This article is taken from a webinar that was presented by SunRay Construction Solutions and William L Porter, the Founder and President of the Porter Law Group. William chaired the committee of attorneys who rewrote all the laws that govern lien laws in California. In this article we will discuss the three project documentation tips to help you get paid.
At this point you really have the property owner’s attention. You are in a position to sell his property if you do not get paid. So this is the very best time of the process for you when you have the most leverage. It is the point at which you can get things done without involving an attorney at the beginning.
Try to Settle Dispute, If Possible
The very first thing you need to do is try to settle the case. You need to go to the owner or go to the general contractor, or to a subcontractor if that is where you are. You need to tell them that you want to settle the case.
So what are you going to do here? The property owner at that point is really putting a lot of pressure on the general contractor. They want to get the case settled and they want to get the lien off their property. If you get an agreement at that point, that is the best time to do it because you are not paying the exorbitant attorney fees that you would have to pay if you went all the way to a lawsuit.
After you have your lien, you have 90 days before you have to file a lawsuit. That is your time period to get things done. Although if it looks like you are not going to get paid within 90 days and it is only 30 days along, there is no need to wait. Go right to your attorney and say that you tried to sell but you could not get it settled.
Do Not Release your Lien Until After the Check Clears
Assuming you do have an opportunity to settle the case, and someone says they will give you a check, but they need you to release the lien, you should not release your lien until after the check clears.
There are other ways you can deal with this, and the other side will ask how they will know you will release the lien. What you want to probably do is give them a form of one of SunRay’s four waivers and releases.
Conditional and Unconditional Releases on Final Payment
You are going to want to use a Conditional Waiver and Release; there is a Conditional Waiver and Release on Final Payment. That is probably the one you want to deal with, although there are some for progress payments as well.
But you can tell the other party that you will give them a Conditional Waiver and Release on Final Payment and that they should give you the check. When the check clears, then you can give them an Unconditional Waiver and Release on Final Payment, and release the lien.
The nice thing about this process is that when you give the conditional release and the check comes in, and the check clears, then that is enough for the homeowner to have to go to a judge and say that the lien needs to be released and that they paid you.
You are going to get the conditional release in exchange for a check and give the unconditional release when the check clears the bank.
Record Release of Lien If You Settle and Are Paid
You are going to want to release the lien if you settle and are paid.
There are other times that you need to release the lien. If you do not file a lawsuit and you do not get paid, you cannot leave the lien on the real property indefinitely. You are going to have to release it because it is a cloud on the title of the property.
File A Lawsuit Within 90 Days After Lien Is Recorded
There are some people who may say that they do not want to be a thorn in the side of the owner, but that will not work, because they will go to court. They will say to a judge that 90 days have passed and no one filed a lawsuit.
Then the judge will release the lien and the judge will put a judgment against you as the person who recorded the lien and did not release it after 90 days. So you either have to release it after 90 days or you are going to have to file a lawsuit.
If You Cannot Settle, Contact Your Attorney Approximately 60 days After Lien Is Recorded
You have 90 days to file but you are going to want to contact your attorney maybe 60 days after the lien is recorded. Because you are going to have to have time to get all the documents to your attorney.
He is going to need a copy of your contract, your final invoices, any letters you have going back and forth, or emails about whatever issues are disputed, and they need time to pull that all together in order to meet the 90-day deadline.
You should never get close to the 90-day deadline also because something might happen that will cause the deadline to be missed. Usually, you should try to get 85 days out and then file the lawsuit because it might come back for some reason that you do not expect.
Consider Possibility of A ‘Notice of Credit’ to Extend Lawsuit Deadline
Now, it is possible that you could do something that is called a Notice of Credit. This is a document that has to be signed by the owner of the property before a notary, and then recorded at the county recorder. Now this could extend your lawsuit deadline beyond 90 days up until a year after you last finished work.
It is important to mention here to be somewhat complete, but the fact is that often this is not helpful. Because the problems that are causing the owner not to pay you, are usually not fixed unless you have some reason to think it is going to be fixed. It probably will not be fixed.
Then in all likelihood, since you gave the Notice of Credit, other people are getting paid, and you are not getting paid because you were courteous and helpful. So this is not the time to extend courtesies to the owner. It is time to play hardball and get yourself paid because something is wrong.
You have to be the squeaky wheel that gets the grease and that is why you put the California mechanic’s lien on there in the first place, to put leverage over the owner and the general contractor so that you can get paid.
So do not give up halfway through without giving a Notice of Credit. You could do it, but it is not suggested.
Be Sure Your Attorney Records A ‘Notice of Pendency of Action’ within 20 days After Lawsuit Filed
Now let us say you get everything done with your attorney. Then you kind of turned it over to your attorney and it is important to use an attorney who really understands this area of law. One of the things seen is that a lot of attorneys do not file a Notice of Pendency of Action or record at the county recorder’s office.
This is something in California that needs to be done within 20 days after the lawsuit is filed. Now this is important for the attorney to do, and you should mention it. Because what could happen is that the owner could sell the property to someone else, and they could claim that they did not have notice because there is no Pendency of Action recorded.
Then they could sell the property where you have the lien without your lien being part of that sale. So basically, they cleanse it of the lien and you do not want that to happen if there is a Notice of Pendency which has been recorded within 20 days after the lawsuit is filed.
