Tuesday, July 22, 2008

Missed Your Deadline for Recording a Mechanic’s Lien?

The Attachment Lien: A Powerful Alternative to the Mechanic’s Lien and Stop Notice

Under California law, an unpaid contractor or material supplier is entitled to a security interest in the property improved by his or her contribution to a private works project – a mechanic’s lien. To successfully utilize this powerful remedy, however, a contractor or supplier must comply with strict deadlines for notifying the project owner, recording the mechanic’s lien, and filing in court to foreclose the lien. But, what if these deadlines have passed?

While contractors may have other options to secure payment, such as a stop notice or payment bond, these remedies have strict statutory deadlines as well, and not all private works projects have payment bonds in place.

With up to four years within which to file, and attachment lien may be a viable option. Under California law, if someone is owed money under a contract, he or she is entitled to obtain an attachment lien on the debtor’s assets to secure payment. (Code of Civil Procedure § 481.010, et seq.) If the underlying contract was verbal, the creditor has two years to file in court; if the contract was in writing, that statute of limitations is increased to four years.

To pursue this remedy, a lawsuit must be filed in the court having jurisdiction. This process requires a written application and, usually, a hearing before the judge. If the court determines that the creditor’s claim is valid, it will issue an order that enables the creditor to have the sherrif levy against the debtor’s assets. If the matter is urgent (e.g. the debtor is insolvent or trying to hide or destroy assets), the court can issue an attachment order(s) with little notice to the debtor.

The attachment lien has some advantages over the mechanic’s lien. The mechanic’s lien creates a security interest only against the real property that was improved; however an attachment lien can be levied against virtually any type of property, enabling the contractor or supplier to secure payment from the debtor’s bank accounts, equipment, inventory, stock, or other property, with certain exceptions. The method of levy depends on the type of asset. Bank accounts may be frozen or turned over to the sheriff; personal property may be confiscated; or the lien may be recorded against real property held by the debtor.

Thus, if the unpaid contractor has a direct contract with the owner, the attachment lien can be levied against the same real property on which a mechanic’s lien would be recorded. Subcontractors and suppliers who do not have a direct contractual relationship with the property owner would not be able to use the attachment lien against the owner’s property, as their contract is with another contractor so their attachment would be levied against that party’s assets.

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