Friday, February 28, 2014

Lien Release Tracking in California - A Builder's View

Before we start any major project I always warn a new client about the Lien process in California.  It is a very detailed program that protects clients well but the first "Notice" form a supplier that they receive will upset them if they are unprepared. 

Let me delve into this topic a bit.

Clients should receive the "Preliminary Notice" or a preliminary lien notice, from all of the vendors (suppliers or subcontractors) involved in their construction project. 

For example, this would include the concrete and reinforcing bar suppliers that were hired by the foundation contractor (a second party transaction).  The client should not be alarmed; this is the first step in the California mechanics lien law designed to protect both the home owner and vendors.  The notice is designed to let a homeowner know that a vendor (possibly contracted through a subcontractor on a project) believes the homeowner has authorized material or labor costs for work on their property.  The theory being that if this is not true, the homeowner will alert the vendor and the costs will not be incurred.  Vendors should send a duplicate of the Notice to the General Contractor, but just in case, in our firm, we ask clients to forward notices to our office as a double-check.  In the case of a second party transactions we can then amend the payments to include two-party checks to both the contracting sub and the lien claimant for the amount(s) listed.

To satisfy the Preliminary notice we follow the mandated system of four release documents with each of these suppliers and subcontractors:
  • Conditional Release on Progress Payment - vendor acknowledges partial payment received but not yet cashed.
  • Unconditional Release on Progress Payment - vendor acknowledges partial payment received but not yet cashed.
  • Conditional Release on Final Payment - vendor acknowledges full and final payment received but not yet cashed.
  • Unconditional Release on Final Payment - vendor acknowledges full and final payment received and cashed.
The use of two-party checks to second tier vendors is typical in securing complete lien release.  The tracking of tehse transactions may appear complicated but it just required diligence.  We don't pay a second progress billing if we have not received an unconditional partial release for our earlier payment.  The system works well to protect our client's interests and property.  A vendor cannot come back to a client and try to lien their property for fulfillment of a debt if the Preliminary Notice they sent has been acknowledged as paid with an Unconditional Final Release. 

If you have any questions, feel free to call: Terry at 858-793-4190.

 
Wardell Builders | info@wardellbuilders.com | 858-793-4190 | Solana Beach, CA 92075

 



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