Under the California Mechanic’s lien law, it states any contractor, subcontractor, supplier, laborer, or other person(s) or entities who assists to amend your property but is not paid for his/her work or supplies has a right to execute a lien against your property, land, or home where the job was performed to sue you in court to obtain payment.
This means that after a court hearing, your home, land, and property could be sold by a court officer, and the proceeds of the sale are used to satisfy what you owe. This can happen even if you have paid your contractor in full if the contractor's subcontractors, laborers, or suppliers remain unpaid.
To preserve their rights to file a claim or lien against your property, certain claimants such as subcontractors or material suppliers are each required to provide you with a document called a "Preliminary Notice." Contractors and laborers who contract with owners directly do not have to provide such notice since you are aware of their existence as an owner. A preliminary notice is not a lien against your property. Its purpose is to notify you of persons or entities that may have a right to file a lien against your property if they are not paid. In order to perfect their lien rights, a contractor, subcontractor, supplier, or laborer must file a mechanics' lien with the county recorder, which then becomes a recorded lien against your property. Generally, the maximum time allowed for filing a mechanics' lien against your property is 90 days after the substantial completion of your project.
TO ENSURE EXTRA PROTECTION FOR YOURSELF AND YOUR PROPERTY, YOU MAY WISH TO CONSIDER EMPLOYING ONE OR MORE OF THE FOLLOWING ITEMS.
(1) Require that your contractor provides you with a “Payment and Performance” bond (not a license bond), which renders the bonding company will either bring to completion the project or pay damages/compensation up to the total value of the bond. This “Payment and Performance” bond, as well as a copy of the construction contract, needs filing with the county recorder, by you, for your additional protection. The “Payment and Performance” bond cost generally runs from 1 to 5 percent of the contract amount contingent upon the contractor’s bonding eligibility; if a contractor cannot procure such bonding, it may indicate his or her financial inability.
(2) Require payments to be made directly to subcontractors and material suppliers through a joint control agreement. Funding services may be available for a charge in your area, which will authorize a voucher or other means of payment to your contractor. These services, in addition, may provide you with lien waivers and other manners of protection. Any joint control agreement should include the addendum approved by the registrar.
(3) When making payments, joint checks for payment is the best method; make checks out to both your contractors and subcontractors or material suppliers involved in the project, which could send preliminary notices to you. These are the individual(s) or entities that have indicated they may have a lien right on your property; therefore, joint checks will assist you in protecting yourself. This assists in ensuring all persons due payment are actually paid.
(4) Become familiar with the “Wavier and Release” forms that should be signed by all persons and entities involved in the project. As different project phases, complete a request for payment is made. However, before making any further joint payments require your contractor to provide you, signed by each subcontractor, laborer, and material supplier involved in that portion of the work, for which payment(s) were made unconditional “Wavier and Release” forms. Your contract should have the “Waiver and Release” forms; if not, the statutory lien releases may be located in stationery stores or online – www.cslb.ca.gov/consumers/legalissuesforconsumers/mechanicslient/ are set forth in the exact language in Section 2362 of the Civil Code. The material suppliers, subcontractors, and laborers that you obtain release forms from are the persons or entities who have filed or will file preliminary notices with you. Assuming that you are not certain of the material suppliers, subcontractors, and laborers working on your project, obtain a complete and ongoing list from your contractor. For projects involving improvements e.g., single-family residence or individuals owning a duplex, the person(s) signing these releases forfeit the right to file a mechanics’ lien against your property. This protection may still be important in other types of construction but may not be complete.
Protecting yourself under this option requires you to be certain that all material suppliers, subcontractors, or laborers have signed the “Waiver and Release” form. Whenever you receive a filed mechanic’s lien against your property, you only have one recourse, which is a recorded voluntary “Release of Mechanics Lien” signed by the person(s) or entities that originally filed the mechanic's lien; unless the lawsuit to enforce the lien against your property was not timely filed. Do not make any final payment until removal of all such liens; consult your attorney immediately if you receive a lien filed against your property.
CONTRACTORS by law are required to be licensed and regulated by the Contractors State License Board, which has jurisdiction to investigate complaints against contractors if a complaint is filed with three years of the date of the alleged violations. Refer any questions pertinent to a contractor to the Registrar, Contractors State License Board, P. O. Box 26000, Sacramento, California 95826.