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September 6, 2012

SB 189 Substantially Revamps California’s Mechanics’ Lien Law Effective July 1, 2012.

By Jeffrey L. Anderson

California’s laws regarding mechanics’ liens, stop notices and payment bonds have been substantially modified and revised pursuant to Senate Bill No. 189 (“SB 189”).  Although some provisions of SB 189 went into effect earlier this year, the majority of the changes and the most significant changes became effective on July 1, 201

As of July 1st, all of the mechanics’ lien laws and related laws were deleted from Civil Code Sections 3081.1 through 3267 and replaced with new laws added at Civil Code Sections 8000 through 8848 and 9000 to 9566.  The majority of the changes enacted in the new law are not substantive.  For instance, certain long-standing terminology will change under the new law.  A “stop notice” will become a “stop payment notice.”  An “original contractor” will be renamed a “direct contractor.”  A “materialman” will be called a “material supplier.”  Notwithstanding the changes implemented by the new law, there is no need to refile and re-record notices that were filed under the old laws since the effectiveness of a notice given or other actions taken on a work of improvement before July 1, 2012 is governed by the applicable law in effect before July 1, 2012, not SB 189.  After July 1, SB 189 applies the new law’s significant changes as discussed below.

The new statute changes the language required in a “preliminary notice” (formerly called a “preliminary 20-day notice”).  In addition, the new law clarifies that contractors in direct contract with the owner are required to give a “preliminary notice” only to the construction lender, if any.  Additionally, the new statute mandates that owners provide all entities who served it with a preliminary notice of the name and address of any construction lender who made a post-commencement loan on the project.

The new law also offers a more effective tool to encourage parties to remove liens that were not timely foreclosed.  Under the prior statute, a prevailing party in an action to release a property from a mechanic’s lien had its attorneys’ fees capped at $2,000.  The new statute removes that cap and a prevailing party is now entitled to recover its reasonable attorneys’ fees incurred in an action to expunge.  But, the property owner is required to demand that the lien claimant remove the lien at least 10 days before filing a petition to have it expunged.

Under the new law, by recording a notice of completion of a work of improvement, an owner shortens the period in which contractors may file mechanic’s liens from 90 days to 60 days and shortens the period in which a subcontractor or a materials supplier may file a mechanic’s lien from 90 to 30 days.  However, such shortened periods only apply if the owner provides the direct contractor or claimant with notice of such filing.  The deadline for an owner to record a notice of completion is now 15 days instead of 10 days after the date of completion of a work of improvement.  Where a work of improvement is done pursuant to separate direct contracts with the owner, the owner may record separate notices of completion for each scope of work set forth in each direct contract.

Under the old law, “completion” of a private work of improvement could occur upon “acceptance” of the work of improvement.  However, due to concerns about the meaning of “acceptance” as used in the section, the new law removes it as one of the triggers for completion of a work of improvement.  In other words, completion will no longer include acceptance by a private owner.

Other procedural changes incorporated into SB 189 will have significant practical impact on parties to construction contracts.  For instance, courts will now be subject to new requirements with respect to releasing liens.  Under the new law, courts must rule and make any necessary orders on a petition for a release order not later than 60 days after the filing of the petition.  Previously, under the old law a court could continue the hearing indefinitely.  Thus, the new law will likely expedite the lien release process.  Also, under the new law, an owner may now request an expedited proceeding to determine its liability for payment under a stop work notice.  Cumulatively, these provisions of the new law will render legal proceedings more expeditious and provide greater certainty to the parties regarding their respective legal rights and obligations.

Moreover, beyond the provisions directly tied to litigation of lien claims, the bond requirement to release a property from a mechanic’s lien has been reduced from 150% to 125% of the amount of the claim against the impacted property.  That will make it more affordable for the property owner to bond around the lien.

With regard to notice requirements, there are uniform notice requirements that must be complied with pursuant to the new law in order for stop work notices and notices of completion to be effective.  The statutory form of Conditional Waiver and Release Upon Progress Payment has been revised.  This will require the construction attorney carefully ensure that the forms that their clients are using are up to date.  A claimant may now record a notice of extension of credit, which is a notice of agreement between lien claimant and owner to extend the time claimant has to file to foreclose a lien, more than 90 days after the recordation of the mechanic’s lien.  However, this is only permissible if the recording occurs prior to a purchaser or encumbrancer for value and in good faith acquiring rights in the property affected by the lien.  Before, under the old law, a notice of extension of credit could only be filed within 90 days of the recording of the mechanic’s lien.

An owner must comply with new requirements prior to a release of a lien on its property.  For example, under the new law an owner must give notice to the claimant demanding that claimant release the claim at least 10 days prior to filing the petition to release the property.  Under the prior statute, the owner was only required to allege that claimant was unwilling or unable to execute a release of the lien or could not be found with reasonable diligence.

With regard to bonding issues, henceforth, all payment bonds must be issued by an admitted surety insurer instead of a good and sufficient surety.  By statutory definition, an “admitted surety insurer” is a corporate insurer or a reciprocal or interinsurance exchange to which the Insurance Commissioner has issued a certificate of authority to transact in the surety insurance business within California.  The change from “good and sufficient surety” to “admitted surety” is consistent with the California Legislature’s effort to create uniformity with regard to the requirements of the mechanics’ lien laws and concurrently provide greater regulation with regard to enforcement of payment bonds.

Finally, it should be noted that other existing design professional lien laws have been repealed and design professional liens will, in the future, be incorporated into the new mechanics’ lien law.  For instance, landscape architects are now included as protected design professionals and may record mechanics’ liens under the new law.

If you wish to review the actual language of the new law, here’s a link to the text of SB 189:  http://www.leginfo.ca.gov/cgi-bin/postquery?bill_number=sb_189&sess=PREV&house=B&author=lowenthal

 

Authored by:

Jeffrey L. Anderson

 

Jeffrey is Of Counsel at Pioneer Law Group.  His practice focuses on litigating environmental, development, business, real estate and construction related disputes.

 

(916) 496‑8500

janderson@pioneerlawgroup.net

 

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