A Contractor’s Right to Lien Real Property

If the homeowner fails to pay the contractor

California law gives every contractor and supplier the right to lien real property for labor and material they’ve incorporated into a property, but for which they haven’t been paid. For example, let’s say a homeowner hires a contractor to build a deck and the contractor then hires a subcontractor with employees to pour concrete footings for the project. If the homeowner fails to pay the contractor, that contractor can put a lien on the homeowner’s house. This sequence of events is logical and fair.

Seemingly less logical is the subcontractor’s ability to place a lien on the homeowner’s property. This can happen in a situation where the homeowner pays the contractor, but that same contractor fails to pay the subcontractor for the concrete work related to the project. Under law, a general contractor is not only the employer of its subcontractors, but also the subcontractor’s employees. The employees of the subcontractor may then seek redress from the homeowner instead of the contractor. Since the homeowner’s house is collateral against all transactions, it’s his house that gets a lien put against it. This is true even if the homeowner paid someone else for that labor and materials.

A homeowner could be legally responsible to pay the contractor twice

In a worst case scenario, a homeowner could be legally responsible to pay twice for labor and supplies. This could happen if a homeowner were to hire and, under the terms of the agreement, pay a general contractor for a project. If and when the contractor fails to pay his crew or his suppliers, the homeowner could be legally obligated to pay for the supplies and wages himself. A foreclosure on a lien could force him to sell his house to pay the debt. The homeowner could, of course sue for recovery of the losses the contractor.

Contracts quite often employ the use of progress payments. Prime or general contractors must in turn make progress payments to subcontractors within 10 days of receipt of the funds from the home owner unless there is a written modification to this rule. If the prime contractor fails to pay, he may be subject to a levy.

DiJulio Law Group

The Mechanic’s Lien: A Contractor’s Way To Secure Payment

Placement of a Lien by an Unpaid Contractor

An unpaid contractor may place a mechanics lien or “hold” against your property as a way to collect for work performed. Subcontractors, laborers, or material suppliers, may also may place liens which are then recorded with the county recorder’s office. The use of a lien is a typical means used by contractors and subcontractors alike as a way to secure payment for labor performed or materials furnished. Liens allows for foreclosure action, forcing the sale of the property when they have not been paid.

Contractors may view construction liens as a more advantageous alternate to litigation when cost and the time involved are considered. Also, the fact that the lien attaches to the interest of the owner of the property, and the priority afforded to properly filed construction liens over prior mortgages or other encumbrances may be an advantage. The question of lien priority is dependent on several factors and is best addressed by a qualified real estate attorney.

A property may be the subject of a lien when the prime contractor or “direct contractor” has not paid subcontractors, laborers, or suppliers. Legally, the homeowner is ultimately responsible for payment – even if they already have paid the direct contractor.

A lien can result in a variety of problems

If the homeowner doesn’t pay the lien foreclosure may result. A court proceeding that employs judicial foreclosure sales (similar a to mortgage foreclosure) is how mechanic’s liens are enforced. The court must determine whether the requirements of the law have been met and, if so, the priority of the mechanic’s lien being foreclosed relative to the other liens or encumbrances on the title. Once that is determined, the court will order the property sold and the proceeds of the sale applied to the liens in the order of their priority.

You may have difficulty selling your home if there is a lien against it. Buyers often won’t buy the property unless the title is clear, meaning it has no liens. A contractor with a lien has the right to have your property sold in order to pay off the lien via a foreclosure sale. More commonly, instead of forcing a foreclosure sale, a contractor will wait until the property is sold.

This is because in many cases a mortgage was placed on the property before the contractor’s lien and so the mortgage must be paid off before any other liens are paid. If the contractor forecloses on the lien, they have to keep up the payments on the mortgage or lose the property.

In some instances a homeowner may sell the property and use part of the proceeds to pay off the lien.

DiJulio Law Group