The California 4th District Court of Appeal recently examined the dangers of prematurely recording a mechanics lien in Precision Framing Systems, Inc. v. Luzuriaga, Case No. E069158 (August 29, 2019). https://www.courts.ca.gov/opinions/documents/E069158.PDF. Statutorily, California has three recognized methods for payment disputes and remedies between contractors – bond claims, stop notices, and the traditional mechanics lien. Each is intended to provide payment protections for those who furnish labor, materials, and services on a construction project. Significantly, prior to recording a mechanics lien, the contractor must have fully completed and ceased performing work at the project and provided all proper notices to the owner at the commencement of his or her work.
In Precision Framing Systems, the Court examined the ramification of prematurely recording a mechanics lien and whether the contractor would be prevented from filing a lawsuit to foreclose on the lien. Precision Framing Systems, Inc. (“Precision”) provided labor and framing materials for work on a veterinary hospital in Wildomar, California in July 2013. This included providing and installing all framing trusses and roof supports for the project. The trusses were fabricated by Inland Empire Truss, Inc. (“Inland”) at the direction of Precision. Precision began installing the trusses in early August 2013. During the truss installation, the City of Wildomar issued a correction notice stating that some of the truss bearing points were not in accordance with the permitted plans and specifications. Precision immediately notified Inland to correct the problem and make repairs, which Inland did in late August 2013. Once the trusses were fully installed, the City issued a second correction notice in December 2013. The City conducted a walk-through inspection with Precision and the general contractor, and it was determined that Precision’s work was in full compliance with all plans/specifications and completed in full to the satisfaction of the general contractor. Despite the seal of approval, Precision was never fully paid for their work. The owner of the project, Deborah Luzuriaga, told the president of Precision that she would not be paying them and essentially told him to file a lawsuit against her for final payment.
So, on January 2, 2014, Precision recorded a mechanics lien in the amount of $53,268.16 against Ms. Luzuriaga. Luzuriaga refused to cooperate and advised Precision that their mechanics lien was premature given that the scope of work was not fully completed. Apparently, after discussion with the architects at the project, Precision learned that additional correction notices were lodged against the project, requiring Inland to perform additional repairs in mid-February 2014. Luzuriaga relied upon the additional correction notices and repairs to nullify the mechanics lien as premature. When Precision attempted to enforce the mechanics lien and filed suit to foreclose, Luzuriaga moved for summary judgment on the grounds that Precision’s mechanics lien was prematurely recorded (January 2014) when additional work and repairs were required to complete the project (February 2014). The trial court agreed with Luzuriaga and granted summary judgment – to which Precision appealed.
On appeal, the 4th District Court of Appeal cited directly to the mechanics lien statute which provides as follows: “A [mechanics lien] claimant other than a direct contractor may not enforce a lien unless the claimant records a claim of lien within the following times: (a) After the claimant ceases to provide work.; (b) Before the earlier of the following times: (1) Ninety days after completion of the work of improvement -or- (2) Thirty days after the owner records a notice of completion or cessation.” Civil Code Section 8414. The Court of Appeals agreed with Luzuriaga and ruled that the February 2014 repairs were part and parcel of the completion of the truss installation work as part of the terms of the contract for Precision – which rendered the January 2014 recording of the mechanics lien premature and invalid. The Court explained that Inland’s repairs were necessary to complete all of Precision’s contracted work despite the general contractor “blessing” the work in December 2013 as completed. The Court did not foreclose the rights of Precision to re-record the mechanics lien after the February 2014 repairs were completed thereby fully completing all work pursuant to the contract. Finally, the Court acknowledged that there was no supporting case law, and relied completely on the statutory mechanics lien guidelines – which were intentionally silent as to intended, perceived, or subjective knowledge on the part of the contractor as to when the work was or was not fully completed.
The bottom line is that “timing is everything” when it comes to the recording of mechanics liens from contractors. The contractors must make sure to verify that all work is fully completed, obtain all releases, and verify from the Owner that no further work is required at the project prior to recording a mechanics lien for any unpaid work. The risk of recording too early could be exceptionally detrimental to the contractor, as noted by the folks at Precision Framing Systems, Inc.