Types of Liens

There are four (four) basic forms of encum­brances for money. They are called LIENS.

1. TRUST DEEDS AND MORTGAGES (Loans WHICH ARE CALLED LIENS).
2. MECHANIC’S LIENS are recorded doc­u­ments placed by some­one who did phys­i­cal work on a prop­erty. This indi­vid­ual or com­pany is called a mechanic. This can be as sim­ple as a house­keeper or as involved as a builder/contractor hired to remodel or build a struc­ture. The “mechanic” is attempt­ing to get paid through the court sys­tem.
3. JUDGMENTS AND ATTACHMENTS. A judg­ment is a court deci­sion requir­ing pay­ment. An attach­ment is where the court “attaches” a prop­erty through a legal process which keeps a prop­erty from being sold or trans­ferred in any way until the law­suit has been decided.
4. TAX LIENS AND SPECIAL ASSESSMENTS. A tax lien is a lien placed against a prop­erty for any legal tax­able rea­son. Prop­erty taxes that are not paid will auto­mat­i­cally become a lien and at some point the prop­erty can be sold to pay the taxes. Other taxes can be attached as well. Unpaid income taxes can become a lien, spe­cial assess­ments are a lien. Any legal gov­ern­men­tal agency that has the author­ity to tax has the abil­ity to place a lien against the property.

A LIEN IS a doc­u­ment that uses prop­erty to secure a debt. It is usu­ally recorded at the local House of Records or Recorder’s Office.

C. “Trust Deeds”. These are not really a deed in the nor­mal sense. It is a doc­u­ment that is used to cre­ate col­lat­eral for a loan. It gives a party the right to fore­close and sell the prop­erty if the bor­rower doesn’t pay for the loan in full. The trust deed is recorded to tell “con­struc­tive notice” oth­ers that the cur­rent owner has a lien on the prop­erty that must be paid before the own­er­ship (title) can be trans­ferred unless the buyer assumes respon­si­bil­ity for the loan with per­mis­sion from the lender. Along with a trust deed is a note (I.O.U.) that is the evi­dence of a debt. The trust deed is evi­dence that a note exists. The note has the full terms of the debt. The trust deed is the instru­ment that allows the bank to fore­close if the debt has not been paid.

D. A Mort­gage is another way to secure a loan. It is rarely used in Cal­i­for­nia and will be dis­cussed at a later time.

E. “Mechanic’s Liens”. A mechanic’s lien is filed against a prop­erty because a per­son or com­pany was not paid for fur­nish­ing work or mate­ri­als for con­struc­tion or other work on a prop­erty. This is lien against the prop­erty itself giv­ing the mechanic the right to file a law­suit and fore­close on the prop­erty if the mechanic wins the law­suit. Unfor­tu­nately, the owner of the prop­erty is in a dif­fi­cult sit­u­a­tion when a mechanic’s lien is filed. At times the owner hires a con­trac­tor and the con­trac­tor hires oth­ers to actu­ally do the work. These “oth­ers” are referred to as sub­con­trac­tors (subs). The con­trac­tor is paid but doesn’t pay the subs. The subcontractor(s) file a mechanic’s lien(s). They may actu­ally go to court with a law­suit against the owner. If the subs win they either get paid by the owner or the mechanic enforces the judg­ment by the court and fore­closes and sells the prop­erty and keeps from the pro­ceeds the appro­pri­ate money to get paid. This seems unfair to the owner because he or she has to pay twice but the law pro­tects the worker and sup­pli­ers. The mechan­ics deserve to be paid for their work and sup­plies. The owner only has one method of recourse. Pay the debt twice and then find and sue the orig­i­nal con­trac­tor for the money.

THERE ARE VERY SPECIFIC RULES AND TIME LINES THAT MUST BE FOLLOWED BY A MECHANIC.

1. A Pre­lim­i­nary notice must be given within 20 days of sup­ply­ing mate­ri­als or com­menc­ing work. Sup­ply­ing mate­ri­als can be as sim­ple as deliv­er­ing any sup­plies to the work­site.
2. It is extremely impor­tant to deter­mine when deliv­ery or work starts.
3. A “Notice of Com­ple­tion” is very impor­tant as it sets the day the work is com­pleted.
i. A notice of com­ple­tion should be recorded at the appro­pri­ate agency (Recorder’s office, Hall of Records).
ii. If a Notice of com­ple­tion is recorded the main gen­eral con­trac­tor has 60 days from com­ple­tion and sub­con­trac­tors have 30 days to file a claim (start a law­suit).
iii. If a notice of com­ple­tion HAS NOT been recorded, all con­trac­tors and sup­pli­ers have

90 days to file a claim.
iv. Work is con­sid­ered com­pleted if one of these alter­na­tives occur:
1. Occu­pa­tion after stop­ping labor. Owner uses improve­ment com­pleted by con­trac­tor
2. Accep­tance of work by owner
3. Ces­sa­tion (stop­ping) of labor for 60 con­tin­u­ous days
4. Ces­sa­tion of labor if the owner files (records) a “Notice of Ces­sa­tion” with the appro­pri­ate record­ing officer.

