How to Prevent a Mechanics Lien

How to Prevent a Mechanics Lien

We have previously discussed in other articles that a mechanics lien can really pose several problems once it becomes a lawsuit. There are only two available options for the homeowner to settle a mechanics lien, pay the claimant even if you have paid them before or submit your property to foreclosure. Both options are not favorable for the homeowner. Let us prevent a mechanics lien from happening. Follow these steps closely and remain watchful, cautious and attentive in your project.

Choosing a Contractor

If your project is estimated at $400 or above, hire only licensed contractors. Start checking the license status at the CSLB’s website. Find out if the prime contractor only hires licensed subcontractors. Check the subcontractor’s licenses too. Make a background check on the prime contractor’s reputation in paying subcontractors and material suppliers and labor. Verify and confirm records of lawsuits at the local courthouse. Require your prime contractor to submit a complete list of participating material suppliers, laborers and subcontractors for the project. If one of the above sends a negative signal, change your prime contractor and look for a better one.

Major Payment Issues on Written Contracts

Your contract must include a detailed breakdown of payment schedules indicating the start and end of specific phases of the work with the corresponding price amount for each segment. It must identify the subcontractors and laborers for each segment. Furthermore, for material suppliers, proper identification, schedule of delivery and types of materials must be indicated with its corresponding price amount. It would be important to include contact numbers of involve parties to track and verify payment on every schedule while the project is in progress.

Keep Track of Paperwork

Preliminary Notice

The preliminary notice basically states that the subcontractor or supplier will provide or has provided goods and services to improve your property and if not paid can file a mechanics lien. This notice is required if there is chance for them to file a mechanics lien in the future. Without the notice they will lose their right to file a mechanics lien.

NOTE: Laborers and prime contractors are not required to file this notice.
Be on top of everything while work is in progress to save preliminary notices. Carefully note the date received of this notice and closely track of who is unpaid, why and when they are paid. The notice is delivered by registered or first class mail or in person, typically before work begins and or supplies are delivered or within 20 days after. The notice may be given after 20 days, but the payment will only cover work done 20 days before the notice is delivered and anytime thereafter. In other words, the preliminary notice will determine the starting point of work coverage in a lawsuit.

Joint Checks

One simple way to prevent a mechanics lien is ensuring payment to subcontractors and material suppliers by paying with joint checks. Joint checks are when both parties (the prime contractor with subcontractor or material supplier) endorse the check. Inform your prime contractor that payment for subcontractors and material suppliers will be done this way.

In preparing your joint checks, compare the contractor’s materials or labor bill to the schedule of payments in your contract with the Preliminary Notices. Check and make sure that work was done as described in the contract. Prepare the check payable to both the contractor and the subcontractor or material supplier.

Using Mechanic Lien Release Forms

Lien releases confirms payment has been made on potential lien claimants. Before making a payment, get a signed conditional release from the possible lien claimants. The forms are available at the County Conditional and Unconditional Waiver and Release Forms section or can be downloaded from the internet. However, your prime contractor is basically required to secure signed release forms for you from potential lien claimants.

Your prime contractor shall provide the signed unconditional release form for each of the claimants paid, representing the portion of the work done. Unconditional release forms must be signed by the actual claimant himself. By law, you can withhold succeeding payments until you get the signed unconditional releases for the previous payments.

Notice of Completion

To file a Notice of Completion after work is completed reduces the amount of time a potential lien claimant has to record a claim. A homeowner has 15 days to file the notice from the date of completion. This form can be obtained at your county recorder’s office, or at an office supply store that stocks legal forms. They are also available online. Prevent a mechanics lien from happening.