BILL ANALYSIS                                                                                                                                                                                                    






                             SENATE JUDICIARY COMMITTEE
                           Senator Ellen M. Corbett, Chair
                              2009-2010 Regular Session


          AB 457 
          Assemblymember Monning
          As Amended May 11, 2009
          Hearing Date: June 9, 2009
          Civil Code
          ADM
                    

                                        SUBJECT
                                           
                           Mechanic's Lien; Claim of Lien

                                      DESCRIPTION  

          This bill would require a mechanic's lienholder (generally a  
          contractor, subcontractor, or material supplier) on a private  
          work of improvement, after filing a complaint to foreclose on a  
          mechanic's lien (also known as a claim of lien), to record in  
          the proper county recorder's office a notice of the pendency of  
          the proceedings.  This bill would require that a lienholder  
          serve the property owner with the mechanic's lien and a Notice  
          of Mechanic's Lien in a form as specified.  This bill would also  
          provide that failure to serve the mechanic's lien and Notice of  
          Mechanic's Lien as prescribed in the bill would render the  
          mechanic's lien unenforceable as a matter of law.

          (This analysis reflects author's amendments to be offered in  
          committee.)

                                      BACKGROUND  

          The California Constitution grants laborers and materials  
          suppliers a mechanic's lien on any property improved by their  
          labor or material.  The mechanic's lien law in the Civil Code  
          generally specifies the obligations, rights, and remedies of  
          those involved in a construction project.  Mechanic's liens are  
          only available on private works of improvement.  Current law  
          provides that a lienholder who has filed a complaint to  
          foreclose on a mechanic's lien may record in the office of the  
          proper county recorder a notice of pendency of the foreclosure  
          action (a "lis pendens").  This bill would require the recording  
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          in order to better provide notification to all parties  
          interested in a construction project.  Additionally, current law  
          does not require that a mechanic's lien or notice of the lien be  
          served on the property owner.  This sometimes results in a  
          property owner paying twice for the same labor or materials  
          because the property owner pays the prime contractor, but the  
          prime contractor does not pass on the payment to the appropriate  
          subcontractor or material supplier.  This bill would require the  
          lienholder to serve both the mechanic's lien and a specified  
          Notice of Mechanic's Lien on the property owner.  This would  
          give the property owner notice of their rights and available  
          remedies.  This bill is the result of consensus reached by  
          stakeholders in private works of improvement.

                                CHANGES TO EXISTING LAW
           
          1.    Existing law  provides that mechanics, persons furnishing  
            materials, artisans, and laborers of every class have a lien  
            upon the property upon which they bestowed labor or furnished  
            material for the value of such labor done and material  
            furnished.  (Cal. Const., art. 14, Sec. 3.)

             Existing law  provides that contractors, subcontractors,  
            material suppliers, and others who bestow labor, skill,  
            supplies, or services to a private work of property  
            improvement have a lien upon the property and establishes the  
            procedures by which the lien may be recorded and enforced.   
            (Civ. Code Sec. 3109 et seq.)

             Existing law  provides that a mechanic's lien does not bind a  
            property for longer than 90 days after recording of a claim of  
            lien, unless the claimant commences an action to foreclose on  
            the lien within the 90-day period.  Existing law also provides  
            that a lien may remain in force for a longer period of time if  
            credit is given and notice of the fact and terms of the credit  
            is recorded with the county recorder.  However, even if credit  
            is given, the lien may not remain in force longer than one  
            year from the completion of the work of improvement if an  
            action for foreclosure has not been commenced.  If the  
            claimant fails to commence an action to foreclose the lien  
            within the specified time limitations, the lien is  
            automatically null and void and of no further force and  
            effect.  (Civ. Code Sec. 3144.)  

             Existing law  provides that, after filing a complaint to  
            foreclose on a mechanic's lien, the lienholder may record a  
                                                                      



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            notice of pendency (a "lis pendens") in the proper county  
            recorder's office.  Existing law provides that only from the  
            time of the recording of such notice is a purchaser or  
            encumbrancer of the affected property deemed to have  
            constructive notice of the pendency of the action.  (Civ. Code  
            Sec. 3146.)

             This bill  would require the plaintiff/lienholder, after filing  
            a complaint to foreclose on a mechanic's lien, to record in  
            the proper county recorder's office a notice of the pendency  
            of the proceedings on or before 20 days after the filing of  
            the mechanic's lien foreclosure action.

          2.    Existing law  provides that a "claim of lien" means a  
            written statement, signed and verified by the claimant that  
            contains all of the following information:
                 a statement of the claimant's demand after deducting all  
               just credits and offsets;
                 the name of the owner or reputed owner, if known;
                 a general statement of the kind of labor, services,  
               equipment, or materials furnished by the claimant; 
                 the name of the person by whom the claimant was employed  
               or to whom the claimant furnished the labor, services,  
               equipment, or materials; and
                 a description of the site sufficient for identification.  
                (Civ. Code Sec. 3084.)

             This bill  would provide that a "claim of lien" or "mechanic's  
            lien" means a written statement, signed and verified by the  
            claimant that contains, in addition to the above five pieces  
            of information required by Section 3084, an affidavit  
            completed and signed by the person serving a Notice of  
            Mechanic's Lien on a property owner or reputed property owner  
            in a form as prescribed.  (See Comment 2 for details of the  
            Notice of Mechanic's Lien.)