E. Mechanic’s liens do not take pri­or­ity of any liens filed (recorded) prior to the mechanic’s liens. But, they do take pri­or­ity over any filed after the mechanic’s lien. If the owner has an exist­ing first trust deed and obtains a sec­ond trust deed or home improve­ment loan and the lender of the sec­ond trust deed (loan) or home improve­ment loan doesn’t record the loan before mate­ri­als are deliv­ered or work starts, the sec­ond trust deed will fall into third place and become a third trust deed behind the mechan­ics’ lien
That is why the time­line above is so impor­tant! It deter­mines order of pri­or­ity!
Time­lines to file a law­suit are: 30 days for sub­con­trac­tors, 60 days for gen­eral con­trac­tors, 90 days if no notice of com­ple­tion is filed.

If an owner of prop­erty dri­ves by his/her prop­erty (usu­ally a rental prop­erty) and dis­cov­ers work being done, it is imper­a­tive that the owner post (place) and record a

“Notice of Non-responsibility” on the prop­erty within 10 days of dis­cov­er­ing the work.
This noti­fies the mechanic that the owner is not respon­si­ble for pay­ment of the work and the mechanic CAN NOT FILE a mechanic’s lien on the prop­erty. The ten­ant or whomever hired the mechanic is respon­si­ble for the debt, not the owner of the property.

It is extremely impor­tant to remem­ber that Mechanic’s Liens are recorded against a Prop­ery, NOT against the owner.

F. TAX LIENS:

If any gov­ern­men­tal real estate related tax has not been paid the tax­ing agency will place a lien upon a prop­erty. An owner can­not trans­fer (sell, give away) a prop­erty with­out pay­ing the lien and penal­ties in full. If the owner does not pay for the lien in a rea­son­able period of time the tax­ing agency could sell the prop­erty to sat­isfy (pay it off) the debt.

G. SPECIAL ASSESSMENTS
Assess­ment dis­tricts are usu­ally cre­ated by a local gov­ern­men­tal agency. They are assess­ments charged to prop­erty own­ers in a spe­cific area (dis­trict) and for a spe­cific pur­pose. Streets, roads, sew­ers, light­ing are the most com­mon rea­sons for prop­erty own­ers in a selected area to be charged. The gov­ern­men­tal agency (cities and coun­ties are the usual enti­ties to do this) bor­rows money to do con­struc­tion work and then charges the spe­cific prop­er­ties that ben­e­fit from the improvement.

H. JUDGEMENTS
Judg­ments are deci­sions by a judge in a court of law. If the one who charges (plain­tiff) wins a deci­sion from another (defen­dant), the court allows the plain­tiff to record a doc­u­ment that gives notice to all of the defen­dants future cred­i­tiors that the judg­ment exists. This doc­u­ment is called an Abstract of Judg­ment. This doc­u­ment attaches to an indi­vid­ual and all of the prop­erty owned this per­son. In order to trans­fer a clear title, the judg­ment must be paid.

I. TERMINATION OF A JUDGMENT LIEN
A judg­ment is con­sid­ered sat­is­fied when it is paid. A notice that the judg­ment has been paid should be filed with the court and then recorded in the County records.

J. ATTACHMENT
The court assumes cus­tody (takes con­trol) of prop­erty until a deci­sion is made in a law­suit. This keeps the defen­dant from sell­ing the prop­erty or prop­er­ties until a judg­ment is given. This assures that there will be prop­erty avail­able to give the plain­tiff some oppor­tu­nity to pos­si­bly force a sale of it and col­lect the judgment.

K. LIS PENDENS
This is a Latin term mean­ing poten­tial or pend­ing lien on real prop­erty. This is usu­ally recorded by an attor­ney when fil­ing a law­suit. It pre­vents real prop­erty from being sold until the law­suit is com­pleted. Title com­pa­nies will not issue title insur­ance when there is a lis pen­dens. This cre­ates a cloud on the title.

L. SHERIFF’S SALE
As the result of a law­suit, the court (judge) issues a Writ of Exe­cu­tion. A writ is instruc­tions to the sher­iff, or other local offi­cial, to sell a par­cel of real estate to pay off a judg­ment. This can be any judg­ment. A nor­mal law­suit, a mechan­ics law­suit, any­thing the court deems appro­pri­ate regard­ing real estate.

M. INJUNCTION
The court can order some­one to stop doing some­thing. This is referred to as an injunction.

ALL OF THE ABOVE A through M, ARE FOR MONEY. THEY ARE REFERRED TO AS LIENS. THEY ENCUMBER REAL ESTATE FOR MONEY REASONS.