issues with them. They’re more likely to have fraud issues, that sort of thing. Although, we had forgery claims before that, but typically, they do hold up as long as you have a chain of custody, you have a way to authenticate who sent you that electronic or digital signature.
Seth: Okay. And the second question, and it may have been from a few minutes ago, but says, “Is this from a Letter of Intent, Notice to Proceed or the actual date of the subcontract agreement or is it from the date of when the final subcontract agreement is signed by the GC?”
Chris: So I think this pertains to the when do you do the prelim? We typically send it out, we would suggest doing it right at contract signing. There’s no reason to wait. There’s no reason to delay. There’s always issues that pop up of, “Well, you were fabricating in house for a hundred days before you sent your prelim.” There’s lots of things that can come up. We say as soon as you sign your contract, there’s no reason not to do the prelim there at that point. Now again, as I mentioned, there’s lots of different webinars that we’re going to do and one of them pertains to the preliminary notice. We can spend 30 minutes right on that topic. When do you have to amend your preliminary notice if at all? How do you get product information? What happens when you find out that the owner or the product is different later on? There’s lots of rabbit holes to go down.
Chris: And one of the topics that I have up here on the screen is there are several ways to get job information. One is to use Levelset. Levelset can do the project research for you. You can and should always get a job information sheet from the general contractor or the owner. That’s something that’s common place and exists almost with every project, every large project. The direct contractor must give you that information. Anybody that’s seeking to get prelim information must be given that information by the direct contractor and that’s Civil Code 8208.
Chris: And the job information sheet is even that much more important after a 2010 case that we had called Force Framing versus Chinatrust Bank. I won’t go into all the details today, but it allows us to rely upon a “trustworthy job information sheet.” In that case was from a general contractor and so, that’s good news. If you have a job info sheet signed by your customer on the letterhead of one of the big builders, those typically you can rely upon. The larger the case, the larger the claim that you have, the more homework I suggest that you do to make sure that you’ve got the job information correct, okay.
Chris: So the lien itself, as I mentioned, it’s a three-page document. Again, Levelset can process those liens for you. It’s the Claim of Lien, the Notice of Intent to Lien or the Notice of Lien with the statutory mandatory language and the Proof of Service Affidavit. This you complete online. Levelset puts it out for you by certified mail. Once you have done your mechanics lien, you have 90 days to foreclose upon that lien. You must take action in those 90 days, typically by filing your lawsuit to foreclose upon the lien if you have not been paid or you must release that lien after 90 days. I know there’s lots of old school contractors that say, “Well, screw it, I’m going to leave my lien in place.” That is becoming harder to do because there are statutes now that exist, which will hold you responsible for attorney’s fees if you have a stale mechanics lien on title. That’s something you don’t want to do. You want to make sure that you enforce your lien rights within 90 days of when the lien’s recorded or you release that mechanics lien, okay?
Chris: As I mentioned earlier, you do not want to record your lien until you are done furnishing your labor and materials to your project. If you hear about a notice of completion on a job, it can shorten your time to record your mechanics lien to 30 days from the date that notice of completion’s recorded. I always say if you get a notice of completion, which is rare in this day and age, but when you do get one, you got to stop everything you’re doing. Look at that because you may only have a couple of weeks to go ahead and get your mechanics lien served and recorded under our current California law. So you got to be careful when you see notices of completion.
Chris: In most cases, you don’t get notices of completion and then, all claimants have 90 days from actual completion of the job. This is again a topic that we could spend a good 30 minutes on what the hell is actual completion? There’s lots of different ways we define actual completion. As Levelset puts on their website, California is a little bit unique in the way that we do it, we calculate it from project actual completion, not from when you last furnished labor and materials. That’s in a lot of states the way like the federal law, which says 90 days from when you last furnished, you must do your Miller Act Bond Claim on federal jobs. A lot of states follow that rule.
Chris: We don’t follow that rule here in California, which gives you more time to assert these rights, but you still have to stay in touch with the project, especially if you’re early on in the project doing structural steel or rough plumbing. If you are doing work two years before the project’s completed and you’re willing to hang on to wait for your retention or your payment, you got to stay in touch with the project to know when it’s about to wrap up because that’s when your clock’s going to start ticking for when you can record your mechanics lien or serve your Stop Payment Notice.
Chris: And again, there’s lots of different ways we signify completion in California. I will save a lot of this for another webinar that we do in the future. I wanted to mention one other remedy besides the Mechanics Lien is the Stop Payment Notice. And I like to put special emphasis on this topic because it’s one that a lot of people don’t think about or they think about only on public projects.
