Blog Archive–NACM Blog Credit Real Time: The Latest in Commercial Credit

Behind the Curve, California Finally Enters the Modern Age

Written by Super User.

California has often been considered at the forefront of many aspects in American life. Cultural icons call the state home. Trends are born in Hollywood and rush to appear in pricey boutiques along Rodeo Drive. Even laws in the state often set the pace for changes that eventually sweep throughout the rest of the nation. But though California’s mechanic’s lien law was first enacted in 1850, the statutes have been slow to modernize, and even today contain language that dates back to 1872.

As the state has grown and evolved, those outdated statutes have become roadblocks, becoming increasingly more difficult to use in a rapidly developing landscape. The obstacles have ignited litigation over conflicting and confusing provisions, and many times, have left unprepared and uneducated parties vulnerable, unsure and unaware of either their rights or responsibilities.

As over the last year California’s real estate market crumbled and collapsed, legislators rushed to fix and amend throwback laws. The mechanic’s lien statutes were targeted for tweaks and much-needed modernization.

On January 1st, 2011, two new requirements will go into effect for the state’s mechanic’s lien law process. Two years ago, California State Senator Alan Lowenthal began a campaign to update the state’s lien laws. Two of his sought after changes were just signed into law as Assembly Bill 457 by Governor Arnold Schwarzenegger, amending the lien law process.

Currently in California, after filing a lien, the claimant had the option to record a notice of lis pendens—basically a public note of the lien. Now, as of January 1, 2011, the state will make this action mandatory within 20 days of filing action.

“So, the owner is going to understand more quickly that an encumbrance has been filed and hopefully will be able to react to it before foreclosure,” explained Greg Powelson, director, NACM Mechanic’s Lien and Bond Services (MLBS). “Most states require that once a lien is filed, within ‘x’ amount of days, a copy of that lien must be sent to the owner. It kind of functions as a courtesy. But the idea is the sooner the owner is notified that a lien has been filed, the quicker he’ll be able to resolve that situation. So, the public notification requirement in California, in my opinion, brings the statute up to par with what many of the other states already require.”

California has also made another significant tweak to its lien laws by expanding the definition of “mechanic’s lien” to include a Notice of Mechanic’s Lien. This notice would contain specific information regarding the legal effect of the lien. Under the recently passed state law, the mechanic’s lien and the Notice of Mechanic’s Lien are required to be served upon the owner or the reputed owner of a property and the lien claimant is also required to complete and sign a proof of service affidavit to be included as part of the mechanic’s lien. This is an important factor to be made aware of, since, under the new law, after January 1, 2011, failure to serve the mechanic’s lien, including the Notice of Mechanic’s Lien, will cause the mechanic’s lien to be unenforceable.

It’s imperative that these two changes to the mechanic’s lien process in California are recognized by contractors, subcontractors and construction-oriented credit professionals working in the state. The changes are also indicative of the constant stream of changes that are taking place to lien laws from coast-to-coast.

“Setting California aside, there are a lot of states that are going through changes, and having current information is always critical,” explained Powelson. “This is just one example of the nuance changes that really happen all the time. So, if I had any advice, it would be make sure that you’re using current information. I mean, that’s why we created our Lien Navigator, so folks would have the current information in front of them. And, obviously, as soon as this was signed into law, we made sure that our clients were up to speed, regardless if they are using us to file their liens and bonds.”

He added, “As it relates to California specifically, the additional steps of notification are now required. You need to comply if you want your lien to be effective.”

Matthew Carr, NACM staff writer. Follow us on Twitter @NACM_National

 

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