Then whoever buys the property can sell it, but whoever buys the property is going to buy the property with the lien attached so they are going to be buying your lien. You maintain all of the leverage that you have, and your lawsuit will go forward.
Documents Your Attorney Will Need from You
There are going to be documents that your attorney is going to need before filing the lawsuit and some documents later. But just to start off, and as was mentioned before with contracts. Any change orders you have, the final billing, any documents showing any disputed issues, (usually their emails), and a copy of your mechanic’s lien that is recorded are all relevant documents.
In addition to the lien, you might have other lien rights and you will have documents for those as well. Those would be in addition to the mechanic's lien, a Stop Payment Notice, and perhaps a bond claim.
These are all the kinds of documents that SunRay can take care of for you. But there are these three different remedies that you would have of this nature, that are like a mechanic’s lien.
It is the mechanic’s lien that allows you to sell the real property where the work was performed. It is a Stop Payment Notice that stops dollars from coming from the owner or from the lender to the general contractor. It is a bond claim that allows you to make a claim on a payment bond in order to pay people who are not paid like yourself.
Those are all claims, and they all have their own deadlines, but lien claims are being discussed here. The lien deadline is the quickest one, so if you have a Stop Payment Notice and Payment bond rights, you are going to be okay if you use the 90-mechanic's lien lawsuit deadline as your deadline on these other things as well.
Now you are in the lawsuit. What will happen is the attorney will file the lawsuit, serve the lawsuit, and the other side will have 30 days to respond and at that point, some really hard discussions need to be had between your attorney and the other attorney to try to get the case settled before the costs get away from you.
But you will not get it settled right away; you are going to have a discovery process. And this is kind of painful for most people because it really detracts from them operating their business. But there are things that are going to be sent to you. For example, a document request. The other side is going to request everything you have that relates to the project.
That is one of basically, three or four types of discovery in the discovery process. There are going to be requests to admit and they are going to basically be in the form of questions, like, “Do you admit that Change Order 2 is correct?”
That just saves time later in the case, then there are going to be interrogatories. There are form interrogatories and special interrogatories. The form ones make you check the box and answer the questions. They are usually pretty brief, but the form of the special interrogatories is specially prepared, and they relate specifically to your case.
They are drafted by the other attorney without relying on forms. And once all of those documents and requests to admit and interrogatories are all done, then there might be some depositions where you will have to sit in a chair, raise your right hand, swear to tell the truth, and then be asked questions for hours on end.
All of those things are time-consuming, painful, and costly. You want to avoid them when you can, but that is the discovery process. You really want to stay away from that, and it goes both ways.
Someone is going to dump all this inconvenience on you, and you are going to do it to the other side. It is going to be very expensive which is why you should settle things. If you have to take a little bit of a discount on what you are owed, you probably should rather than having to pay all the expenses.
You can get your attorney’s fees and costs if your contract (or direct contract) allows it or if there is a statute that allows it, which is usually the Prompt Payment statute. That is another subject. But you can look up Prompt Payment statutes in California and find them. But avoid all of that and try to get things settled. If you have to compromise, then maybe do it.
Trial or Arbitration
Then you are either going to go to mediation, arbitration, or trial.
Mediation is just an attempt to resolve issues with a mediator. It is just a little back and forth arguing points of state law or California law, and points of fact, and seeing if the mediator can force you into a decision.
Arbitration is like a trial. Except it is not in the courtroom. You are in front of an arbitrator usually in the conference room of their office, maybe having witnesses go in and out of the room and giving testimony much more informally like you would in court.
A court judgment is a necessary step to take. Even if you have an arbitration, it has to get to court and have a judge sign it for it to be official. So they send that over there and you get a judgment. Assume that you won, and you want $100,000, but how do you get the money?
Abstract of Judgment
What you have to do after (and the lawyer can jump on it right away) is you need to get an abstract of judgment that will be issued by the court if requested. It is an official document that says this is what the judgment is, and it is $100,000, interest begins on so and so date, and you can renew judgments. So they go on and on anyway.
Judgment Lien on Assets of Debtor
You can use the abstract judgment, and the lawyer will create a judgment lien on all their assets and that gets recorded in the county recorder of any county where there are assets of the person who owes you the money.
Once you do all that, they are really on the hook, and you can renew all this every 10 years. Some attorneys will get calls after 5 years and say that they have to pay you on something. They cannot get any credit cards, or a house loan, so they want to pay the money.
So they say here is the money plus 10% interest every year. In that case, you get the five years of interest at 10% a year which is 50%. You get that money and then you release the judgment. The attorney will take care of it, and they release the judgment lien. You would have your money, you get 10% per year, and you can move on.
CSLB Process Related to Judgment Enforcement
Now also for contractors, there is a process. If you get a judgment against a licensed contractor, in a construction-related situation, then the contractor state license board is going to give the party that owes you the money, 90 days to pay it.
Either they are going to have to pay in 90 days or they are going to have to come to some agreement with you on payment or they are going to have to file bankruptcy. And if they do not do one of those things, then their contractor’s license is going to be suspended. And they cannot work on a suspended contractor’s license.
If they do, they are subject to disgorgement which is essentially any money they earn while working on a suspended license, for the whole project, they have to return all the money to the party who paid them. Even if their license was suspended for only part of the project, they still need to return all the money for the entire project.
So this is a really powerful thing – again, it is called disgorgement.