             This bill  would require that a mechanic's lien and the  
            accompanying Notice of Lien be served on an owner or reputed  
            owner by registered mail, certified mail, or first-class mail,  
            evidenced by a certificate of mailing, postage prepaid,  
            addressed to the owner or reputed owner at the owner's or  
            reputed owner's residence or place of business address or at  
            the address shown by the building permit on file.  This bill  
            would provide that, if the owner or reputed owner cannot be  
            served, the notice may be given by registered mail, certified  
            mail, or first-class mail to the construction lender or to the  
                                                                      



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            original contractor.

             This bill  would provide that failure to serve the mechanic's  
            lien and the Notice of Mechanic's Lien, as prescribed by the  
            bill's provisions, would cause the mechanic's lien to be  
            unenforceable as a matter of law.

             This bill  would provide that its provisions would become  
            operative on January 1, 2011.
                                           
                                       COMMENT
           
          1.    Stated need for the bill  

          The sponsor, the Contractors State License Board, writes:

            Under existing law, mechanic's lien filing procedures do not  
            include a requirement that the property owners be notified  
            when a lien is placed against their property.  Furthermore,  
            many liens are not pursued and become void and unenforceable  
            by operation of law, clouding the title of the property on  
            which they were filed.  Consequently, consumers are left with  
            the responsibility of addressing the lien, but are frequently  
            unaware of the options available to deal with the lien once it  
            is discovered.  Most notably, many property owners do not  
            realize that an expired mechanic's lien can be expunged by  
            court action, and often pay the lien claimant even though they  
            have already paid the prime contractor for the services  
            covered by the lien.

            The goal of AB 457 is to provide all parties involved in a  
            construction-related transaction with an opportunity to deal  
            with the relevant obligations in advance of the legal and  
            financial issues that result from a mechanic's lien.  Also,  
            for those situations where a foreclosure suit is filed by a  
            contractor, notice of the action should be available to all  
            parties who are interested in the property in question.

          2.    Description of Notice of Mechanic's Lien; consumer  
          protections  

          This bill would prescribe the form and content of a Notice of  
          Mechanic's Lien to be served on a property owner, along with the  
          actual mechanic's lien.  Also, the bill would provide that  
          failure to serve the mechanic's lien and Notice of Mechanic's  
          Lien would cause the lien to be unenforceable as a matter of  
                                                                      



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          law.  The Notice of Mechanic's Lien would be required to include  
          the following key information:
           upon the recording of a mechanic's lien, the property is  
            subject to the filing of a legal action seeking a  
            court-ordered foreclosure sale of the real property on which  
            the lien has been recorded;
           the legal action must be filed with the court no later than 90  
            days after the date the mechanic's lien is recorded;
           the party identified in the lien may have provided labor or  
            materials for improvement to the property and may not have  
            been paid for those items;
           the notice is a required step in a foreclosure action for  
            unpaid labor, materials, or improvements provided to the  
            property;
           the foreclosure action may affect the ability to borrow  
            against, refinance, or sell the property until the mechanic's  
            lien is released; and
           because a lien affects the subject property, the owner may  
            wish to contact the contractor, an attorney, or for more  
            information to go to the Contractor's State License Board Web  
            site.

          These provisions are intended to better protect consumer  
          property owners when mechanic's liens are filed against their  
          property in connection with a construction project.

          3.    Author's amendments  

          The author proposes to delete the penalty of perjury language  
          and instead insert language concerning the proof of service  
          affidavit as follows:

          On page 3, delete lines 1 through 3, and insert:

          (6) A proof of service affidavit completed and signed by the  
          person serving the Notice of Mechanic's Lien pursuant to  
          subdivision (c).  A "proof of service affidavit" is an affidavit  
          of the person making the service, showing the date, place and  
          manner of service and facts showing that such service was made  
          in accordance with Section 3084.  Such affidavit shall show the  
          name and address of the person or persons upon whom a copy of  
          the Mechanic's Lien and the Notice of Mechanic's Lien was  
          served, and, if appropriate, the title or capacity in which he  
          or she was served.  

          On page 4, delete lines 31 through 32, and insert:
                                                                      



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          (c )(1) The mechanic's lien and the Notice of Mechanic's Lien  
          described in this section shall be served on the Owner or  
          Reputed Owner.  Service shall be made as follows:


           Support  :  California Chapters of the National Electrical  
          Contractors Association; California Legislative Conference of  
          the Plumbing, Heating, and Piping Industry; Air Conditioning  
          Sheet Metal Association; Air-conditioning and Refrigeration  
          Contractors Association; Building Industry Credit Association;  
          American Fence Contractors Association, California Chapter;  
          California Fence Contractors' Association; California  
          Professional Association of Specialty Contractors; Engineering  
          Contractors Association; Flasher/Barricade Association; Marin  
          Builders Association; American Federation of State, County, and  
          Municipal Employees; Plumbing-Heating- Cooling Contractors of  
          California; one individual

           Opposition  :  None Known
                                        HISTORY
           
           Source  :  Contractors State License Board
           
          Related Pending Legislation  :  SB 189 (Lowenthal) would  
          comprehensively revise California's mechanic's lien law.  The  
          bill is the result of recommendations from the California Law  
          Revision Commission.  The bill is currently in the Senate  
          Judiciary Committee and is a two-year bill.  

           Prior Legislation  :  SB 1691 (Lowenthal, 2008) would have  
          revised, recasted, restated, and reorganized statutory mechanic  
          lien law with the intent of improving its clarity and usability.  
           This bill was vetoed.  The veto message indicates it was not on  
          the merits of the bill, but based upon the delay in the  
          2008-2009 State Budget and the governor's bill prioritization.  

           Prior Vote  :

          Assembly Judiciary Committee (Ayes 10, Noes 0)
          Assembly Floor (Ayes 76, Noes 0)

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