A Contractor’s, Subcontractor’s & Supplier’s Step-By-Step Guide to Getting Paid - California - Webinar

In this blog, presented by SunRay Construction Solutions and William L Porter, Founder and President, Porter Law Group, we will provide you a Step-by-Step Guide for Contractors, Subcontractors, and Suppliers to get paid. This blog will discuss in detail Preliminary notice, Mechanics Lien, Stop Payment Notice, and Payment Bond Claim.

Preliminary Notice

A Preliminary Notice is something that you need to deal with in the initial stages of your construction project in order to protect your right related to Mechanics Lien, stop payment notice or payment on claim. So, remember that a preliminary notice is a task that should be carried out once the contract is place, but no later than 20 days after supplying labor/materials.  

• Apart from few exceptions, sending a preliminary notice is a prerequisite in order to pursue claims related to Mechanics Lien, stop payment notice, and payment bond.
• The preliminary notice should be served by the subcontractors and suppliers to the Owner, the Direct Contractor and the Contractor Lender (if there is one involved).  
• Direct contractors, i.e., those who have a direct contract with the property owner do not have to serve a preliminary notice to the property owner in order to protect their claim rights. However, if there is a construction lender involved, then the direct contractor must serve the preliminary notice to the construction lender.  

Deadlines And Procedures for Serving Your Preliminary Notice

Here are some key timelines and procedures to remember while serving your preliminary notice.

Step 1: The California Preliminary Notice must be filled and sent by the direct contractors, subcontractors, and suppliers within 20 days of first supplying their labor/materials to the jobsite. You can also send it 20 days before you have the contract.

Step 2: The preliminary notice should be sent to the correct address of the intended recipients either through registered mail, certified mail (with return receipt requested), express mail, or overnight delivery by an express carrier.

Step 3: Before you send out the Notice, ensure that you have a copy of the filled Notice for your own records. You should also safeguard your “Receipt for Certified Mail’ or your express carrier receipt, return receipt, and other documents that are proof that you have sent the Notice through authorized delivery.

If you fail to serve the preliminary notice on time, it will invalidate your claim to Mechanics Lien, stop payment notice or payment bond.  

Remember that if you send out the preliminary notice on time, then you will maintain your right to claim for mechanics line, stop payment notice or payment bond.

Mechanics Lien

A Mechanics Lien is considered as one of the most power tools for contractors and suppliers on a private project who have not been paid for the work they have performed or the materials they have supplied.

• The Mechanics Lien form is filled and recorded in the County Recorder’s office where the construction project is located.
• The Mechanics Lien is served to the property owner. In case you are not able to serve it to the property owner, you can also serve it to the original contractor or the construction lender.
• When you record the Mechanics Lien, it gives the claimant an interest which is directly attached to the property where the work was performed. So, if your payment is not made, the debt can be settled by selling the owner’s property.
• The Mechanics Lien form is filled and recorded in the County Recorder’s office where the construction project is located.
• The Mechanics Lien is served to the property owner. In case you are not able to serve it to the property owner, you can also serve it to the original contractor or the construction lender.
• When you record the Mechanics Lien, it gives the claimant an interest which is directly attached to the property where the work was performed. So, if your payment is not made, the debt can be settled by selling the owner’s property.
• Mechanics Lien is not available on public construction projects.
• This is why Mechanics Lien is considered a valuable tool because it puts pressure on the property owner, the general contractor, or in some cases, even on the subcontractor to ensure that payment is made as soon as possible.

Deadlines for Recording Mechanics Lien

Here are some deadlines to follow while recording your Mechanics Lien.

a. If a valid Notice of Completion or a Notice of Cessation has been recorded

• Direct Contractor: The direct contract can file their Mechanics Lien 60 days after the date when a valid Notice of Completion or Notice of Cessation has been recorded at the County recorder’s office where the construction project is located. The direct contractor does not have to wait for the 60 days to complete and can in fact record the Mechanics Lien as soon as the Notice of Completion or Notice of Cessation is recorded.  
• A Notice of Completion is valid only if it is recorded within 15 days after the work is completed whereas a Notice of Cessation can be recorded only if the work has stopped for a continuous period of 30 days.
• Subcontractors and Materials Suppliers: Unlike direct contractors, subcontractors and materials suppliers have as few as 30 days to record their Mechanics Lien after a valid Notice of Completion or Notice of Cessation has been filed.  
• There are some rules to remember, such as with regards to the Notice of Cessation, for commercial private projects, the owner is responsible for letting you know that the Notice of Completion has been filed. If they do not inform you, then you have 90 days after the actual completion to file your Mechanics Lien.

b. If there is no valid timely Notice of Completion or Notice of Cessation recorded

• If there is no valid or timely Notice of Completion on Notice of Cessation recorded, everybody, i.e., the contractors, subcontractors, and suppliers will have about 90 days after the actual completion of the work to record their Mechanics Lien.
• The actual completion date is determined by whichever situation below arises the earliest.
• You can clearly tell that the work has been completed.
• The work stops for some reason and the owner, or their agent, occupy the work.
• There is no supply of labor for a continuous period of 60 days.

Remember that you do not have to wait for these 30,60, or 90 days to file your Mechanics Lien. If you are done with the project, even though the project is not yet completed, and you think that you may not get paid, then go ahead and record your lien.

Procedure to Record a Mechanics Lien

Step 1: Go to the County recorder’s office in the county where the construction project was performed and fill out the form titled ‘Notice and Claim of Mechanics Lien”.

Step 2: Once the form is filled, you need to record it at the Country recorder office.

Step 3: You will need to pay a filing fee.

