BILL ANALYSIS
AB 457
Page 1
Date of Hearing: March 31, 2009
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 457 (Monning) - As Amended: March 25, 2009
SUBJECT : Mechanic's Liens
KEY ISSUES :
1)Should the Mechanic's Lien STATUTE be amended so that a
property owner must be served with notice that a lien has been
recorded?
2)should failure to serve notice in the manner specified by this
bill make a lien unenforceable as a matter of law?
3)Should a lienholder who files a complaint to foreclose upon a
mechanic's lien be required, rather than merely permitted - as
in existing law - TO file a notice of pendency with the county
recorder?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
synopsis
This bill amends the state's mechanic's lien law in order to
give property owners more effective notice when a lienholder,
typically a subcontractor or material supplier, records a lien
against the owner's property for payment on a private work of
improvement. Specifically, this bill would require the lien
holder, as a condition of recording a mechanic's lien, to serve
the property owner with a Notice of Mechanic's Lien, which would
contain information on the legal effect of the lien and steps
the owner may wish to take. Failure to serve the lien as
prescribed would cause the lien to become unenforceable as a
matter of law. In addition, when and if the lienholder files a
complaint to foreclose upon the lien, the lienholder must also
record a notice of pendency, or lis pendens, with the county
recorder. Existing law is permissive as to the recording of the
lis pendens; this bill would make recording the lis pendens
mandatory. This bill is one of many efforts to amend the
state's Mechanic's Lien law, which has been the subject of
ongoing study by the California Law Revision Commission. One of
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the major areas of concern has been the so-called "double
payment" or "double liability" problem, where the homeowner pays
a general contractor in full but can still be subject to a
mechanic's lien if the general contractor fails to pay the
subcontractor. This bill does not completely resolve that
problem, but it gives the homeowner more timely notice when a
lien has been filed and provides notice to subsequent purchasers
of any pending claim against the property. The bill is
sponsored by the Contractor's State License Board and supported
by several contractors and building associations. There is no
registered opposition at the time of this writing.
SUMMARY : Amends the existing Mechanic's Lien Law to require
service of Notice of Mechanic's Lien on the affected property
owner, or other party as specified, and recording of lis pendens
within 20 days of filing an action to foreclose upon a
mechanic's lien. Specifically, this bill :
1)Provides that "claim of lien" shall have the same meaning as
"mechanic's lien" for purposes of the statement that must be
signed and verified by the claimant recording a mechanic's
lien.
2)Requires, as a condition of recording a mechanic's lien with a
county recorder, the submission of a signed and completed
affidavit declaring that the person recording the lien has
served a Notice of Mechanic's Lien upon the property owner, or
other party as specified, in the manner required by this bill.
3)Provides that any mechanic's lien in proper form and
containing the information required by this bill, shall be
accepted by the recorder for recording and shall be deemed
duly recorded without acknowledgment.
4)Provides that if the owner or reputed owner cannot be served
by the methods prescribed in this bill, then notice may be
given to the construction lender or to the original
contractor.
5)Provides that failure to serve the notice of mechanic's lien,
including the Notice of Mechanic's Lien, as prescribed, shall
cause the mechanic's lien to be unenforceable as a matter of
law.
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6)Requires the person filing an action to foreclose upon a
mechanic's lien to also record a notice of pendency in the
appropriate county recorder's office, in the manner provided,
on or before 20 days after the filing of the mechanic's lien
foreclosure action. Specifies that only from the time of
recording that notice shall a purchaser or encumbrancer of the
affected property be deemed to have constructive notice of the
pendency of the action.
EXISTING LAW :
1)Provides, under the Mechanic's Lien Law, that contractors,
subcontractors, material suppliers, and other persons who
bestow labor, skill, supplies, or services to a work of
property improvement, shall have a lien upon the property and
establishes the procedures by which the lien may be recorded
and enforced. (Civil Code Section 3109 et seq.)
2)Provides that a mechanic's lien does not bind a property for
longer than 90 days after recording of the claim of lien,
unless the claimant commences an action to foreclose on the
lien within that 90 day period. Specifies, however, 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, but, even if credit is
given, in no case shall the lien remain in force longer than
one year from the completion of the work of improvement if an
action for foreclosure has not been commenced. (Civil Code
Section 3144.)
3)Provides that after filing a complaint to foreclose upon a
mechanic's lien, the lienholder may record a notice of
pendency in the proper county recorder's office. Specifies
that only from the time of the recording of such notice shall
a purchaser or encumbrancer of the property affected be deemed
to have constructive notice of the pendency action. (Civil
Code Section 3146.)
