Lien & Bond Claim Masterclass — Everything They Don’t Tell You (But Should!) | California Webinar by Bill Porter

This blog covers key insights from our recent California construction law webinar, hosted by SunRay Construction Solutions, featuring legal expert William L. Porter, Founder & President of Porter Law Group, Inc. We will walk you through the four primary payment protection tools available on construction projects:

• Preliminary Notice

• Mechanics Lien

• Stop Payment Notice

• Payment Bond Claim

Understanding how these remedies work and, more importantly, how they interact can make the difference between getting paid and losing payment rights entirely.

The Preliminary Notice: The Most Important First Step

The preliminary notice is typically a prerequisite to three powerful remedies:

• A mechanics lien (which gives an interest in the property)

• A stop payment notice (which freezes funds)

• A payment bond claim (which allows recovery from a surety)

If payment is not made, a properly perfected mechanics lien allows the claimant to force a sale of the property and be paid from the proceeds.

Timing Requirement

The preliminary notice must be sent within 20 days after first furnishing labor, materials, or equipment to the project.

It can be sent earlier, even immediately after the contract is signed, but it must not be sent later than 20 days after work begins. Also, make a note of this: in California, if a preliminary notice is sent late, there is a look-back period that gives them lien rights from 20 days prior and on.

Best practice is to implement an internal office procedure to ensure this deadline is never missed.

Who Must Serve It?

On private works projects, subcontractors and material suppliers must serve the preliminary notice on:

• The owner

• The direct contractor

• The construction lender (if one exists)

Failure to serve a required preliminary notice means there is:

• No right to a mechanics lien

• No right to a stop payment notice

• Possibly no right to a payment bond claim

Important Exceptions

• Direct contractors (those with a contract with the owner) do NOT need to serve a preliminary notice on the owner to pursue a lien.

• However, if there is a construction lender (not just an old mortgage, but an actual construction loan with a recorded deed of trust), the direct contractor must serve the lender.

On public works projects, prime contractors and first-tier subcontractors generally do not need to serve a preliminary notice.

How to Serve It

Preferred methods:

• Certified mail, return receipt requested

• Registered mail

• Express mail

• Overnight delivery (FedEx, UPS, etc.)

While hand delivery is legal, it is not recommended because it may be difficult to prove service.

If properly addressed and mailed, the notice is effective even if the recipient refuses to sign for it.

Late Service Rule

If served late, the preliminary notice is only effective for work performed in the 20 days prior to mailing. However, it is best not to rely on this fallback rule.

The Mechanics Lien: A Powerful Payment Weapon

Once work is completed and payment has not been made, the mechanics lien becomes available (on private projects only).

Mechanics liens are not available on public works projects.

Why It Is So Powerful

A mechanics lien allows the claimant to:

• Force sale of the property

• Get paid from sale proceeds

• Become a secured creditor in bankruptcy

Even if there is no direct contract with the owner, the lien puts enormous pressure on the owner because owners do not want their property sold.

If properly recorded, the lienholder becomes a secured claimant in bankruptcy and is paid before unsecured creditors.

Mechanics Lien Deadlines: What They Don’t Tell You

Deadlines depend on whether a Notice of Completion or Notice of Cessation is recorded.

If a Notice of Completion Is Recorded

• Direct contractors have 60 days to record their lien.

• Subcontractors and suppliers generally have 30 days.

However:

• A Notice of Completion is only valid if recorded within 15 days after actual completion of the entire work of improvement.

• A Notice of Cessation can only be recorded after work has stopped for 30 continuous days.

Because many Notices of Completion are improperly recorded, claimants should not rely solely on statements that they are “late.” Often, it is best to record the lien and let validity be determined later.

If No Notice of Completion Is Recorded

Everyone has 90 days after actual completion to record a mechanics lien.

Completion is determined by the earliest of:

A. Actual completion of the work
B. Occupation or use by the owner
C. Cessation of labor for 60 continuous days

Claimants should not wait until the last moment. Once done with work and unpaid, recording early is safer.

Recording the Mechanics Lien

The lien is recorded with the County Recorder where the property is located. A filing fee applies.

After recording, the recorder returns a stamped copy showing the recording date.

From that recording date, the claimant has 90 days to file a lawsuit to enforce the lien.

Practical Advice

It is often better to resolve the dispute during this 90-day window.

For example, if a $100,000 lien results in a $90,000 settlement offer, compromising may be better than entering prolonged litigation with mounting attorney’s fees.

Never release a lien until the payment check clears.

Lawsuit After Recording a Lien

Within 90 days of recording, a lawsuit must be filed.

The lawsuit typically includes:

• Breach of contract

• Foreclosure of lien

• Stop payment notice claims (if applicable)

• Payment bond claims (if applicable)

Even though multiple remedies may exist, recovery occurs only once. However, claimants may also recover:

• Attorney’s fees (if contract allows)

• Interest

• Prompt payment penalties (in California, sometimes up to 24%)

The Stop Payment Notice

The stop payment notice requires the party holding construction funds (owner or lender) to withhold money.

