Who’s On First? – Lien Priority in California

The law in California regarding lien priority is generally, “first in time, first in right.” There are exceptions however, as some liens have “skipping” power. In California, the mechanic’s lien is given priority not by the date of recordation, but the day work first commences. This can be as early as when materials are first delivered to the job site.

An example of how this “skipping” works: Owner buys home in San Jose with a purchase money loan from Wells Fargo. Wells Fargo records a 1st Deed of Trust on January 1, 2000. Owner occupies the home for years and decides to re-model or take care of deferred maintenance. Property values have increased significantly over the years Owner has owned the home. Owner hires General Contractor to do a kitchen re-model in June of 2006 the Owner pays out of pocket to have the appliances and cabinets delivered.

Owner also takes a 2nd loan against the property in order to fund the rest of the re-model. The junior trust deed is recorded July 1, 2006. The work on the kitchen goes on all summer, the Owner and General get into a dispute and the Owner does not make the last milestone payment of $20,000. The General Contractor records mechanic’s lien on December 1, 2006.


What this looks like at the County Recorder’s office or on a title report is:

January 1, 2000 – Wells Fargo 1st Deed of Trust
July 1, 2006 – 2nd Deed of Trust
December 1, 2006 – Mechanic’s Lien

If Owner gets into default with the second deed of trust, then you would think that the 2nd had priority over the 3rd, right? However, the mechanic’s lien relates back in time to when work commenced, June of 2006 and so it has priority over the 2nd Deed of Trust. Accordingly, the foreclosure sale of the 2nd Deed of Trust holder would NOT wipe out the mechanic’s lien.

A mechanic’s lien is a powerful remedy protected by the California Constitution, and the powers of the lien are further enumerated in the California Civil Code (Sections 3110 et seq.). There are limits on that power however, in that there are strict technical requirements that need to be followed by the lien claimant in order to enforce that lien. Often the contractor will fail to follow the requirements for enforcement of the lien and the ability to enforce the lien will terminate. However, the lien will remain on record, even after it is stale.

Even in situations where it would appear that mechanic’s lien was “wiped out” by a senior at a Trustee’s Sale, the mechanic’s lien is not automatically expunged. A homeowner or investor will often find that title insurance companies will not insure the property without a recorded instrument withdrawing the liens. To accomplish this, the property owner should make demand of the claimant to record a Release of Mechanic’s Lien and Withdrawal of the Lis Pendens (if a Lis Pendens was recorded). The next step is law and motion, applying to the Court for an Order to expunge the lien. The successful party in such a motion will be entitled to the attorneys fees and costs.

The lesson to take away – if you see a recent mechanic’s lien on record, consider the timing of the construction rather than the date of the recordation. If the lien is years or several month’s old, then factor in the possible attorney fees that you may have to expend to have the stale lien expunged.

 


This article written and © Julia M. Wei, Esq.

Julia publishes commentary on issues such as equity purchasing, foreclosure consulting, mechanic’s liens, co-ownership agreements and more on her California Real Estate and Lending Law blog: http://www.dirtblawg.com

Julia is an associate with The Law Office of Peter N. Brewer. The firm serves the legal needs of homeowners, real estate and mortgage brokers, agents, brokerages, title companies, developers, investors, other real estate professionals and their clients. Mr. Brewer and his firm also represent clients in debt collection, breach of contract matters, and other litigation and transactional work. The firm’s client range from homeowners, brokers and lenders based in Santa Clara County, San Mateo County, San Francisco County, as well as throughout other counties in California.