COMMENTS : Few state laws have been subject to more efforts at
legislative reform than California's Mechanic's Lien Law (Civil
Code Section 3109 et seq.). By 1999 efforts to reform the
mechanic's lien law had become so piecemeal and persistent that
the Chair and Vice-Chair of the Assembly Judiciary Committee
asked the California Law Revision Commission to undertake "a
comprehensive review of [the mechanic's lien] law, making
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suggestions for possible areas of reform and aiding the review
of such proposals in future legislative sessions." (Letter of
Sheila Kuehl and Rod Pacheco to the California Law Revision
Commission, June 28, 1999, cited in Commission Staff Memorandum
99-85, November 16, 1999.) Those "future legislative sessions"
have come and gone, but efforts at comprehensive reform have
mostly floundered. The latest comprehensive effort, SB 189
(Lowenthal), was introduced earlier this year as a two-year
bill; it represents a culmination of sorts of the Law Revision
Commission's tireless efforts, but its fate remains uncertain.
This bill takes a more modest approach to one of the most
persistent problems in this area of law: the so-called "double
payment" or "double liability" problem. This problem typically
arises when the homeowner pays a general contractor in full but
can still be subject to a mechanic's lien if the general
contractor fails to pay the subcontractor. The underlying
purpose of the mechanic's lien is, appropriately enough, to
protect those who have performed labor or furnished materials
towards the improvement of a property, but then is not
compensated once the work of improvement has already been
performed. In short, the purpose behind the mechanic's lien is
to prevent unjust enrichment of a property owner at the expense
of laborers and material suppliers. (See e.g. Rental Equipment,
Inc. v. McDaniel Builders, Inc. (2001) 91 Cal. App. 4th 445; and
Basic Modular Facilities, Inc. v. Ehsanipour (1999) 70 Cal. App.
4th 1480.)
However, while the purpose of the mechanic's lien law was
originally to protect the laborer and prevent the unjust
enrichment of the property owner, the more complex nature of
works of improvement, where a homeowner may only have privity
with a general contractor who is supposed to pay the
subcontractor, has complicated the equation. Indeed, the
California Law Revision Commission claims that the existing
mechanic's lien law is too "unfairly balanced against the
average consumer." As one of the early CLRC discussion drafts
contended, homeowners, for whom a major home improvement project
or remodeling is a relatively rare occurrence, must deal with
contractors, subcontractors, and suppliers who "have daily
experience in the business." Yet it is the relatively less
experienced homeowners who "assume all of the risk associated
with the failure of prime contractors to pay subcontractors and
suppliers." (CLRC, Discussion Draft #H-820: Consumer Protection
Options under Home Improvement Contracts, December 2001.)
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This bill attempts to partially address the perceived imbalance
by providing the property owner with more notice when a lien has
been recorded and to give constructive notice to a prospective
buyer of an encumbered property. According to the sponsor, many
homeowners do not realize their legal options "and often pay the
lien claimant even though they have already paid the prime
contractor for the services covered by the lien." Because lien
holders are not required under existing law to record a lis
pendens after commencing a foreclosure action, subsequent
purchasers have no constructive notice about any cloud on the
title. Specifically, this bill amends existing law in the
following ways:
Existing law permits a lienholder to record a mechanic's lien
without providing notice to the homeowner that a lien has
actually been filed. This bill will require, as a condition
of filing a mechanic's lien, the serving of a Notice of
Mechanic's Lien on the property owner, or in some cases on a
lender or original contractor if the property owner cannot be
located. The Notice of Mechanic's Lien must be served with a
copy of the recorded lien and contains information explaining
the legal effect of the lien, the time periods in which
actions must be commenced and other information that is vital
to the homeowner. Moreover, this bill provides that failure
to serve notice in the prescribed manner will make the lien
unenforceable as a matter of law.
Existing law provides that, once a lien holder commences an
action to foreclose on a lien, he or she "may" record a notice
of pendency, or lis pendens, thereby providing bona fide
purchasers with constructive notice that the lien has been
recorded against the property and an action commenced.
ARGUMENTS IN SUPPORT : According to the sponsor, the Contractors
State License Board, "the goal of AB 457 is to provide all
parties involved in construction related transactions 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 in order to satisfy the debts underlying a mechanic's
lien, clear notice should be available to all parties who are
interested in the property in question."
This bill is also supported by several associations of
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contractors and builders, listed below, who applaud this measure
for "balancing the lien rights of contractors with the rights of
consumers not to be burdened with 'stale liens'."
The American Federation of State, County, and Municipal
Employees (AFSCME) support this bill "because it strengthens the
knowledge of California's consumers . . . [who] are frequently
unaware of the options available to deal with a lien once it is
discovered, most notably, that it may be possible to have the
lien expunged by court action."
REGISTERED SUPPORT / OPPOSITION :
Support
Contractors State License Board (sponsor)
AFSCME
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
Opposition
None on file
Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334