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5 Important Things a Contractor Should Know About Foreclosing on a Mechanic’s Lien

Commercial collections vs individual collections

Probably the most important remedy for a contractor is the mechanic’s lien. California contractors have the added protection of having mechanic’s lien rights embodied in the California constitution, the only state in the union to do so.

A mechanic’s lien creates a security interest in real property for work performed there. If the owner fails to pay the obligation, the contractor can foreclose on the lien by having the property sold to satisfy the debt. Unlike mortgages, a mechanic’s lien can be recorded without the consent of the property owner.

If you are a contractor and wish to foreclose on a mechanic’s lien, here are 5 important things you need to know:

1. You must have given the owner, general contractor and lender a preliminary lien notice within 20 days after you first furnish labor, services, equipment or materials to the project unless you are the original contractor, in which case you need not give notice.

2. If a Notice of Completion or Cessation of Labor is recorded, you have 30 days to record your lien if you are not the original contractor, otherwise it is 60 days. If no Notice of Completion or Cessation of Labor is recorded, you have 90 days to record your lien after completion of work of improvement.

3. You must start a lien foreclosure action within 90 days after placing the lien on the property or your lien rights can expire forever.

4. A Notice of Credit can extend the time for the foreclosure if granted by the owner and recorded with the county recorder’s office.

5. A Notice of Non-Responsibility protects the owner from liens if posted on the job site and is recorded within 10 days of learning of the project.

Remember, the failure to comply with the statutory requirements of notice and recording  is nearly always fatal to your lien rights. Take advantage of the notice requirements to afford the owner an opportunity to work out payment with you if there are issues regarding payment without having to resort to litigation. And of course, if you have any questions about this article or any collections matter then do not hesitate to call on The Law Offices of Andrew Ritholz.

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