Extending Your Deadline To Sue To Enforce Your Mechanic�s Lien:

The Law, The Traps, And Strategies To Maximize Your Leverage While Limiting Your Expenses

By David J. Barnier

You�ve timely served your 20-day preliminary notice, you�ve completed your work, and you�ve recorded your mechanic�s lien against the property that you worked on for the amount not yet paid to you. Now what happens with your lien? Does it just sit there on title to the property until you are paid? What is the lien doing for you? What is it doing to the property owner?

A mechanic�s lien is nothing by itself except notice to anyone who is interested that you may pursue a lawsuit to enforce (or to �perfect� or to �foreclose upon�) the lien against the property. When you record a lien, the county recorder�s office will thereafter show that your lien is recorded against the property. This provides notice to anyone who might buy or take a security interest in the subject property that your lien lawsuit may be coming down the road. If your lien lawsuit is successful, you will have priority on title over any future sale or security interest and you may be able to foreclose against the property and to be paid from the sale proceeds. For this reason, a bank or a potential buyer will likely refuse to mortgage or to purchase the property. Even if you have not yet pursued the lawsuit and might never do so, the potential lawsuit and right to foreclose is concern enough. This is what the lien is doing for you even if you have not yet filed a lawsuit to foreclose on the lien.

Your lien foreclosure lawsuit must be filed with the court within 90 days of the date of the lien, otherwise the lien becomes invalid.

But what if 80 days go by, you still haven�t been paid, and the attorney you�ve spoken to says that he requires a security deposit of thousands of dollars if you want him to file a lawsuit on your behalf before the 90-day deadline? Do you have to either commit to the expense of the lien lawsuit or lose the lien? What if the owner offers to agree in writing to extend the lien lawsuit deadline?

Lien Lawsuit Deadline Extensions � Understand The Risks And Limitations

Let�s first discuss the ramifications of an extension by the owner to the lien lawsuit deadline. Yes, any potential defendant can agree to extend a lawsuit deadline for any type of lawsuit. However, a lien claim is not a claim against the owner. It is a claim against the subject property. Therefore, a lawsuit deadline extension must be obtained from all parties who claim an interest in the property and all parties who might claim an interest in the property before the end of a lien lawsuit. If there is a mortgage against the property or if any other parties have already recorded a mechanic�s lien or might claim a lien against the property in the future, those parties also must agree to such extension, otherwise those parties could challenge the lien down the road. Because you cannot predict all parties who might lien the property in the future, you can never be certain that you will have obtained permission to delay your lawsuit past the 90-day deadline.

The reality is that most lawsuits are resolved and the challenge to the timing of a lien might not ever come, however the leverage against the property that results from a lien would be severely reduced if a savvy owner notes that while the owner extended the lawsuit deadline, there are other parties with an interest in the property that did not extend the deadline.

If there are no other options available and the cost of a lawsuit is not justified because the lien claimant does expect voluntary payment to come or because the amount of the lien doesn�t justify the expenses of a lawsuit, then obtaining a lien lawsuit deadline extension might be useful. The extension might result in the owner�s still feeling threatened by the lien because the owner is not aware that other parties could still successfully argue that the lien lawsuit was late. Also, while the owner has the right to sue to remove a lien if no lawsuit is filed within the 90-day period, other lien claimants may not enjoy that right�the law is unclear�and therefore the lien would stay on title pending the result of the lawsuit (in which other lien claimants and mortgagees would successfully argue that the lawsuit was late and therefore the lien is invalid). Thus, a lien lawsuit extension provides some practical benefit, but ultimately the lien rights are almost certain to be invalidated if a lawsuit is not filed within the 90-day period.

A Lien Claimant May Record A Second Lien If The Lien Recording Deadline Has Not Passed

There are two deadlines related to mechanic�s liens: the recording deadline and the lawsuit deadline. The lawsuit deadline for any lien is 90 days after the lien is recorded. The recording deadline is determined by the date of completion of the work of improvement and will never be earlier than 30 days after such completion.

If a lien is recorded after the claimant has finished its work but long before completion of the entire work of improvement, it is perfectly legal for the claimant to release that particular lien and to record a new lien. The underlying right to record a lien is not lost when 90 days pass after the lien recording date. Only the rights related to that particular lien are waived. Lien rights can be waived only via one of four specific written waiver forms that are set forth in Civil Code section 3262. If no such form is signed by the claimant, no lien rights are waived. A lien claimant is entitled to give up rights related to one particular lien and to pursue a new lien by recording a new lien. So long as lien rights have not been waived via the section 3262 form and the new lien is timely recorded, a new lien will be valid. There is no limit to the number of liens that might be recorded. The only limit comes from the time deadline to record a lien, which arises shortly after the completion of the work of improvement.

The strategy of releasing one lien and recording a new lien is especially useful for a contractor that does not want to commit to a lawsuit. The reality is that even if invoices are not timely paid, payment might eventually come voluntarily. If payment is likely to come, investing the costs of a lawsuit might not be the best decision, if lien rights may be preserved via a new lien that will extend the claimants deadline to decide whether to file a lawsuit. The leverage of a lien can be maintained for 90 more days with the only cost being the cost of releasing the prior lien (which must be done�two liens should never be on title simultaneously) and recording the new lien.

As always, it is important to understand that individual circumstances should be analyzed on a case-by-case basis. While the general rules and strategies described above are useful to educate a contractor with a soon-to-expire lien of the potential to record a new lien, these rules and strategies should not be relied upon in any situation without specific guidance from an attorney with experience in this area.

David Barnier is a construction litigation attorney and can be reached at 619.682.4842

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