All Kate and Peter wanted to do was remodel their ancient kitchen and build on a family room. They saved and borrowed, hired a contractor, and three dusty months after it began, the construction was finally over. But the legal headaches were just beginning.

It turned out that the contractor hadn't paid the lumberyard thousands of dollars for the lumber, doors and windows used in the new room. Now the lumberyard had slapped a lien on Kate and Peter's house, and was talking about filing a lawsuit to force the sale of the house. Kate and Peter had already paid the contractor and had no money left over to pay again. Suddenly they were threatened with losing the house they'd worked so hard to improve.

Kate and Peter were blindsided by what's known as a mechanic's lien. A mechanic's lien has nothing to do with mechanics in the usual sense. It's a claim against your property, which can be filed by anyone who provides materials or does work on your house and doesn't get paid. Your property becomes responsible for the debt, and the people who are owed money can even force it to be sold at auction if something isn't worked out.

But It's Not Fair

Most homeowners, like Kate and Peter, would be shocked to know that even if they pay a home improvement contractor in full, they might still end up owing laborers, carpenters, electricians, materials suppliers or equipment lessors. But that's the law. The whole point of the mechanic's lien process is to make your property the ultimate guarantor of payment for all contributors to the project.

The reason is that the law is more concerned about those who provide labor or materials to a construction project getting paid than it is about the possibility of owners having to pay twice for the same work. Of course, you could sue the contractor for reimbursement, but that's another story.

How It Works

Here, generally, is how a mechanic's lien works in California. The process is similar in most other states.

First, any worker or materials supplier who doesn't contract directly with you, the owner, must send you a Preliminary Notice that describes what goods or services he or she is contributing to the project. The notice is typically delivered within 20 days of when the goods and services are first provided. The worker or supplier can't use a mechanic's lien for any contribution that was made more than 20 days before the Preliminary Notice is served.

If there is a payment problem, the contributor files (records) a document called a Claim of Mechanic's Lien at the County Recorder's Office for the county where the real estate is located. The contributor then has 90 days to either work out the payment problem or sue you, seeking to have your home sold to pay off the debt.

Lawsuits are seldom filed within the 90-day period, which means that most recorded mechanic's lien claims end up being invalid. Even so, you may still have to ask a court to remove the lien from your property title if you ever want to sell the property. The proceeding is simple and straightforward.

Heading Off Problems

Fortunately, there are some steps that an owner can take before starting an improvement project, and during construction, to protect against this type of horror show. The main idea is to make sure that everyone is paid.

One way to protect yourself is to not rely on the general contractor to pay off the subcontractors and materials suppliers. Instead, you can write a number of checks, each check being jointly made out to the general contractor and to a particular subcontractor or to a subcontractor and a materials provider. The idea here is that the check may be cashed only if the ultimate beneficiary endorses it, which will help assure payment and eliminate the risk of mechanic's liens. This is a common procedure, especially near or at the end of a project.

Another common way to protect yourself is to ask the contractor to obtain mechanic's lien waivers from everyone who the contractor is responsible for paying. In fact, under California law, a home improvement contractor must give you such a waiver for all work for which the contractor has been paid, before accepting any further payment from you for additional work.

Also See: Homeowners' Advice

Published: January 29, 1999

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