Read more: What is a Stop Notice and How Does It Work?
It is available on private projects as well, whether it’s owner funded or construction lender funded. On a public job, you can’t lien a courthouse or you can’t lien a police station, but you certainly will have a Stop Payment Notice Right, which puts the lien on the construction funds in the hands of the owner and you also have a Payment Bond Right on all public works. But again, whenever you’re thinking about a mechanics lien on a private project, think about the Stop Payment Notice on a private project.
Chris: And I’ll give you a quick example as we wrap up here. I had a case, this is a few years ago, on a church in Downtown Los Angeles where there was a bunch of claimants out there. There was $30 million owed to the contractors, the suppliers out there. The construction lender came in and said, “You know what, we’re 30 days from trial, but we’re sorry. Our construction loan, which has priority is going to wipe all of you out.” And so if you’ve been practicing long enough to know and to see the last couple of cycles where we’ve had recessions, you will know that you’ve heard that term. We haven’t heard that term in a long time, that phrase, “We’re going to wipe you out,” because quite frankly with equities where they are at all time highs, property values, we haven’t had that situation.
Chris: However, in a case, something like that where a mechanics lien is dependent on the value of the equity of the property, a stop payment notice is not. It’s all about the construction funds in the hands of the owner or the lender. In fact, if the lender pays itself points and interest during the life of the construction loan, you can have them reach back into their pockets and put on the table the monies they paid themselves for your benefit. And that’s what happened in my Downtown Los Angeles case where all the other claimants got wiped out, except for two clients, one client of mine and the client of a colleague who had stop payment notices. We got paid in full, hundreds of dollars. Everybody else got wiped out. So a lesson on why we use the stop payment notice, it’s all about security and leverage. Seth, you got some questions?
Seth Bloom: We’re running out of time here. I’m going to … There’s one question that was on point here. Someone asked, “On the stop payment notice, do we have to wait until we’re done on the job or can we do these throughout the job for delays in payment?”
Chris: Yeah, that’s a great question, fantastic question. You can serve a stop payment notice before you’re done and that’s where the lien and the stop payment notice diverge. You can serve your stop payment notice, but you can only include the value of your labor and materials furnished through the date of that stop payment notice. Be very careful about that. Don’t put lost profits in there. Don’t put future monies to come because that can willfully overstate your stop payment notice. But that’s a great question. You can do it early.
Seth: Well, Chris, thanks for that and maybe I’ll give you a few more minutes to wrap up. I know your time is very valuable and we really appreciate everything you’ve done here. I think there’s a lot of people that you’ve answered a lot of questions for and educated a lot of people on this. So I’ll give you a minute or two to wrap things up. And I know, like you said earlier, each one of these topics could take a few hours to go over.
Chris: Yeah, for sure. And so, I know we didn’t even get to some of the remedies, but it’s anytime you’re thinking about how do I get paid in a project, remember, you’ve got these amazing special rights that are afforded to you by the Constitution of California. You’ve got your Mechanics Lien. You have your Stop Payment Notice. You have Payment Bond Claims on every public job, federal, state, local, and you also have it probably on I would say 20 to 30% of private jobs now are actually bonded. So if you don’t ask about whether a payment bond exists, you’re never going to know.
Chris: And when that does exist, it’s a fantastic way to make sure that you are secured and have the leverage to get paid at the end of the day. And then, of course, when in doubt, you also potentially have your Contractor License Bond Claim, Prompt Pay Penalty Claims, and your Contract Rights, okay. So remember, it’s a whole quiver of arrows that you have at your disposal and Levelset’s there to help you enforce your position to make sure that you are in the best place to assert your security and your leverage as you move forward. Happy to take any other questions that you might have to close this out. Otherwise, we’ll see you guys on the next webinar that we do.
Seth: Well, Chris, I just really want to thank you being a real expert in this area and I know I get to use the term expert loosely to comply with bar and ethics rules, but it’s been super helpful here at Levelset. We have a ton of information on our blogs and part of our core products here and the Expert Center is going to keep rolling with a lot more webinars from you and other people in different parts of the country. And Chris, thanks for answering questions. I know people are already asking can they get this PowerPoint presentation and the recording of this afterwards, which they can get. So we’re excited about that. So it will live on, on the Levelset website. And thanks again and enjoy that beautiful California weather and happy holidays.
Chris: Thanks, Seth. Happy holidays to everybody.
Seth: Bye. Take care. Bye-bye.