By Lauren Perreault (cross posted in my column in The Beach Reporter on-line)
Any “lien” (pronounced like “lean”) on your property is an indication that someone thinks you owe them money and your property is the collateral for that debt. The most common lien, of course, is the Deed of Trust lien. Other frequently seen liens are Property Tax Liens (for unpaid property taxes) and Federal or State Tax Liens (for unpaid income taxes).
Liens have a definite order of payout — a Federal income tax lien comes first (Uncle Sam always gets theirs, right?), then State, then Property Tax, then mortgage liens in order of their recording date — usually the first Trust Deed, then the second, etc. However, Mechanics Liens have an unusual nature.
Per the California Association of Realtors: Rather than commencing from the day they were recorded with the county, a mechanics’ lien becomes effective from the day construction began on the property. If a property is foreclosed, mechanics’ liens are paid off before any other lien that was recorded after the mechanics began working. Furthermore, mechanics’ liens are paid off before loans that were taken out to finance the improvement, even if the loan was secured prior to the date construction began.
Further, CAR states “If a mechanic provided labor and/or materials to improve a property in exchange for compensation and the mechanic is unpaid, he or she may place a mechanics’ lien on the property until the dispute is resolved. (Cal. Civ. Code § 3112.) Property owners must be wary of mechanics’ liens because they can be recorded against a property before any formal judgment is issued. With other liens, creditors must first take a property owner to court and win the case before they can record a lien against the property. With mechanics’ liens, the lien can be recorded first with the lawsuit happening at a later date. (Cal. Civ. Code §§ 3115, 3116.) ”
As you can see, this might be tricky! For example, what if you paid a general contractor for work done and he/she did not pay the subcontractor? The subcontractor could put a mechanics lien on your property and you might have to pay again to clear the lien. In order to prevent this, you should always get a release from the subcontractors indicating that they have been paid before paying the general contractor.
To prevent complete confusion, mechanic liens must be placed against the property no more than 90 days after completion of the work or, if a formal notice of cessation has been made, no more than 30 days after the notice, and the lawsuit to “prove” the debt must be filed within 90 days of the recording of the lien. Further, a “Preliminary 20 day notice” must have been filed for the work within 20 days of beginning work or else only the portion of work done in the 20 days immediately preceeding the lien will be included in any deficiency judgment.
Finally, if anyone were to put a mechanics lien on your home after you bought it for work done under contract to the previous owner, your Title Insurance company will defend you and get the lien removed.