CA Contractors’ Mechanic Lien Rights Are Limited By Court

CA Contractors’ Mechanic Lien Rights Are Limited By Court

Most contractors know that they have the right to put a mechanics lien on a property for non-payment by the property owner. Most contractors do not know that this is a constitutional right given in the California Constitution!!!

A mechanics lien is a powerful tool for payment because the contractor can force the sale of a property and be paid from its proceeds.

The California Supreme Court just ruled that a contractor can contractually make its mechanics lien junior to that of trust deed!!! Thus, limiting a contractor’s constitutional rights.

What happened to get the this decision?

Contractor enters into a construction contract with property owners –innocent enough. Lender then requires Contractor to sign a subordination agreement that gives Lender’s construction loan priority over Contractor’s constitutionally protected mechanics rights.

After work starts, Property Owner defaults on the construction loan and stops paying Contractor. Contractor files a mechanics lien. Under California law a mechanics lien relates back to the commencement of the date construction started. In this case, the date of construction predated the construction loan. Thus, the mechanics lien would be paid before the construction loan.

The California Appellate ruled that Contractor contracted away its California constitutional rights by entering into a subordination contract with Lender. Thus, Lender was paid first.

This became an issue because there was not enough money, after the sale of the property, to pay in full both the mechanics lien and the construction loan in full. Based on the above ruling the construction loan was paid, but the mechanics lien was not.

The moral of this new case…make sure you understand all documents that you are signing. The documents may not seem important at the beginning of the project, but at the end of the project, the same documents could decide if you get paid.

For all those who want to read more about this the case go to Moorefield Construction, Inc. v. Intervest-Mortgage Investment Company.

Plumtree & Associates is a full service construction law firm.

Construction Seminar – Legal Updates – What You Don’t Know Will Hurt You – Public Works

slide-1-638SLO Construction Law Update Flyer

Mandatory Public Works Registration Deadline Is Here

Mandatory Public Works Registration Deadline Is Here

The DIR is replacing the Compliance Monitoring Unit (“CMU”) and Labor Compliance Program requirements for bond-funded and other public works projects. The new program requires contractors to register before bidding on and entering into contracts for state and local public works projects

ALL contractors are required to register before bidding and entering into public works contracts on state and local public works projects by March 1, 2015. NO EXCEPTIONS!

An unregistered contractor is subject to (1) having its bid rejected and (2) having its contract cancelled and being replaced by a registered contractor after March 1, 2015.

Registration Process

Registration is simple. To register, contractors must pay an initial registration fee of $300, which will need to be renewed annually, and complete an online application showing that the contractor:

  • Has workers compensation insurance sufficient to cover any employees, as applicable;
  • Has a valid contractor’s license from the California Contractors State License Board, as applicable;
  • Is not subject to any delinquent wage or penalty assessments owed to an employee or the state;
  • Is not currently debarred from performing work on a public works project under state or federal law; and
  • Has not bid on a public works contract, been listed in a bid proposal, or performed work on a public works project without first being registered through the program, within the preceding 12 months or since the effective date of the program requirements, whichever is earlier.

The registration form can be found at https://efiling.dir.ca.gov/PWCR/ActionServlet?action=displayPWCRegistrationForm

Plumtree & Associates is a full service construction law firm.

The Wrong GL Insurance Could Cost You $1000s

The Wrong GL Insurance Could Cost You $1000s

Most contractors, architects, engineers, design professional etc. are asked the same question by their insurance brokers every year..Do you want a deductible or a self insured retention (SIR)? Most contractors do not worry about what this means to their bottom line until it is too late….after they are in a lawsuit!!!

The California Supreme Court just made it more expensive not to know about this important part of your insurance policy.

The Court recently held that coverage under a contractor’s insurance policy was not triggered until after the $10,000 SIR was paid for every “claim,”. Claim meant that the the contractor had to pay out of pocket expense (attorneys fees) of $10,000 for each and every home that was in the lawsuit before his insurance policy would apply!!

The Court ruled this way because the insurance policy stated that the SIR applied “to each and every claim made against you [contractor], regardless of how many claims arise from a single occurrence or are combined in a single suit.”

Evanston Ins. Co. v. North American Capacity Ins. Co., 2014 U.S. Dist. LEXIS 92682 (E.D. Cal. July 8, 2014)

This could mean a contractor is out of pocket $100,000 on a 10 home case.

It is always best to have a strategic review of your insurance options with both your insurance broker and attorney each year. It could literally save you $1000s in the future.

CA Supreme Court Increases Liability for Architects

CA Supreme Court Increases Liability for Architects

HISTORY

The long standing history is that architects, engineers and other design professionals are not liable to the owners of the property. This holding has been premised on two long standing cases, Bily v. Arthur Young & Co. 3 Cal. 4th 370 (1992) (Bily), and Weseloh Family Ltd. Partnership v. K.L Wesel Construction Co. Inc. 2004 (Weseloh).

Bily involved a lawsuit brought by investors in a computer company against an accounting firm that the company had hired to conduct an audit and issue audit reports and financial statements. The plaintiff claim the account firm had committed negligence in conducting the audit.  —  More

%d bloggers like this: