A unique characteristic of the construction business is that disputes between the parties involved can sometimes arise after the work is completed. One such construction dispute that many people may be aware of is mechanic's lien. It is a dispute that usually begins after the completion of work and it has the potential to bring about significant challenges for both the property owner and the contractor.
Mechanic's lien is a "hold" against one's property that is filed by an unpaid contractor, subcontractor, laborer or materials supplier in the county recorder's office for nonpayment of financial dues. It can also be filed by subcontractors, laborers and material suppliers who have not received their payment from the direct contractor who has already received payment from the property owner. Per California laws, the property owner is the one who is ultimately responsible for making the payment in this situation.
If a lien is filed against a property, a host of problems can arise for the property owner. First, if a property owner does not clear the dues, the property can be put up for foreclosure, and the money from the sale is used to pay compensation. Second, a property owner has to pay double the due amount if that owner has already paid the direct contractor but that direct contractor has not paid the subcontractors, laborers and material suppliers. Third, it can lead to a lien being recorded against the property title, which can affect the property owner's ability to refinance, borrow against or sell the property.
The complete set of laws governing mechanic's lien can be found in California Civil Code Sections 8000 to 9566. While this blog post provided an overview mechanic's lien, the next two posts in this series will discuss how a property owner can prevent mechanic's lien and what a property owner can do in the event of a mechanic's lien being filed on a property. However, to make sure that one's personal and financial interest is protected against mechanic's lien, it may be wise to seek legal assistance at the earliest.