In California and most states, a contractor can get some security to assure that it will be paid for its work on a project. An unpaid contractor on a private project can go to the county recorder and record a mechanic’s lien against the property to which it provided labor, service, materials or equipment. The mechanic’s lien makes the property security for the debt owed to the contractor. Then, if the project owner still does not pay, the contractor can file a complaint requesting that a court enter judgment and order a foreclosure sale of the property so that the debt can be paid from the sale proceeds.
This powerful mechanic’s lien remedy is well established in California and other states. It is even written into California’s Constitution. To successfully employ this remedy, however, the contractor must comply with strict statutory deadlines for notice, recording and filing. For example, the lien claimant must record the lien within 90 days after project completion. (California Civil Code §§3115, 3116.) If the owner records a notice of completion or cessation, the time period is shortened to 60 days for claimants under direct contract with the owner (California Civil Code §3115 (b)) and 30 days for claimants not under direct contract. (California Civil Code §3116 (b).) In addition, claimants not under direct contract with the owner lose their mechanic’s lien rights or see them reduced if, within 20 days after providing their first labor or materials to the project, they did not serve a statutory preliminary notice on the owner, general contractor and lender. (California Civil Code §§3097, 3097.1, 3114.)
Contractors may have other sources of security, such as a stop notice or a payment bond. Each of these remedies has strict claim and notice deadlines as well. But a stop notice can be of little use if the owner already has expended all construction funds, and many private projects do not have payment bonds.
A contractor in this situation still may have another option: an attachment lien. In California, if someone owes money under a contract, the creditor is entitled to obtain an attachment lien on the debtor’s assets to secure the payment. (California Code of Civil Procedure §§481.010, et seq.) The time period for filing a complaint is two years on a verbal contract and four years on a written contract. A complaint, or lawsuit, must be filed in order to seek a writ of attachment. The process for obtaining one is more involved than recording a mechanic’s lien. It requires a written court application and, typically, a hearing. If the court determines that the claim for payment probably is valid, it will issue an order that allows the creditor to have the sheriff levy on the lien against the debtor’s assets, thereby freezing enough of them to secure the claim. If the matter is urgent, such as when the debtor is insolvent or is likely to hide or destroy its assets, courts can issue attachment orders with very little notice to the debtor. In those situations, an unpaid contractor sometimes can get security for payment in as little as 24 hours.
In some respects, attachment is even more useful than a mechanic’s lien. While a mechanic’s lien only secures the debt against the real property on which the contractor worked, an attachment lien can be levied against virtually all types of property. Thus, with certain exceptions, an unpaid contractor can attach a debtor’s bank accounts, equipment, inventory and stock as well as real property. The method of levy depends on the type of asset targeted. Bank accounts can be frozen or turned over to the sheriff. Certain physical property can be confiscated and held by the sheriff. A county’s title records reflect a recorded attachment lien as a claim against title to real property, just like a mechanic’s lien.
So, if the unpaid contractor has a direct contract with the owner, it can levy its attachment lien against the same real property on which it otherwise would record its mechanic’s lien. Note that contractors not under direct contract with the owner cannot use the attachment lien against the owner’s property. Their contract typically would be with another debtor, such as the general contractor, and so their attachment would be levied against the general contractor’s assets.
The attachment remedy also has an additional feature that allows a debtor with a court order recognizing its right to an attachment to take discovery directly from the defendant/debtor about the location and value of attachable assets. Such discovery can be done pre-judgment while such inquiries normally are not allowed until and unless a judgment is entered after trial.
While this discussion has focused on California law, the interconnection between mechanic’s liens and attachment liens and the concepts discussed above have utility in all 50 states. Each of the 50 states has laws concerning mechanic’s liens, although some refer to them as construction liens. All of the states have procedural requirements dealing with entitlement, notice and time limits, but the particulars vary from state to state.
Similarly, attachment liens are available in every state. Some states expand their availability beyond what California provides by allowing attachment liens for any money claim, regardless of whether there was a contract between the parties (e.g., Illinois). Some states allow attachments liens on claims for delivery of property, as opposed to only nonpayment of money (e.g., Kansas, Iowa). And several states impose a requirement that before any attachment lien is granted, there must be a showing of a certain urgency because the defendant might move assets to hide them from eventual judgment. In general, however, all states provide processes for pre-judgment attachment, so the interconnection with mechanic’s liens exists across the country.
If you have any questions about Attachment Liens, Mechanic’s Liens, or other payment remedies, contact Scott Hennigh at Sheppard Mullin Richter & Hampton LLP, email@example.com, or 415-774-3279. The author previously posted this article on constructionweblinks.com.