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Lien Requirements: A Case Study Using California Law.

Understanding the nuances of each state's lien and bond laws is key for any construction creditor who works for a material supplier or subcontractor. Ifs also part of the reason why learning to be this type of creditor can be difficult.

Take California, which provides construction creditors with a nice variety of means to secure payment on a job account, provided the proper steps are taken and carried out in a timely and accurate way. For private projects, claimants can file a mechanic's lien and a stop payment notice concurrently. California is a full-price lien state as well, meaning a lien claimant is entitled to the full amount owed from the owner, regardless of whether payments to the general contractor were made.

Looking at California's lien noticing requirements, there are a few aspects that make it different from other states. General contractors or direct-to-owner suppliers have to notify the lender within 20 days of first furnishing, according to the Lien Navigator on the Secured Transaction Services (STS) website. For others, the preliminary notice has to be served to the owner, direct contractor and lender, if any, within 20 days of first furnishing. However, suppliers can also serve a late notice, which will retroactively trap 20 days from the date the late notice is served. Not all states allow such a late notice, including Texas and Florida, so this is a nice feature, but trade creditors working in California should take care to note the 20-day cap.

For stop notices--essentially a lien on unpaid funds between the owner and general contractor--on private jobs in California, a notice must also be filed within 20 days of first furnishing labor or material, the Lien Navigator states. The stop notice itself must be filed within 90 days after completion of the entire work unless the owner has recorded a notice of completion or a notice of cessation. If either of the notices has been recorded, suppliers and subs have to file within 30 days after the recording.

Also, California is the only state where notice claimants have to identify themselves as such in the notice, so trade creditors should make sure they understand their role on each job account for which they wish to file a notice, said Connie Baker, CBA, director of operations for STS. Note that suppliers who provide installation services in conjunction with materials--such as metal fabricators--may be considered subcontractors under California statute and would need to be licensed to enforce mechanic's liens.

Chris Ring works with countless construction credit professionals every day at Secured Transaction Services. He can be reached at

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Author:Ring, Chris
Publication:Business Credit
Article Type:Case study
Geographic Code:1U9CA
Date:Mar 1, 2018
Next Article:Doing Business in Canada.

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