Since it is not mandatory for the owner to send a Notice of Completion or Notice of Cessation, it is recommended that the claimant checks with the County recorder’s office.

If you are not sure about the deadline, the best approach is to record your Mechanics Lien as soon as possible instead of missing the 30- or 60-day deadline.

Mechanics Lien Lawsuit Deadline

The claimant, their attorney, or an authorized agent should file a lawsuit within 90 days of filing and recording the Mechanics Lien. If this deadline is missed, then both your lien right and the right to file a lawsuit will expire.

An exception to this rule is a ‘Notice of Credit’. Although it is rare, you can extend your deadline for filing a lawsuit by asking the property owner to sign a Notice of Credit in front of a notary public and record it.  

However, this is not a preferred method. So, ensure that you are filing your lawsuit somewhere between the 80^th and 90^th day so that you give the owner ample time to clear your debts.

Stop Payment Notice

A stop payment notice is a notice that is sent to the owner or the construction lender informing them that a certain amount is owed to you. Through this stop payment notice, you can ask them to set aside your money and not to give it to the general contractor as you are making a claim for it.  

• So, the general purpose of a stop payment notice is to inform the party who is holding the funds, i.e., either the owner or the construction lender, to set aside the money owed to the claimant. It obliges the funds holder to withhold the claim amount from the prime contractor to ensure that there are funds to pay the claimant of the stop payment notice.
• A stop payment notice on private works is served to the owner or the owner’s architect (if any) and to the manager or any other responsible person at the brand of the lender administering or holding the construction funds.
• The deadline for serving a stop payment notice is like the deadline for recording a Mechanics Lien.
• You can use the stop payment notice in conjunction with your Mechanics Lien claim as well as payment bond claim. It does not mean that you will collect three times, but it comes in handy if you mess up any of the other claims.

Stop Payment Notices – Bonded or Not Bonded

• If there is a construction lender on the project, and you send out a stop payment notice, then you must include a bond along with it from a bond company that does stop payment notice bonds.  
• If your stop payment notice does not include the bond, the construction lender can ignore your notice and is under no legal obligation to withhold the funds. The bond must be for a minimum value of 125% of the claim amount.
• If you are sending the stop payment notice to the owner, then you do not have to use a bonded stop payment notice. Instead, the claimant can use a non-bonded stop payment notice.

Procedure to Give a Stop Payment Notice

Here are the steps to follow for sending a stop payment notice.

Step 1: Fill out the form titled “Stop Payment Notice”.

Step 2: Send it to the owner or owner’s architect and the construction lender (if any).

Step 3: Although you can send it through personal service, the recommended way of sending it is through express mail, express carrier, registered mail or certified mail. Also, ensure that your request for return receipt.

If you are serving the bonded stop payment notice to the construction lender, then you will need to send it to the manager or any other responsible officer at the branch of the lender where the funds are being held.

Deadlines for Serving a Stop Payment Notice

• The subcontractor or the supplier has only 30 days to serve their stop payment once a valid Notice of Completion or Notice of Cessation is recorded at the County Recorder’s office.
• The Notice of Completion must be recorded within 15 days of actual work completion while the Notice of Cessation is recorded only after the work has stopped for a continuous period of 30 days.
• If these notices are not valid, then you need to look at which of the below situations took place the earliest:
• You can clearly tell that the work has been completed.
• The work stops for some reason and the owner, or their agent, occupy the work.
• There is no supply of labor for a continuous period of 60 days.
• The deadline for sending out the stop payment notice expires 90 days after the earliest of any of the above situations.

Stop Payment Notice Lawsuit Deadline

• A stop payment notice lawsuit can be filed any time after 10 days from the date when the stop payment notice was served.
• However, it should not be served later than 90 days from the expiration of the period within which the stop payment notices must be served.  
• In short, the last day to file a stop payment notice lawsuit will either be 180 days from the day the project was completed or 120 days from the day a valid Notice of Completion or Notice of Cessation was recorded.

Payment Bond Claims

A payment bond is usually associated with public projects; however, they can be used on private projects as well. It can be used in conjunction with Mechanics Lien and stop payment notice.

• Although a payment bond notice is not always required before suing on the payment bond in court, if the claimant has sent out the preliminary notice, then the payment bond should be served within 15 days of recording the Notice of Completion.
• If there is no Notice of Completion recorded and the claimant has failed to serve the preliminary notice, then they can serve the payment bond notice within 75 days from the actual completion of the work.

Procedure to Serve Payment Bond Notice

Step 1: The payment bond notice is served on both the bond principal which is usually the direct contractor and the payment bond surety.

Step 2: You can use various methods to deliver, such as personal, hand delivery, registered mail, certified mail with return receipt requested, express mail or overnight delivery through an express service carrier.

Payment Bond Lawsuit Deadline

• If the payment bond is recorded, then the lawsuit should be filed within six months after the completion of the work.
• If the payment bond is not recorded, then the lawsuit should be filed within four years.

All these remedies, Mechanics Lien, stop payment notice, and payment bonds have specific deadlines to follow, and the best practice would be to bookmark 60 days to discuss the situation with your attorney and 90 days for your lawsuit.

Key Things to Remember

• A Mechanics Lien can be used only on private works and not on public works.
• In private works, you need to have a bond for your stop payment notices whereas in public works, there is no need for a bond at all.
• In California, almost every public works project will have a payment bond. So, if you are involved in a public works project, your bets remedies are stop payment notices and payment bonds.

So, ensure that you are following all the rules and deadlines, make sure you fill out the correct forms, and use these three remedies to ensure that you are paid.