For example:
A $50,000 stop payment notice may require withholding $50,000 plus an additional 25–50%.

Where It Is Served

Private projects:

• Owner or owner’s architect

• Construction lender (served at the branch holding funds, not corporate headquarters)

Public projects:

• Director, controller, auditor, or disbursing officer of the awarding agency

Deadlines generally mirror mechanics lien deadlines.

Claimants may use:

• Mechanics lien

• Stop payment notice

• Payment bond claim

There is no requirement to choose just one remedy.

Bonded Stop Payment Notice

On private projects:

• If there is no construction lender, a bond is generally not required.

• If there is a construction lender, the stop payment notice must be bonded.

If not bonded, the lender may ignore it and refuse to withhold funds.

On public works projects, a bond is not required for a stop payment notice.

Stop Payment Notice Deadlines

If a Notice of Completion is recorded:

• Subcontractors and suppliers typically have 30 days to serve the stop payment notice.

If no notice is recorded:

• Everyone has 90 days after the earliest completion event (A, B, or C).

Safest practice: File suit within 90 days after serving the stop payment notice, even if statutes appear more complex.

Many attorneys recommend filing around the 80th day rather than waiting until the 90th.

The Payment Bond Claim

A payment bond is issued by a surety guaranteeing payment to subcontractors and suppliers.

Preliminary Notice Required?

Often yes — especially on private projects.

However, if the preliminary notice was forgotten:

• A bond notice may be served within 15 days after a Notice of Completion.

• If no Notice of Completion is recorded, a bond notice may be served within 75 days of completion.

This is a limited rescue remedy and should not replace proper preliminary notice practice.

Payment Bond Lawsuit Deadlines

If a Notice of Completion is recorded:

• Lawsuit against the surety must be filed within six months.

If not recorded:

• The period can extend up to four years.

However, waiting is unwise. Witnesses disappear, evidence becomes harder to gather, and enforcement becomes more difficult.

Final Takeaways

The key protections in California construction law include:

• Preliminary Notice (within 20 days)

• Mechanics Lien (after nonpayment)

• Stop Payment Notice

• Payment Bond Claim

After recording a mechanics lien, there are 90 days to file suit.

After serving a stop payment notice, safest practice is to file suit within 90 days.

The most important rule of all:

Always serve the preliminary notice between contract signing and no later than 20 days after starting work.

Missing that first step can eliminate every other remedy.

Understanding these timelines and calendaring them properly is the difference between preserving payment rights and losing them permanently.

Common Questions Contractors Ask

Frequently Asked Questions (FAQs)

1. When sending a preliminary notice and there is a surety company involved, do I need to send a copy of the preliminary notice to the surety or list them on the notice?

It is not required by statute to send the preliminary notice to the surety company. Generally, the statute requires service on:

• The owner

• The general contractor

• The construction lender (if any)

However, while not mandatory, it is likely a good idea to send a copy to the surety. There is no prohibition against doing so, and it does not cause harm. Including the surety early may help ensure they are aware of potential claims from the beginning.

Bottom line: Not required, but advisable.

2. Can I amend my mechanics lien to adjust the amount or correct an entity name if I am still within the deadline? What if I am outside the deadline?

If you are still within the recording deadline, and you need to make a significant change, the safest approach may be:

• Release the lien entirely, and

• Record a new corrected lien.

That is often the cleanest solution.

If you are outside the deadline, you may still be able to file an Amendment of Mechanics Lien, but there are limitations.

In general:

• You can reduce the lien amount.

• You likely cannot increase the lien amount.

Reducing the amount typically does not create objections. Increasing it, however, may be challenged and could create legal issues.

In practice, if partial payments are received (for example, a $100,000 lien is reduced after receiving $25,000), attorneys sometimes agree informally in writing that the remaining balance is now $75,000 without formally amending the lien or lawsuit. This type of agreement can help resolve matters more efficiently and at lower cost.

Key takeaway:

• Within deadline: Release and re-record if necessary.

• After deadline: You may reduce, but increasing the amount is risky.

3. If I cannot obtain a copy of the payment bond, does the bond claim deadline start only once I obtain a copy of the bond?

This is a more complex issue.

Payment bond claims sometimes have long statutes of limitations — potentially up to four years if no Notice of Completion is recorded. That extended period may account for situations where the bond information is not readily available.

If the bond is recorded, it may be considered part of the public record, and there could be an argument that the claimant has a responsibility to locate it.

However, if the existence of the bond was not disclosed or was concealed, courts may allow additional time. There are cases suggesting that if information was actively concealed, deadlines may be extended.

The recommended first step is to:

• Make a written inquiry to both the owner and the general contractor

• Ask whether a bond exists and request a copy

There may also be statutes addressing disclosure obligations (possibly more clearly in the lender context, though bond-related statutes may apply as well).

Best practice:

Document your written request and begin investigating early rather than waiting.