A reader contacted me over the weekend inquiring about their deadline to file a California mechanics lien when they had extended credit to the property owner. Did the lien deadline start to count from when work was last performed, or from when the debt actually became due under the financing agreement? The answer, of course, is quite complex.
The Deadline Is The Deadline. File Your Mechanics Lien Or Else.
I’ll address the more complicated issues related to this inquiry below, but let’s get the easy stuff out of the way. The easy thing is that mechanics lien deadlines wait for no one.
Mechanics lien deadlines typically fall into one of two categories. The majority rule is that a mechanics lien must be filed within a certain number of days from the claimant’s last furnishing of labor or materials to the project. The minority rule (like in California, Louisiana and Arizona) is that the lien must be filed within a certain number of days from the entire project’s completion.
That’s it. That’s the entire rule. The rule doesn’t care about when you’re actually due the money, whether the parties have a side agreement for financing, whether the contract has a pay-when-paid or pay-if-paid clause, or any other details.
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Can You File A Mechanics Lien If You’re Not Owed Money?
That is where this issue because really tricky.
Each state has mechanics lien laws that allows claimants to lien the property for some amount of money. How that “amount” is defined could present real problems for a mechanics lien claimants if they are not yet technically owed the money because of credit or financing agreement with the debtor. Let’s look at some examples.
In California, the mechanics lien claim amount is dictated by the value of the improvement to the property. Take a look at the language. It really has nothing to do with what the claimant is actually owed, it’s all about the value of the improvements. California Civil Code § 8430(a):
The lien is a direct lien for the lesser of the following amounts: (1) The reasonable value of the work provided by the claimant. (2) The price agreed to by the claimant and the person that contracted for the work….
Compare this to the language in Oklahoma Statutes §143, which authorizes a mechanics lien for subcontractors or suppliers equal to the “amount due” to the subcontractor or supplier:
Any person who shall furnish any such material…may obtain a lien upon such land…for the amount due him for such material, equipment and labor…
Comparing this language you should see a nuance here that could become important if the courts were looking a mechanics lien filed before the debt actually became formally due. In states like California, the lien may be found valid because it is driven by the value of the improvement. In places like Oklahoma, the courts would have to interpret “amount due” favorably for the subcontractor or supplier (they very well could).
California’s Notice of Credit Solution
California is one of the few states that contemplates a situation like this, although it offers only a limited solution. California has a “Notice of Credit” document, which is more popularly referred to as a “Lien Extension.” It’s not really a lien extension, although it does act to extend the validity of the mechanics lien.
A notice of credit can be signed by the property owner and the lien claimant, whereby the parties announce therein that they have agreed to payment terms and that payment will be made over a period of time. In this instance, the lien’s validity is “extended” without the need for a lien foreclosure action while the payment plan plays out.
In theory, if a claimant was in California and payment wasn’t due until after the lien period closed, the claimant could work with the owner to file a mechanics lien and then immediately file a Notice of Credit to extend the lien subject to the terms of the credit agreement. The claimant could even make the lien and credit notice part of the agreement’s deal.