Understanding Mechanic’s Liens in California Real Estate

If you’re buying or selling a home in California or even just doing renovations, you might come across the term mechanic’s lien. These liens are legal claims filed by contractors, subcontractors, or suppliers who haven’t been paid for labor or materials provided to improve a property.

Mechanic’s liens can be filed against any type of real estate, including single-family homes, condos, townhomes, multi-unit buildings, and even vacant land. They must be taken seriously, especially during escrow.

A mechanic’s lien is recorded against the title of the property. Until it is resolved, it can delay or prevent a sale from closing. Escrow and title companies require that all liens be cleared before issuing title insurance and closing escrow. In California, you cannot close escrow with an active mechanic’s lien on title.

Mechanic’s liens are usually filed after a project has been completed and payment has not been received. If a Notice of Completion is filed, the deadline to record a lien may be as short as 30 or 60 days. Without one, contractors generally have up to 90 days after finishing the work to file a lien. Once the lien is recorded, the claimant has 90 days to file a lawsuit to enforce it, or it expires.

For single-family homes, liens often result from unpaid subcontractors or suppliers. Even if you paid the general contractor in full, you could still be held responsible if they failed to pay others involved in the job. Before releasing final payment, ask for lien waivers from the contractor and anyone else who worked on the property.

With condos and townhomes, a lien can be filed against an individual unit or against the building if the work was arranged by the homeowners association. If a contractor was hired by the HOA and files a lien incorrectly, they may place liens on each unit, which can affect sales even if the individual homeowner wasn’t directly involved in the work.

If a lien appears during escrow, the seller must resolve it before the sale can close. This may involve paying it off, negotiating a release, or disputing the lien if it’s invalid. Title companies will not issue clear title unless the lien is removed, and escrow cannot close until this is resolved.

If the contractor refuses to release the lien, even if it’s disputed, there is another option. A seller can post a mechanic’s lien release bond, also called a bond to release lien. This allows the seller to remove the lien from the property title and close escrow while transferring the dispute to the bond itself.

The bond does not pay the contractor or erase the lien completely. It simply removes the lien from the title and allows the contractor to pursue payment through the bond rather than hold up the sale. This can be helpful when a contractor is being unreasonable or when the seller believes the lien is not valid.

In California, bond companies typically require 1.5 times the lien amount in collateral. For example, if the lien is fifty thousand dollars, you may need to secure seventy-five thousand dollars in collateral. That collateral must come from another source and cannot be the home being sold. In addition to the collateral, the seller must pay a premium to the bond company, usually between one and ten percent of the bond amount depending on credit and risk.

If a lien is discovered after escrow closes and the work was done before your purchase, you may be protected under your title insurance policy depending on the timing and policy terms. This is one of the reasons title insurance is an essential part of any California real estate transaction.

Mechanic’s liens don’t come up in every sale, but when they do, they can complicate things. If you are buying, selling, or renovating a property, it’s important to understand your rights and options so that a lien doesn’t delay your plans. I’ll help guide you through the process and refer you to a qualified real estate attorney if legal advice is needed.

Contact me HERE or give me a call at (424) 212 3859.

Best regards,
Lindsay Woolf | CA DRE #02236711
DOMO Real Estate | CA DRE #01290500

Disclaimer: The information in this blog post is for general informational purposes only and does not constitute legal advice. Real estate transactions can be complex and subject to local regulations.