Mcle Self-study Article: Who Pays for Clearing Bogus Mechanics' Liens

• Publication year: 2022
• Author: Andrew Adams

MCLE Self-Study Article: Who Pays for Clearing Bogus Mechanics' Liens

Check the end of this article for information on how to access one MCLE self-study ethics credit.

Andrew Adams

Andrew Adams is General Counsel for California Receivership Group and runs a real property litigation firm (www.andrewfadams.com). He can be reached at andrew@andrewfadams.com.

I. INTRODUCTION

Mechanics' liens are an old concept, intended to protect builders¹ from being shorted their fees and material costs by property owners.² Some sources trace the mechanics' lien back to Thomas Jefferson, who supposedly saw it as a way to spur construction in Washington, D.C. at the end of the 18th century.³ The lien itself gives the mechanic or contractor an actual property interest, not just a contract or tort claim that they can seek to recover upon. Protecting those that do the work to improve properties and ensuring property owners cannot simply short those workers has long been an interest legislators wish to protect, particularly in California.

Here in California, "[t]he balance tips in favor of the worker and the materialman."⁴ California is one of the few states that enshrines a right to such recovery in its Constitution, a demonstration of the importance and priority given to ensuring such payments are made.⁵ Mechanics' liens are intended to protect the contractor or the materialman who is performing or supplying materials for the work, and thus appeals to a desire to protect blue-collar workers and builders from a property owner that is too casual in his or her inclination to pay for the work done: "[s]uch protection was deemed necessary to counterbalance the economic advantage enjoyed by those who benefited from the services rendered and the materials furnished, and to discourage a casual attitude toward payment of the obligations incurred."⁶ The counterbalancing protections and lien-removal process for property owners are meant to counter and ensure that the "little guy" contractor does not abuse the protections they are given to collect on their owed payment. This statutory scheme then is a process that is well defined and built into all sides of the construction industry, except possibly then for smaller homeowners.⁷

Larger projects usually benefit from an existing process and an army of consultants and attorneys who have clearly defined rules and roles for any disputes that arise. There is less ambiguity or more clarity among the players involved. The parties on complex, commercial projects are typically sophisticated, which is not common for smaller, residential projects, because the average homeowner does not have any familiarity with the construction or home improvement process. For non-lawyers, a contractor slapping a lien on a home⁸ and asserting a claim to a piece of it might be anxiety-producing. The hard part then is ensuring this process used by homeowners and contractors continues to walk the line it was meant to, and not fall into abuse by either side.

There are situations where a contractor improperly records a lien or does so without the required notices. The simple, straightforward process that is meant to clear these improper liens is not always so. "Seasoned attorneys specializing in construction law recognize that California's mechanics lien law is a complex area of law with many intricacies."⁹ Even with the prospect of recovering the retained attorney's fees, many homeowners find removing improper liens too burdensome or complicated to pursue the same. Considering this, should the mechanics' lien statutory scheme be updated to make it easier for homeowners? Or is there another way to ensure the purpose of the statutes is carried out? One

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potential solution is a stricter and more robust award of attorney fees to property owners that successfully remove invalid mechanics' liens from their title.

II. MECHANICS' LIENS AND REMOVAL

Mechanics' liens are a California constitutional right meant to ensure that a contractor is not cheated by a property owner whose relative wealth makes the interaction and transaction unfair. At the same time, the statutory scheme creates a mirror process allowing a property owner to strip off illegal or improper liens from abuse by contractors in an expedited timeline. "The mechanics' lien is the only creditors' remedy stemming from constitutional command and our courts 'have uniformly classified the mechanics' lien laws as remedial legislation, to be liberally construed for the protection of laborers and materialmen."¹⁰ Any doubts or lack of clarity in the statutory scheme are to be read in favor of the contractor.¹¹ This protection of and affinity for contractors only goes so far, because if the contractors fail to file to enforce the lien within the requisite ninety days, the lien is void.¹² The mechanics' lien is a constitutional right that the contractor holds, that is to be enforced (or defeated) by statute.¹³ If the proper process for filing a lien is not followed, and the debt not proven legitimate, then there is a process for the homeowner to have the slander on title removed quickly.

If a property owner believes a recorded lien is improper, then they must give that contractor at least 10 days' notice with a demand to release the lien before they file a petition with the court demanding the release order.¹⁴ This is a type of grace period, where an errant contractor can correct their mistake without any court interaction. Any petitioning homeowner has to affirm that they gave their former contractor this time to correct the matter,¹⁵ a kind of meet and confer requirement with the contractor, to give the requisite notice that the court has been asked to remove said improper lien. And if they do not, then the supposedly expedited process can begin.

This final warning draws a line: the final chance the contractor has to make it all right and save everyone money and headache.

There are times when the petition procedure to cancel a lien under Civ. Code, § 8480 may be necessary. The easier, less costly, and more reasonable method is to try to convince the claimant to sign a release of lien. In most all circumstances, the nonjudicial approach is less expensive and more effective. Since mechanics liens are governed by strict rules, the claimant whose lien has expired will usually recognize that there is nothing to gain by refusing to release an expired or improper lien. In fact, there is something to lose: payment of attorneys' fees under Civ. Code, § 8488(c). Even if a release of lien is not obtained, the title company can often be persuaded to issue title insurance without listing the expired lien as an exception.¹⁶

This practice point is correct and details the interests and consequences appropriately, but of course if one were dealing with a rational claimant, the improper lien would not have been applied in the first place. If all parties acted correctly and prudently, then there would be no need for protective statutes, lawsuits, and fascinating articles on what trial courts should do in those mechanics' lien litigations. But this 10-day requirement of section 8482 is just one more last-ditch chance for a contractor to do the right thing and release the lien before a court has to be petitioned.

These requirements and final attempts to force settlement are fitting for a statutory scheme that balances contractor's California constitutional right to payment for work and protects the basic right to your own real property. Contractors are given the benefit of the doubt to the point that they are entitled to lien real property to ensure payment. The burden is on the owner to disprove the lien, which is a huge leg up for contractors, but this is a blessing that comes with a strong counterbalanced responsibility. A contractor has to provide notice to the property owner of the claim, and any contractor that asserts such a claim to another's property has only 90 days to "commence an action to enforce," otherwise that lien "expires and is unenforceable."¹⁷

But even this simple deadline of 90 days is not definite. If a contractor withdraws a previous lien without noting that it is "fully satisfied," then they can re-record a new lien later for those same amounts.¹⁸ The new lien might also be invalid, but that 90-day deadline is not without exceptions. For example, if a lien has not been perfected in 90 days, the property owner can demand it be withdrawn, but cannot demand that the withdrawal or release state that the lien is "fully satisfied."¹⁹ Requiring a release note that the lien was fully satisfied gets to the constitutional right to record, and not the statutory requirements imposed on how to enforce that right. With the great power that comes with the filing of the lien comes the requirement that a contractor use that power justly. It also makes sense to put some of those procedural and...